JUNIOR MINING

Lake Shore Gold underpins mill expansion with Sprott debt

Lake Shore gets a boost with finance from Sprott Resource Lending as it brings in enough financing to cover the cost of expanding its Timmins West mine in Ontario.

HALIFAX, NS (MINEWEB) - 

Junior gold miner Lake Shore Gold (TSX: LSG) caught some welcome shareprice respite with news it had inked a loan agreement with Sprott Resource Lending for as much as C$70 million. Lake Shore was trading up eight percent at C$0.94 as of presstime on modest volumes around two million.

Over the past year Lake Shore's shareprice has fallen from over C$4 to under C$1. Tony Makuch, Lake Shore president and CEO, blamed the slide in part on "market concerns" about Lake Shore's ability to fund a planned 50 percent expansion of its Timmins West Mine. Those worries should now go away, he argued.

"We have now addressed these concerns and have done so in a manner that involves very little dilution to our shareholders," Makuch stated.

Indeed Haywood Securities analyst Kerry Smith concurred with Makuch on the matter of covering impending expenditures and called the impact of the financing positive in a note to clients on Thursday. Smith maintained a sector outperform on Lake Shore stock with a 12-month $3.50 target.

"Lake Shore is budgeting C$160 million in capital expenditures toward the expansion and development of Timmins West and has also budgeted an additional C$18 million for the Bell Creek mine development and C$15 million for surface exploration," Smith said before turning to Lake Shore's spending so far this year. "In 2012 to date, Lake Shore has spent about C$45 million on capital programs in Timmins and ended Q1 with a cash and bullion balance of $84.6 million (including C$50 million in proceeds from the private placement and royalty transaction with Franco-Nevada announced in February 2012).

"Including this recent gold loan/standby credit facility, Lake Shore will have sufficient cash to fund all its capital programs."

In fact Smith wagered Lake Shore would not have to draw on a new Sprott credit line and, instead, it would have a C$40 million "cash cushion." 

The financing with Sprott comes in two parts, a C$35 million loan and a C$35 million credit facility. The loan and credit respectively mature at the end of May 2015 and December 2014. Also as part of the deal Sprott is to receive 13 million share purchase warrants redeemable at C$1.30. If exercised now those shares would equate with just over three percent of Lake Shore stock.