Patagonia Gold agrees Uruguay earn-in deal

Patagonia Gold has agreed an earn-in deal whereby it will fund exploration of Canadian company Trilogy Mining’s gold mines in Uruguay in return for up to 100% ownership of the projects.

AIM-listed Patagonia has already begun due diligence into Trilogy's Carreta Quemada and Chamizo gold projects after on Friday signing a letter of intent, which stated that no cash payments will be made to Trilogy, with all funds provided by Patagonia invested directly into the exploration activities.

The deal's 'Phase I' option is for Patagonia to earn 51% of the projects by funding $1.5m of exploration expenditures over 18 months, or earn 15% if it funds $0.5m.

If Phase I is exercised in full, Patagonia will, as part of Phase II, have the right to take its stake up to 80% by funding an additional $2m during the subsequent two years, at the end of which Patagonia must deliver a JORC-compliant resource report.

Following exercise of the Phase II option and the JORC resource amounts to at least 400,000 oz measured and indicated of gold equivalent, then Trilogy can require Patagonia to acquire Trilogy’s remaining 20% interest at $10 per oz to a maximum of 1.5m oz.

Patagonia can choose to settle this in cash or shares, it said.

Shares in the AIM company leapt 15% on the news but analyst Yuen Low at Shore Capital said the deal represented an "unwelcome cash drain", adding that he suspected the balance sheet will have weakened further since half year report.

"Our great concern remains the state of the company’s balance sheet, which was already poor and we expect will have deteriorated further. We suspect this is why Bill Humphries, who had been MD and CEO from the company’s inception until April 2015, decided to throw in the towel."