Aim- and OTCQB-listed Metals One has announced a strategic investment of up to $1.8-million in South African private company Lions Bay Resources (LBR) through convertible loan notes (CLNs).

The funding will support LBR’s planned acquisition and redevelopment of a large cogeneration plant in Newcastle, South Africa, with the potential to produce power, steam and roast gold concentrates from regional mines.

LBR was established earlier this year to hold partnership assets and is jointly owned by TSX-listed Lions Bay Capital, Metals One with a 19.1% stake and the Salamander Mining management team led by nonexecutive chairperson Graham Briggs, former Harmony Gold CEO, and CEO Lloyd Birrell, founder of ASX-listed Theta Gold and its former CEO.

The Newcastle plant, located in the Karbochem Industrial Park, is subject to a $1.36-million option agreement secured by LBR. Research and planning have begun on modifying the plant to produce power and steam, while roasting refractory gold concentrates, which are common to mines in the region.

Metals One and LBR recently conducted due diligence on the plant and agreed to use part of the CLN proceeds to exercise the option.

The plant includes two 30 t/h Thermax combustion boilers, a 6 MW GE-Triveni steam turbine and is configured to use coal from local dumps and biomass as feedstock.

It also features a boiler house, turbine, control room, motor control centre, compressed air plant, electrical substation and an inclined conveyor feeding six silos.

The plant was inspected and verified by Terravista Solutions P in October, with a replacement value of $39.6-million. LBR estimates about $4.5-million will be required to restart production of steam and power, pending a competent persons report funded from the CLN proceeds.

A large chrome smelter operation adjacent to the plant, which requires power and steam, has been engaged, with discussions under way for a mutually beneficial offtake agreement.

Pending further research and studies, LBR plans to reconfigure the plant to include a gold concentrate roasting complex, providing an alternative to exporting gold-bearing concentrates from South Africa to Asian smelters.

Metals One and LBR intend to explore toll processing arrangements for regional mines, creating a potential additional revenue stream while maintaining power and steam production.

The Newcastle region hosts numerous multimillion-ounce gold deposits and tailings resources within a 300 km radius of the plant. While larger mining complexes dominate the region, several smaller deposits could benefit from a centralised roasting facility such as LBR’s.

LBR’s near-term strategy includes acquiring regional gold mining and tailings assets to serve as feedstock for the planned gold roaster. Metals One and LBR have been identifying acquisition opportunities compatible with the plant’s configuration, some with substantial gold inventory and mining infrastructure.

Metals One has conditionally agreed to subscribe for up to $1.8-million in CLNs in tranches, subject to due diligence and certain conditions being met. The tranches are expected to be $175 000 and $1.63-million, with any further amounts at Metals One’s discretion.

The CLNs carry a 10% yearly coupon and are secured by first-ranking security over LBR’s assets. Metals One has the option to convert the CLNs into shares in LBR, which would result in at least a 30% stake in the company on a fully diluted basis. LBR has agreed to issue Metals One shares equal to 5% of its fully diluted share capital on the date of the convertible loan note instrument.

"South Africa is historically the world's largest gold producer and we believe it has the perfect ingredients of abundant resources, infrastructure and mining expertise to become a leader once again. With the acquisition of the gold roaster and associated infrastructure, alongside the experienced mining team at Salamander, LBR has the foundations to be a significant, vertically integrated South African gold company.

“Metals One remains well financed with over £9-million in cash and liquid investments. Our network and ready access to capital enables us to facilitate downstream acquisitions such as this. We look forward to providing further updates on the growth opportunities with LBR in the coming months," Metals One MD Dan Maling said.