Can Freegold Ventures Pull A Rabbit Out Of The Proverbial Financial Hat? The Clock Is Ticking, But The Signs Are Hopeful
By Our Canadian Correspondent
minesite.com
Despite having an arsenal of solid gold projects, Canadian listed Freegold Ventures finds itself in the unenviable position of needing cash during what many consider to be the worst credit crunch of all time. Needless to say, at the start of the year, and with US$4 million in loans due on 15th January Freegold shareholders were a worried bunch, and subsequently beat down Freegold’s share price to a paltry C$0.11. But chief executive Steve Manz, who has weathered numerous commodity cycles, is taking firm control of the helm, and may well have found a financial white knight in the form of a private European lender.
The undisclosed party has laid out terms for a three-year secured line of credit of up to US$10 million. This would allow Freegold to pay off the bridge loans, which have now been extended to 10th February, and would also provide much-needed working capital in the context of an almost impossible market for raising funds through an equity issue.
The proposed terms are not cheap, but neither do they look overly onerous given the current credit situation. The lender wants interest based on the average US dollar three-month London interbank offered rate, plus two per cent per year. Once US$7.5 million has been drawn on the account, the lender will get 750,000 two-year warrants to purchase Freegold shares at C$0.30 each. The loan is to be collateralized with shares in Freegold's US subsidiaries and a general security agreement against the personal property of the company that includes a second charge against the processing and private property assets.
Should this debt financing fail to move forward, Steve will need to scramble to further extend the US$4 million loans, US$2 million of which is held by Tiomin Resources. Now, it’s no secret that Tiomin, with some C$20 million in cash, is on the hunt for undervalued acquisitions and Freegold’s assets may fit the bill. Interestingly, Robert Jackson, president of Tiomin stepped down as a director of Freegold at the same time as the proposed new debt financing was announced. Perhaps to avoid a potential conflict of interest at some point in the near future?
Potential lenders would surely have their eyes on Freegold’s Gold Summit project in Alaska and on the Almaden property in Idaho. Gold Summit includes the historical Cleary Hill mine, which has produced 281,000 ounces of gold, and the Hi Yu mine that’s produced 110,000 ounces of gold. Exploration by Freegold continues to show that bulk mineralization at depth and along strike. One hole cut 92.4 metres at 0.93 grams gold per tonne. That grade may seem a little light, but Kinross’ nearby Fort Knox mine is running at a grade of around 0.61 gram gold per tonne.
Last year, Freegold commissioned a 1,200 tonnes per day gravity processing plant on Gold Summit, and in September shipped its first gold concentrates from the project to the Sunshine Precious Metals Refinery in Kellogg, Idaho. This setup should bring in some much needed cash, but not enough to cover all the company’s obligations. On top of that, the weather in Alaska only allows a window of less than five months for operations there, so now that winter has arrived, Steve is looking at other projects with gold stockpiles where the modular plant might be put to good use generating further much needed cash flow. On a valuation basis for any lender, the cost of the plant alone rings in at around C$1.7 million.
Freegold also holds 100 per cent of the Almaden project in Idaho, which at last count hosts 24.8 million tons grading 0.021 ounces of gold per ton in indicated resources, and another 20 million tons grading 0.018 ounces of gold per ton in inferred resources. With an additional 130 drill holes into the property, Freegold has been busy updating the resource and the results are expected shortly.
Steve knows that getting funding right now is no easy feat and he will do everything he can not to complete an equity financing at these bargain basement prices. As Steve puts it: "We are very pleased to have been able to obtain terms for a facility of this size and term during these difficult market conditions. We have always been sensitive to the issue of equity dilution. Our last equity financing closed in June, 2007, and should we be successful in closing this new line of credit, we would continue to avoid the issuance of a large numbers of shares at low share prices to provide the company with additional working capital. Closing of this facility would allow full repayment of the two bridge loans on a more favourable and longer term basis, and the company would remain well positioned to continue to add value to its advanced Alaska and Idaho projects.” Shareholders will be watching the calendar closely in anticipation that Freegold can pull a rabbit out of the proverbial financial hat. |
