Short sellers aiming to profit from a drop in the value of Barkerville Gold Mines (TSX: V.BGM, Stock Forum) shares are likely sharpening their pencils and marking October 4, 2013 in their diaries.
It’s the date when Barkerville says it expects its shares to be reinstated for trading on the TSX Venture Exchange.
The prediction coincided with news that Barkerville has struck a deal with Canadian gold bug Eric Sprott that involves a $15 million gold loan facility, potentially leaving him with a personal stake in the company of roughly 7%, according to Barkerville President and CEO Frank Callaghan.
Barkerville said in a press release it expects to receive the funds by October 4, 2013, in conjunction with the company’s expected reinstatement on the TSX Venture Exchange.
Barkerville shares haven’t trading since mid-August, 2012 when the British Columbia Securities Commission and the TSX Venture Exchange stepped in amid concerns about the junior’s resource estimates for its Cariboo gold property in central B.C.
Barkerville raised eyebrows when a technical report by consultant Peter T. George of Canmore, Alta., estimated that an area encompassing 10% of its Cariboo project could host up to 90 million ounces of gold, including 11 million ounces in an area known as Cow Mountain.
The estimate sent its stock price soaring to $1.67 in early July, 2012 from 35 cents two months earlier. On the day before trading was suspended on August 14, 2013, the stock closed at $1.22.
Estimates, that if true, would make Cariboo one of the world’s richest gold mines, sparked complaints that the company was allowed to release such seemingly outlandish numbers and not be held accountable for weeks by Canadian regulatory authorities.
In early July, 2013, two independent consulting firms released a revised estimate that cut the potential gold count for Cariboo to between 9 and 27 million ounces. It also reduced the estimate for the Cow Mountain area at Cariboo to just under 5 million ounces.
The B.C. Securities Commission removed the cease trading order in mid-July, 2013, setting the stage for the company to apply to have its shares reinstated on the TSV Venture Exchange.
Meanwhile the stock (OTO: BGMZF, Stock Forum) continues to trade over-the-counter in the U.S., where it has tumbled from $1.30 in October 2012.
On Thursday, Barkerville was quoted at 53 cents, unchanged on the day and leaving the company with a market cap of $58 million, based on 109.7 million shares outstanding. The 52-week range is $1.64 and 10 cents.
The company hopes to release a new Cariboo resource estimate in early 2014, to reflect the results of reassayed material and drill core which has not previously been assayed. The technique being used at the assay lab is screened metallic fire assaying, Callaghan said.
The agreement with Sprott
Barkerville said Thursday it has entered into a term sheet for $15 million, adding that the gold loan facility will be provided by 2176423 Ontario Ltd., a company owned by Sprott, who is also Chairman of Toronto-based Sprott Inc. (TSX: T.SII, Stock Forum).
Barkerville said it plans to use the funds to pay existing trade payables, to repay its recent bridge loan of $1.5 million and for ongoing expenses.
The repayment terms of the lending facility, which has a maximum term of 30 months, are based on the price of gold.
The loan is to be repaid through three cash payments, made every 10 months after the closing date, based each time on what would be the notional value of 4,166.67 ounces of gold to be deliverable on each such repayment date (12,500 ounces over the term of the facility) and priced at the value of gold on the day before each repayment date.
If the then current price of gold is less than US$1,200 an ounce on a particular repayment date, then the company’s correspondent repayment around shall be determined using a reference price of US$1,200.
But if gold is trading above US$1,600 on a particular repayment date, then the company’s repayment amount is determined using a reference price of US$1,600.
Whatever happens, the company says it will guarantee a minimum rate of return to the lender of 10% per-annum on the aggregate principal amount of the facility over its lifespan.
Barkerville also said the facility is to be guaranteed by the company’s subsidiaries and secured by a first ranking security over all of the credit parties’ present and future assets, and a pledge of the shares of the company’s subsidiaries.
Subject to TSX Venture Exchange approval, Barkerville will issue 9 million transferable share purchase warrants in consideration for the loan.
The warrants will be exercisable for 30 months and will be exercisable at a price which is the greater of:
a) $0.50
b) A 20% premium to the volume weighted average trading price of the company’s common shares on the TSX Venture for the five trading day period starting five trading days after the company’s common shares are reinstated for trading.
After reinstatement, and in the event that the volume weighted average trading price of the common shares on the TSX Venture for a period of 10 consecutive trading days is at a 50% premium to the exercise price, the company may require the lender to exercise $5 million worth of bonus warrants, within 10 days after the company provides written notice to the lender.
Barkerville has agreed to pay the lender a $125,000 structuring fee together with legal fees and other out-of-pocket expenses associated with the loan.