Besra’s (ASX: BEZ) Chairwoman, Jocelyn Bennett commented: ‘This funding would completely alter Besra’s trajectory and provides a clear pathway to gold production at the Bau Project.
At a time when access to capital for emerging gold producers is difficult and typically highly dilutive, the Board is very pleased to have removed this impediment to Besra’s growth. We now have a clear line of sight on commencing production at Bau, with our issued capital intact, as well as recourse to little, if any, debt, and the restrictive covenants typically required by lenders.
At completion, Besra will have immediate access to funding to advance the Bau Project. We plan to commence an update of the 2013 feasibility study and accelerate our plans to begin pilot production in the calendar year 2023. On the exploration front, we will focus on upgrading the quality of our JORC resource by converting a portion of our Inferred ounces into the Measured & Indicated category.
With Quantum’s position as a major shareholder, we have a strong alignment between the Company’s funding partner and the interests of shareholders. The Facility clearly endorses the long-term viability of Besra’s future in Sarawak, where Quantum already has a firm presence. Quantum continues to demonstrate a clear commitment to support our exploration and development strategies in Sarawak and at Bau.’
Quantum’s Executive Chairman Dato Lim Khong Soon commented: We are most pleased to have entered into the agreement with Besra and play a part in continuing the long tradition of gold mining in the Bau region which goes back just over 200 years. As a major shareholder in the Company, we are excited at the potential of the Bau Project which we anticipate this funding will unlock.
We are particularly attracted to the expertise of Besra’s Board and executive team as well as the scale of the gold resource at Bau that they and their in-country team of locals are working very hard to commercialize. We are very positive on the outlook for gold and this opportunity to secure a material long term supply of gold for our bullion trading business is very propitious.’
Funding Agreement
Besra Gold Inc (ASX: BEZ) (‘Besra’ or the ‘Company’) is very pleased to announce the execution of a non-binding term sheet for the provision of up to US$300m gold pre-purchase drawdown and offtake funding agreement (‘Facility’) signed with our major shareholder Quantum Metal Recovery Inc (‘Quantum’), which upon completion Besra believes to be one of the largest deals of its kind signed by an ASX listed junior. The Facility was negotiated on behalf of the Company by Besra shareholder and advisor, Noblemen Ventures Pty Ltd (‘Noblemen’)2.
Key Facility Terms
Up to 3m ounce gold offtake purchase facility for JORC-2012 gold mineral resources at the Reference Price, less 10%; The Reference Price is set at the time of each drawdown and is the 5-day average of the London Metal Market gold price in US$ per troy ounce and is subject to a floor price of 115% of AISC3 at the time of delivery (‘Floor Price’); Up to US$300m is to be made available to Besra by way of Quantum Metal Review paying Besra a 5% deposit of the Reference Price on future gold production of up to 3m ounces.
Subject to drawdowns under the Facility occurring, funding will be available to Besra at the rate of up to US$10m per month to be paid into a drawdown account (‘Drawdown Account’) controlled by Besra, with an initial US$2m immediately available upon execution of the Term Sheet and another US$3m upon execution of the Facility Agreement.
Quantum will only secure rights to Besra’s future gold production, only in relation to the specific amounts received in the Drawdown Account.
A ‘Delivery payment’ to Besra of the remaining 85% of the Reference Price (being the discount of 10% and less the 5% prepaid deposit) at the time of delivery to Quantum of allocated ounces covered by the prior deposit payment.
Deliveries to Quantum are to be made from all gold produced up to 25,000 ounces, 80% of all gold produced from 25,001 to 120,000 ounces and thereafter 65% of all gold produced (collectively ‘Delivery Ounces’), leaving 35% of gold production unassigned.
Any funds raised under the Facility are to be used for the construction, commissioning and operation of the mine site plant and associated infrastructure, renewal of mining leases, feasibility studies, exploration and mining activities, M&A, gold treasury activities, Besra corporate and working capital purposes.
Besra has agreed to grant in favour of Quantum a first-ranking charge over the Drawdown Account and the Delivery Ounces (the ‘Security’) and No recourse to Besra should the Bau Project fail.
Upon execution of the Facility Documentation and the first drawdown under the Facility and subject to receiving shareholder approval in accordance with ASX Listing Rule 10.11 (if required), an offtake fee will be paid to Quantum of A$1m through the issue to Quantum of 11.111m Besra CDIs at a deemed price of A$0.09 per CDI.
Term
The Facility maybe terminated with 3 months’ written notice to Quantum (‘Termination Notice’), in which case Quantum must be paid in cash or gold a US$ amount equal to:
Offtake Ounces yet to be delivered. Multiplied by the Reference Price as at the date of the Termination Notice minus 15% The Facility may only be terminated (in the manner set out above) upon the earlier of: 24 months having passed.
