THE BOURSE WHISPERER: Southern Gold (ASX: SAU) struck a new agreement with development partner, Westgold Resources (ASX: WGX) for the underground development phase at the company’s Cannon gold mine, near Kalgoorlie in Western Australia.
Announcing the deal, Southern Gold outlined the features of the agreement to include Westgold having a five year right-to-mine over a defined one-kilometre radius on mining license M25/333, which essentially covers the Cannon Gold deposit with Westgold assuming all financing and operating risk.
Westgold will also have the right and flexibility to devise its own mine plan.
For this right to mine, Westgold will pay Southern Gold $1.5 million within five business days and a production payment on a $/troy ounce of gold produced under the terms of a production matrix.
Based on an Australian dollar gold price of less than $1800 per ounce Westgold will pay $160 per ounce, or $190 per ounce when the gold price exceeds $1800 for production of up to 15,000 ounces.
For production of more than 15,000 ounces – at the same gold prices – Westgold will pay $180 and $210 per ounce respectively.
“Southern Gold has turned a cash consuming asset into a cash generating one, Southern Gold managing director Simon Mitchell said in the company’s announcement to the Australian Securities Exchange.
“And it has done so in alignment with Southern Gold’s development philosophy of bringing in third parties who know how to mine and manage risk, particularly the elevated risks of underground mining.
“This deal with Westgold should generate cash for Southern Gold based on the high-grade gold resource at Cannon which stands at 24,000 ounces at 5.2 grams per tonne gold in the Indicated and Inferred categories.
“The arrangement also ensures Southern Gold remains significantly exposed to the upside should the deposit continue at depth.”