Sunridge Gold Corp (CVE:SGC) (OTCQX:SGCNF) has completed what it calls the most significant milestone to date at its Asmara project in Eritrea, with the Eritrea National Mining Corp (ENAMCO) formally agreeing to acquire a maximum 30% stake in the property following months of negotiations.
The binding term sheet announced Tuesday follows on from the initial agreement first announced in August 2012. Under the terms, ENAMCO has exercised its right to acquire its maximum 30% participating interest in the project, in addition to its existing right to get a 10% interest that will be carried to production by the participating partners.
In return, ENAMCO will pay Sunridge US$18.33 million, bearing interest, payable in stages prior to production from the property. The Eritrean company will also pay Sunridge one third of all project development costs back-dated to July 2012, which is estimated at about US$4 million.
In addition, ENAMCO will contribute one third of ongoing expenses on the project, including for both exploration and development.
"Sunridge has passed many milestones with the development of the Asmara Project over the last few years and this is the most significant milestone to date," said president and CEO Michael Hopley, in the statement announcing the binding deal on Tuesday.
"We are very pleased that we have reached an agreement with the Eritrean Government and look forward to working cooperatively with ENAMCO to rapidly move the Asmara Project into production as soon as possible for the mutual benefit of Sunridge and the people of Eritrea."
Sunridge noted that the valuation for ENAMCO's interest is calculated based on a July 2012 date, and therefore is largely based on the results of Asmara's pre-feasibility study published earlier that same year. The company has been working aggressively to develop the project ever since, and last May, completed a full feasibility study that showed "significantly higher value", the company said.
Both Sunridge and ENAMCO are now working toward completing a shareholders agreement, which is expected to take less than three months. The agreement will govern the management and funding of the project, which will be held 60% by Sunridge, with ENAMCO holding the remaining 40%. The joint venture company will be led by a five member board of directors, made up of three members from Sunridge and two from ENAMCO.
Sunridge said the framework for the deal will be similar to that of Nevsun Resources', which holds the Bisha mine in Eritrea. After the shareholders agreement is completed, ENAMCO will pay $5 million as an initial payment within three months, with the remaining due to be paid in stages dependent on various milestones.
The Asmara project, which has a three phase start-up plan outlined beginning with high grade copper and gold, is pegged to produce an average annual rate of 65 million pounds of copper, 184 million pounds of zinc, 42,000 ounces of gold and 1 million ounces of silver over the first eight years.
The junior gold company has been ramping up development of the proposed mine, with all work focused on bringing the project into production in 2015. It released a feasibility study last year on the four advanced deposits at the project (Emba Derho, Adi Nefas, Gupo Gold and Debarwa), which showed that mining of the deposits and processing of the ore near the large Emba Derho deposit is favourable, with a net present value of $692 million using a 10% discount rate, and an IRR of 34%.
The permitting process for the mining license -- which is expected to take 9 to 12 months -- was kicked into high gear late last year, with the submission to the Ministry of Energy and Mines of the project's Social and Environmental Impact Assessment report.
Shares of Sunridge were halted prior to the news release on Tuesday, and resumed trading shortly after, currently sitting at 25 Canadian cents.