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LVG: Imwelo Project Receives Forward Purchase Agreement

What you need to know:
• LVG announced a term sheet including a forward purchase agreement of 7,000oz of gold plus an offtake agreement.
• With permits secured last month, today’s announcement derisks the project development from a financing perspective.
• The second tranche of the financing involving Taifa Group is expected to close within the next few weeks and will provide additional funding (~$3.8M) to LVG, further derisking it from a capital standpoint.

This morning, Lake Victoria Gold (LVG:TSXV) announced a non-binding term sheet for Monetary Metals & Co. for a pre-paid forward arrangement (PPF). The PPF includes a forward purchase of 7,000 ounces of gold to support the development of the Imwelo Mine in Tanzania. Under the PPF, Monetary Metals will acquire gold from LVG at a predetermined discount, set at 99.7% of the London PM Fix price on the date of delivery. At US$2,500/oz gold, this represents ~US$17.5M, which would be more than enough to fund the development of the project. Additionally, Monetary Metals will be entitled to an offtake of 100% of LVG’s authorized export production, up to 100,000oz, at a 2.0% discount to the market price. This news is significant as following the transfer of the Imwelo Mining Licence (announced November 7th, read our research note here) which derisked the project from a permitting perspective, today’s news derisks the project from a financing perspective. We are maintaining our BUY rating and $0.45/share target price on Lake Victoria Gold.

LVG has also agreed to a quarterly cash sweep mechanism, allowing the Company to allocate positive cash flow from the project to adjust future delivery obligations.

As part of the agreement, LVG will issue Monetary Metals 2.5M bonus share purchase warrants. Each warrant entitles Monetary Metals to acquire one common share of LVG at an exercise price set at Market Price, pending TSXV approval, for a period of three years from the issuance of the loan.

We note that in hindsight, the delay in the receipt of the mining license has significantly benefitted the Company as, in that time, gold has risen ~20%, providing more capital to LVG than originally planned.

Additional Funding
We remind readers that we expect the second tranche of equity investment from the Taifa Group to close in the near term. This investment is comprised of 16M units including one common shares at a price of $0.24/unit for gross proceeds of $3.84M and one warrant exercisable for two years at $0.26/share. The agreement also states that six months after the Company breaks ground on the project, Taifa will have 20 days to exercise the warrants listed above which will provide an additional $4.16M.