Harte Gold secures Financing for Sugar Zone Mine restart

HARTE GOLD CORP. is a step closer to reopening the Sugar Zone Mine near White River. The company has entered into a binding term sheet with Appian Capital Advisory LLP for up to US$30 million in financing (the “Proposed Transaction”), subject to receipt of approval from the Toronto Stock Exchange (the “Exchange”). Proceeds of the financing will be used to facilitate a restart of the Sugar Zone mining operation in July 2020.

The Proposed Transaction is comprised of:

 (a)a private placement of 9,500,000 Series B special shares (the “Special Shares”) of the Company at a price of US$1.00 per Special Share (the “Offering Price”) for aggregate gross proceeds of US$9,500,000 (the “Private Placement”);

   

 (b)a US$18.5 million non-revolving credit facility (the “Credit Facility”); and

   

 (c)a grant of a 0.5% net smelter return royalty in consideration of US$2 million (the “0.5% NSR”).

The Proposed Transaction has been negotiated on an arm’s-length basis and represents the culmination of a review of financing and capital structure alternatives by a special committee (the “Special Committee”) of independent members of the board of directors (the “Board”) of the Company and, in the view of the Company, will provide the Company with a funded solution for mine restart, a return to 800 tpd capacity and a pathway to 1,200 tpd capacity as well as enhanced exploration efforts.

“This Proposed Transaction represents the completion of our review process. Given the Company’s current financial condition, the Proposed Transaction provides the best financing alternative available to the Company, limiting up-front dilution, providing sufficient funding to cover cash flow and capital requirements on start-up and allowing for immediate capital to accelerate the restart of operations,” said Joseph Conway, Chair of the Board of Harte Gold and Chair of the Special Committee.

The Company has applied to the Exchange to list the Common Shares to be issued pursuant to the Proposed Transaction for trading on the Exchange and closing of the Proposed Transaction is conditional upon receipt of such approval.

RESTART OF SUGAR ZONE MINE AND OTHER INITIATIVES

The Proposed Transaction will, subject to receipt of approval from the Exchange and other closing and drawdown conditions, provide the Company with the funds required to restart the Sugar Zone Mine operation in mid-July and allow Harte Gold to carry out several initiatives that are already well underway.

• Restart and Return to 800 tpd
  A phased restart approach has been established and will start with backfill and select mining operations.  Mill operations would resume in late July once a sufficient stockpile is developed.  
  
  The Company believes approximately C$35 million (~US$25.7 million) is required to return the mine to 800 tpd, the details of which are as follows:
  -- C$18 million significantly reduces accounts payable and provides enough liquidity for mine restart;
  -- C$10 million for mine development;
  -- C$5 million for capital projects and surface infrastructure; and
  -- C$2 million for additional exploration.

• 18-Month Guidance
  With detailed 18-month planning now complete, the Company is targeting the following production levels upon mine restart:
  -- 2020 production: 20,000 to 24,000 ounces Au
  -- 2021 production: 60,000 to 65,000 ounces Au
  
  The Company’s previous guidance for 2020 of 42,000 to 48,000 ounces Au was placed under review following initiatives in response to COVID-19 (see press release dated March 30, 2020) and at this time the Company is withdrawing previous guidance provided to the market.
  
  For 2021, the Company would expect to see significant production growth over 2019 and 2020 production levels, resulting from entering into higher grade zones, higher mine production and improving mine development rates.
  
  The Company would expect to use paste backfill in 2021 to improve mining efficiency and increase overall flexibility.  In 2021, 800 tpd throughput would be achieved from the Sugar Zone North and South zones only, indicating potential growth through the addition of the Middle Zone.
  
  The Company is not providing Cash Cost and AISC guidance for 2020 as start-up costs and accelerated development incurred over this period are not indicative of continued operating performance. 
  
  For 2021, Cash Cost and AISC would be expected to decline as operations stabilize and higher-grade material is brought into the mining plan.  The Company would target a Cash Cost of US$800 to US$900 per ounce and AISC of US$1,100 to US$1,300 per ounce.

• Transition to Owner-Operator Mining
  A transition from contract mining to owner-operator has been arranged and depends upon the Company proceeding with the Proposed Transaction.  The benefits to the Company include:
  -- Lower mining cost per tonne;
  -- Increased efficiencies in management of mining fleet;
  -- Day-to-day flexibility in mine scheduling and execution;
  -- Integration of underground workforce establishing one team focused on results; and
  -- Long-term sustainability of mine operations.
  
  The transition to owner-operator would be executed over a three-month period that the Company anticipates, assuming the Proposed Transaction proceeds, would be completed by Q4 2020. 

• 1,200 tpd Feasibility Study
  Combined production from the Sugar and Middle Zones is expected to provide sufficient throughput to achieve 1,200 tpd.  The Company intends to undertake the preparation of a feasibility study to focus on mine planning and scheduling to achieve 1,200 tpd, processing facility upgrades, paste backfill implementation, surface infrastructure and tailings management review.

• Exploration
  Summer prospecting at TT8 Zone would commence on restart of operations. Based on drilling and geophysics work completed to-date, the Company has identified target areas for prospecting which depend upon the Proposed Transaction proceeding. The drilling of near-mine exploration targets would commence in Q4.

DETAILS OF THE PRIVATE PLACEMENT OF SPECIAL SHARES

Closing Date 
Harte Gold proposes to issue, through the Private Placement, 9,500,000 Special Shares at the Offering Price, on or about July 9, 2020 (the “Initial Closing Date”) (and in any event no earlier than July 8, 2020), subject to, among other conditions, satisfactory approval of the Exchange, agreement on governance and reporting matters, satisfactory definitive documentation, and other customary closing conditions.

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