Southern Cross Goldfields is to take over Troy Resources’ Sandstone mine in a transaction tipped to kick-start the company’s Marda gold project.
Southern Cross is to pay $5 million for the Sandstone mine and gold processing plant in East Murchison.
Troy Resources will retain a 2 per cent royalty on all non-nickel production from the site, and also receives a 15 per cent stake in Southern Cross.
The transaction does not include any nickel interests at Sandstone.
Southern Cross plans to relocate the existing gold processing plant to its Marda Gold project 150km north of Southern Cross, which would enable the company to begin production earlier than anticipated.
The company says such a plan reduces the capital cost of developing the Marda project from $51 million to $25 million, and halves the time for project payback to one year.
In addition, Southern Cross managing director Glenn Jardine said the transaction would improve the company’s chances of securing debt-funding for the pre-production capital cost of the Marda project.
“We are currently in discussions with a number of parties relating to obtaining debt finance for the Marda development and the Board is confident that we are well on track to secure an appropriate finance arrangement later this year,” Mr Jardine said in a statement to the ASX.
Southern Cross is expecting to begin production from Marda – which has JORC resource inventory of 535,000oz – next year at a rate of 35,000 ounces per annum.
Troy Resources ceased mining at Sandstone in August 2010 and the operation was placed on care and maintenance a month later.
Current gold resources at the site are estimated to 720,000 ounces.
Troy’s chief executive Paul Benson said the transaction, which was still conditional, gave the company cash plus royalties on production while maintaining Western Australian nickel interests.
“In addition, Troy will emerge with a significant interest in Southern Cross Goldfields as it moves towards commencement of gold production at Marda, benefitting from the growth and re-rating of that company going forward,” Mr Benson said in a statement.
The company has producing gold mines in South America, which Mr Benson said had become its focus.
Both companies expected the transaction to be completed within three months.
