American Bonanza Gold Corp ABGFF

On the other hand ...

[morricone]

A couple examples of recent mine start ups which were financed by traditional borrowing.

Klondex Mines
Some poster mentioned this company. $10 - 20 million loan. The loan is to be repaid by selling gold back to the investment company at $825/oz. They in turn get to re-sell it at world price, say $1400/oz giving them a profit of $575/oz or a 70% return rate. If the price of gold goes up by repayment time then so does the investment company's profit. Ka ching!

Now we're not done yet because here's the kicker: Even after the loan is repaid the investment company gets a 3% royalty on Klondex's entire production for 3 years after that. Now figure out what gold might be worth a few years from now and what Klondex's annual production will be and do the math on that. Hint: this royalty is in in the million$, perhaps many million$.

Then there's the free million 4 year term warrants that the investor gets handed  as the icing on the cake. That could be worth millions more. (And it's 2,000,000 warrants if the company borrows the full $20 million.)

There's also a few other goodies that the investment company gets that are hard to quantify at the moment.

Add this all up.  


Timmins Gold
A very well followed company with highly regarded management. They did a $15 million loan from Sprott to finish their mine. Sprott gets repaid with 20,000 oz of gold. At a  price of say $1400/oz that's $28 million. So a profit for Sprott of $13 million, or a 86% rate of return on their investment on a loan that will be fully repaid within 18 months.

Oh and of course Sprott got 3 million free warrants at a strike price of .80 and since TMM is currently at about $2.00 those warrants alone are now worth $3.6 million and are still good for another year and who knows what Timmins price will be by then.

Add it up.


Final comment
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Timmins probably did as good as any small mining company can expect to do when borrowing for a mine start up. They're currently producing 80,000 oz/year, ramping up and they'll be free and clear of the Sprott loan by late next summer.  The Klondex deal on the other hand is a poor deal in comparison since the unnamed "investor" who loaned them money will have his hands in their pockets for many many, many years to come.

It's easy to crap on BZA management for printing shares to finance the mine startup but if you look at what the alternative option costs are in the above examples the issue isn't so simple.