Minebuilders take heart: 'The money is still out there'
miningweekly.com
By: Liezel Hill
Published on 7th October 2008
TORONTO (miningweekly.com) – Despite concerns that funding options are drying up for exploration and development companies that are not yet generating cash flow, banks are “still open for business” when it comes to debt finance for mine construction, Terrane Metals president and CEO Robert Pease said on Tuesday.
Currently, Terrane has access to a C$40-million line of credit – which shareholder Goldcorp was good enough to guarantee earlier this year – which will see it through to mid-2009, when it plans to start construction at its Mt Milligan copper/gold project, in British Columbia.
By that time the firm will need to have arranged project finance for the C$917-million mine.
Pease had planned to start putting the funding package together in early September, but conceded that “it's a rough time to be doing that”.
The company will look at a combination of debt (currently envisaged at about 60% of the total) and equity, and may also talk to smelters or metals traders about possible financing arrangements, in connection with a smelting contract, he said in interview.
With equity markets in a tailspin, the firm is, understandably, focusing on the debt element for now.
“Effectively, the equity markets are closed....right now, there's no point in really even trying,” Pease commented.
Questions have been raised regarding the availability of funding for the resources sector, and merger and acquisition activity is generally expected to gather pace as cash-strapped development-stage firms are snapped up by their larger, deeper-pocketed rivals.
However, from a debt perspective, initial talks with banks over the last couple of weeks have been encouraging, Pease said.
“Generally, from the banks that we've talked to in the last weeks, things maybe aren't quite as bad as you might think they are".
"Money is available...what they're trying to say is, 'look, we're still open for business on the debt side".
"The money is still out there."
Initial indications are that the company could potentially fund some 60% of the project through debt, although it would likely have agree to hedge a portion of its production.
This is not something Pease would balk at, although he would only be willing to hedge copper and gold production so far as to reach payback on the project, “but not to go beyond that”.
BIG BROTHER
Terrane and 58%-shareholder Goldcorp announced in May that Goldcorp would guarantee the C$40-million credit line, and that, during the term of the facility, would have the option to convert preference shares in Terrane into a participating joint-venture interest in the Mt Milligan project.
Goldcorp bought a number of assets from Placer Dome when it was acquired by Barrick Gold, and subsequently sold the Mt Milligan project and certain other Canadian exploration interests to Terrane in July 2006, for 240-million convertible preferred shares in the smaller company.
Obviously, if the Vancouver-based major opted into the project, financing for Mt Milligan would suddenly become a lot easier, Pease pointed out.
Based on a March 2008 feasibility study, the opencast mine is expected to produce yearly an average of 88-million pounds of copper and 217 000 oz of gold a year, over a fifteen-year life-of-mine.
Production is scheduled to start in 2012. |
