Terraco Gold (CVE:TEN) Wednesday entered into a three-way transaction giving the North America-focused junior explorer the option to acquire an interest in a net smelter returns (NSR) royalty on part of the Spring Valley Gold project in Pershing County, Nevada.
Investors cheered the news, with shares rising 15.6 percent to 26 cents as of 12:39pm ET.
Terraco president and CEO, Todd Hilditch, said: "This transaction affords Terraco the right to acquire a significant royalty on a Barrick‑led gold project neighbouring our 100% owned Moonlight Project and gives Terraco the ability to fully fund its 2012 exploration activities without the need for additional shareholder dilution.
"This transaction increases Terraco's presence in the growing Humboldt Range where Coeur D'Alene operates the Rochester mine and Barrick has spent nearly $16 million towards earning a 60 percent interest in Spring Valley Project."
Hilditch said that the deal would have "no equity dilution" for Terraco shareholders.
The Spring Valley project is a joint venture between Barrick Gold (TSE:ABX)(NYSE:ABX) and Midway Gold (CVE:MDW)(AMEX:MDW), where Barrick has the right to earn a 60 percent interest in the property by completing work expenditures totaling $30 million before December 31, 2013.
Terraco's 100 percent-owned Moonlight project encompasses over 5,000 acres and is located along trend to the north of and adjoins the Spring Valley project.
Moonlight is located 21 miles northeast of Lovelock, Nevada and about five miles north of the Coeur d'Alene (NYSE:CDE) Rochester silver-gold mine, which has produced over 125 million ounces of silver and well over one million ounces of gold in its 24 year history. It has recently returned to production.
Under the terms of the transaction between Terraco, the current royalty owner, and an unnamed third party investor, the investor will acquire 5/7ths of the sliding scale NSR held by the royalty vendor.
The purchased NSR interest represents five percent of net smelter returns when gold prices exceed $700 per ounce, and on production greater than 500,000 ounces of gold from the claims covered by the NSR.
The strategic investor will pay $20 million to the royalty vendor, and $5 million to Terraco.
As part of the transaction, Terraco will retain an option to acquire, for $12.5 million, one-half of the purchased NSR Interest from the strategic investor for a period of five years from the closing of the deal, or within one year of a change of control of Terraco.
Terraco will also issue 4,000,000 shares to the royalty vendor for a right of first refusal on all or part of a separate one percent area of interest royalty owned by the royalty vendor, also located on the Spring Valley project.
As partial consideration for the $5 million cash infusion, Terraco has issued to the strategic investor a one percent net smelter return royalty on its Moonlight project, as well as a 0.5 percent net smelter return royalty and up to a 1.0 percent net smelter return royalty in certain circumstances on its Almaden Gold project in Idaho.
The strategic investor will also be issued one million warrants, with an exercise price of $0.35 per share for a period of 5 years, subject to early expiry at the discretion of Terraco if Terraco's shares trade at $0.70 or higher for 20 consecutive trading days.
The strategic investor specializes in funding the advancement of mining projects, Terraco said, having financed three mining projects this year to go into production.
Terraco and the strategic investor have also structured a right of first refusal to finance Terraco's Almaden project and an off‑take for 30 percent of the minerals produced from the Almaden property during the life of the mine.
Terraco, which has a number of gold-silver projects in Idaho and Nevada, intends to use the $5 million proceeds to fund continued exploration programs at both its Almaden and Moonlight projects.