Orla secures financing for Camino Rojo in Mexico

Orla Mining (TSX: OLA) has reached an agreement with Trinity Capital Partners for a project finance facility of up to US$125 million to build its first mine - the Camino Rojo oxide heap leach gold project in Mexico.

The facility will include a syndicate of lenders led by mining financier Pierre Lassonde, Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Trinity Capital.

The project in Zacatecas, 50 km southeast of Newmont Goldcorp's (TSX: NGT; NYSE: NEM) Penasquito mine, would be built for an initial capex of US$123 million and deliver gold as early as mid-2021.

Once in production, the open-pit mine is expected to produce an average of 97,000 oz. gold and 511,000 oz. silver annually over a mine life of seven years at all-in sustaining costs (AISCs) of US$576 per ounce.

Under the commitment letter, announced on Oct. 21, Lassonde, Agnico Eagle and Trinity Capital, will provide an initial tranche of US$25 million, which Orla can use to order long lead items.

Two subsequent tranches of US$50 million each will be available upon closing and once key permits are received.

The five-year facility bears an annual interest rate of 8.8%.

In addition, 32.5 million common share purchase warrants will be issued to the lenders, with an exercise price of $3.00 per warrant, representing a 97% premium to Orla's closing share price on Oct. 18, and a seven-year term.

The financing offers Orla flexibility, the company says, given that it can repay the loan in full or in part at any time during the term, without penalty, with cash flow from operations.

In addition, the financing doesn't come with mandatory hedges, production payments, offtake, streams, or royalties.

Orla Mining's social and environmental director Hilda Candanedo (far left) and investor Pierre Lassonde (back to camera) chatting at the Cerro Quema project. Credit: Orla Mining.

The debt facility "notably reduces the financial risk at a competitive cost of capital and supports our view that Camino Rojo is an attractive asset that is gaining the attention of investors," comments Andrew Mikitchook of BMO Capital Markets in a research note.

Tara Hassan of Raymond James also views the financing positively.

"While the news marks a commitment to a facility only, rather than completion of one, with commitments from two major shareholders, we expect Orla will be successful in closing on a sizable facility that will represent the bulk of the funds required to build the project," she states in a client note. "We are also encouraged by the simplistic nature of the facility, which will not include many of the covenants and cash sweeps required by a more traditional project finance facility, providing Orla more flexibility as it constructs and commissions the project."

Camino Rojo, a near-surface oxide gold-silver deposit with a large deeper gold-silver-zinc-lead sulphide zone, has measured and indicated resources of 353.4 million tonnes grading 0.83 gram gold per tonne and 8.8 grams silver per tonne, for 9.5 million oz. contained gold and 100 million oz. silver. Inferred resources add 60.9 million tonnes of 0.87 grams gold and 7.4 grams silver for 1.7 million oz. contained gold and 14.5 million oz. silver.

A feasibility study completed in June envisions a throughput rate of 18,000 tonnes per day. Solution from the heap leach will be processed in a Merrill-Crowe recovery plant, where gold and silver would be precipitated and dore produced.

The study uses gold and silver prices of US$1,250 per oz. and US$17 per oz., respectively, and forecasts an after-tax net present value at a 5% discount rate of US$142 million and an after-tax internal rate of return of 28.7%.

In addition to Camino Rojo, Orla owns 100% of the Cerro Quema open-pit heap leach project in Panama.

At press time in Toronto, Orla's shares were trading at $1.54 with a 52-week range of 85 ? to $1.80.

BMO has a target price of $2.25 per share, and CIBC raised its target price following the news from $1.85 to $2.20 per share and upgraded its rating from Neutral to Outperformer.

Orla has 186 million common shares outstanding for a $287-million market capitalization.