Drawdown of at least US$240,000,000 under the Facility. a ‘change of control’ with respect to Besra, being any one of the following: acquisition by any person (or any person and their affiliates) as defined in the Canadian Business Corporations Act (CBCA) where, directly or indirectly, the common shares in Besra held by that person and their affiliates totals 75.1% or more of Besra’s common shares then on issue for the first time; or o consummation of a sale of all, or substantially all, of Besra’s assets (or the consummation of a reorganisation, merger or other transaction which has substantially the same effect); or o an insolvency event with respect to Besra.
The term of the Facility is otherwise until the earlier of delivery of the maximum 3m ounces, or early prepayment of the Facility in full.
Transaction Benefits
Upon completion the Company will have access to staged funding of up to US$300m, at a rate of up to US$10m/month, to be used for construction, commissioning, and operation of the Bau mine site plant and associated infrastructure, renewal of mining leases, feasibility studies, exploration and mining activities, M&A, gold treasury activities, Besra corporate and working capital purposes.
Besra will also be able to use the funding to immediately advance the Bau Project in terms of progressing studies, exploration and pilot production activities. These activities are currently being funded by the recently completed A$5.1m entitlement offer, but with access to significantly more capital the tempo of these activities can materially accelerate.
The Facility is expected to remove the Company’s need for dilutive equity financing for project development in particular and the perceived overhang this can cause which often negatively impacts the market’s valuation of companies entering the project development stage. The quantum of the Facility also means the Company reasonably expects to commence production at Bau with little, if any, project/corporate debt, thus freeing Besra from the imposition of covenants often associated with debt funding, such as gold price hedging requirements and/or restrictions on dividend payments.
The transaction is structured such that it contains a Floor Price for gold sold to Quantum, ensuring that Besra will not be obliged to deliver ounces on uncommercial terms for the duration of the Facility.
Quantum Metal Recovery Inc.
Besra is pleased to acknowledge the ongoing support of Quantum, a wholly-owned subsidiary of Quantum Metal Sdn Bhd. (QMSB). QMSB initially invested in Besra in August 2022 via its subsidiary Quantum Metal Exchange Inc and has since increased its holding to 27.27% of Besra’s issued capital. Post completion, QMSB’s holding in the Company will increase to 29.70%.
QMSB is primarily engaged in the supply and trading of precious metal products and is a leading bullion provider specialising in gold. Founded in Malaysia in 2012, it recently acquired the Quantum Metal Exchange Inc. (OTC: QMEI), a company listed on the OTC Markets in the United States.
Quantum already has a firm presence in Sarawak, and the Facility agreement is expected to result in it playing a key role in growing the gold production from the region.
With Quantum as a major shareholder in the Company, Besra is in the enviable position of having a very strong alignment between its equity holders and the financier of its exploration and development activities.
Due diligence
Due diligence undertaken by Besra included being given access to Quantum’s executive personnel who facilitated the access to the financial records of Quantum Metal Exchange Inc. and the financial statements and management accounts of Quantum Metal Sdn Bhd.
Besra was further able to review Quantum’s established gold consignment agreements with government bodies, banks, financial institutions, and merchants for the supply of gold bullion between local Malaysian banks and international bullion suppliers. As a result of these agreements, in calendar year 2022 QMG generated physical gold sales of in excess of, A$296m. In addition, in the same period QMG contracted to place physical gold to the tune of MYR 884,588,999, which equates to revenue of A$1.45b.
Quantum has traded gold bullion for over 10 years and is one of the largest gold distributors in Malaysia. In its capacity as a bullion dealer (like all other dealers and brokers), Quantum conducts its business by linking bullion buyers with bullion sellers via, inter alia, its long-standing consignment agreements and bullion dealing networks. As such, Quantum’s bullion acquisition obligations are matched by Quantum simultaneously putting in place back to back contracts or third party purchase agreements sufficient to offset Quantum’s bullion purchasing obligations.
In that regard, Besra advises that in calendar year 2022 QMG contracted to place bullion to the value of MYR 884,588,999 (A$295m) to the Malaysian market (including government bodies, banks, financial institutions and merchants), which equates to revenue of A1.45b. Besra notes that pursuant to the Facility, Quantum can deposit up to US$120m for the first 12 months following completion, this sum equating to only 12.5% of QMG’s 2022 revenue of A$1.45b.
Based on Besra’s due diligence and for the reasons discussed above, Besra is of the view that Quantum via its existing and prospective worldwide sales channels (particularly in Australia and Malaysia) will continue to increase the demand for additional gold supplies and reserves for it to on sell to its customers. As such, Besra believes that (whilst no guarantee can be provided) Quantum has the capacity to perform their obligations in accordance with the US$300m Facility terms and conditions.
Feasibility Studies Update
One of Besra’s primary objectives is to upgrade and build on previous studies undertaken by Besra, including its 2013 feasibility study (phase 1)4.
The work will focus on updating capital and operating cost estimates to reflect cost escalation in the intervening period since publication, as well as the gold price assumptions. Gold prices were
(C) 2023 Electronic News Publishing, source ENP Newswire
About Quantum Metal Sdn Bhd
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Contact Info
Company: Quantum Metal
Name: Amelia Tan
Email: info@quantummetal.com
Address: Penang, MY
