On Nov. 8, 2017, Lupaka Gold Corp. (TSX-V: LPK) received $2 million to further advance its Invicta Gold Project in Peru. This funding was Tranche 2 of the forward gold purchase agreement with Pandion Mine Finance (PLI). This is an important step on the path to production for Lupaka and is an effective alternative to equity financing that links success to production not just share price appreciation.
The receipt of this money satisfied the company’s agreement with Pandion to register the Lacsanga Community Agreement in the Public Registry system in Peru, which was completed on Nov. 6, 2017. These funds will partially go towards the widening of the road up to the site which the company hopes to complete before the rainy season in Peru.
With the registration of the Lacsanga Community Agreement now complete, the only significant conditions remaining to be completed in order to receive Tranche 3 are the requirements to put a mineral offtake agreement in place and to raise an additional US $2 million from other sources.
To meet the conditions for third and final tranche, the company entered into an agreement to sell the Crucero Gold Project to GoldMining Inc. (TSX-V: GOLD) for total approximately $6 million ($750,000 in cash and 3,500,000 shares of GoldMining).
The prepaid forward gold purchase deal with Pandion was announced at the end of June and is an attractive way to finance Lupaka’s Peruvian development project because it is non-dilutive to shareholders and has a fixed end-date.
In an interview earlier this year in the Northern Miner, Chairman of Lupaka Gold Gold Ellis outlined the strategy and benefits of this agreement.
“This is not a royalty agreement that goes on forever…We don’t pay anything for the first 15 months and we only pay them a small percent of what we produce for the next 45 months, and we’re done. It’s gone, it’s clean, there is no residual.”
Furthermore the agreement allows for a 15-month payment holiday which is important as it allows Lupaka the ability to complete development of the mine and ramp up cash flow before having to make any gold repayments.
A prepaid commodity forward agreement is where a buyer agrees to purchase a certain quality and quantity of a commodity from a producer in exchange for an upfront payment. In short, the buyer is acting as a lender in the sense that it is providing money up-front in exchange for future production.
Getting up and running will not be as onerous as other development mining projects as the company plans on using contract miners, contract trucking, and using toll milling facilities.
Tying financing to certain conditions and goals is an excellent way to ensure capital is not wasted on “general corporate purposes” plus tying financing to production is a great way to avoid dilution for shareholders. Lupaka Gold is on the path to production with a clear vision of how to fund and become the next producing mine in Peru.
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