EnviroGold expects Las Lagunas Gold Project financing in September

EnviroGold (ASX:EVG) has taken a step closer to securing the funding for its Las Lagunas Gold Tailings Project in the Dominican Republic today with the announcement that the lender, Macquarie Bank Limited (MBL), has confirmed that its outstanding Dominican security documents have been completed and will be signed next week.

EnviroGold now expects that the project developer, EnviroGold (Las Lagunas) Limited (EVGLL) will be able to access the US$45 million of facilities to be provided by MBL, and complete the forward sale of 50% of the first four years’ planned gold production (126,000 oz) at current high prices, by the end of this month.

The only significant outstanding condition precedent that must be satisfied prior to drawdown is the consent of EVGLL’s minority shareholder, Grimston World Inc (GWI), to a mortgage over GWI’s shares in EVGLL in favour of MBL.

GWI has refused to provide this consent despite such provision not impacting commercially on GWI in the event of a default by EVGLL.

Brian Johnson, EnviroGold's executive chairman, said that the past two years had been extremely frustrating for both shareholders and executives, as the company persevered with unexpected obstacles to develop its first gold project.

However, Johnson now expects EnviroGold to be able to accelerate construction of its Dominican project in the near term.

The project aims to produce approximately 450,000 oz Au and 4 million oz Ag over a six to seven year period from September 2011 and remains financially robust with a forecast operating cost of less than US$320 per oz Au.

The EnviroGold Group has provided MBL with a mortgage over its shares in EVGLL and has met its obligations under EVGLL’s shareholders agreement which includes the requirement that:

“the Parties [Shareholders including GWI] will sign all documents and do all things necessary to formalise such Project Loan as is recommended by EnviroGold Holdings Pty Ltd [the Manager].”

Additionally, shareholders and directors have quite specific obligations under both the shareholders agreement and EVGLL’s constitution to act in good faith in relation to the activities and objectives of EVGLL.

EnviroGold initiated arbitration proceedings in Vancouver to determine GWI’s obligations in relation to the provision of a share mortgage, with the arbitration panel having heard the matter between 19 and 21 July 2010.

The Chairman of the panel has advised EnviroGold’s Canadian lawyers that a decision can be expected by 20 September 2010.

If the unexpected occurs, and the Arbitration panel does not direct GWI to provide a share mortgage to MBL, EnviroGold will seek a waiver from MBL of this requirement and anticipates being able to convince MBL that such waiver will not disadvantage the Bank in a default situation.

Johnson said on July 16 that it is probable that EnviroGold will have to issue additional shares at some time in the future to repay the bridging loan from Moonstar Investments Pty Ltd, but the aim of the company is to minimise dilution by delaying any issue as long as possible.

On June 22 the company said the delays to access of committed external funding have caused "serious problems for the EnviroGold Group in the form of construction delays, increased overheads and holding costs, dilution of EnviroGold Limited’s shares, and extreme frustration and uncertainty for its shareholders, which is reflected in the current share price."

Updated financial projections will be provided next month.

EnviroGold's second project which involves a planned expansion of the underground operations of the Azuay gold mine in Ecuador to around 75,000 oz Au per year, continues to look promising with the results of a scoping study of the project’s potential due next month.

EnviroGold is earning a 65% interest in two adjacent small scale mines by the expenditure of US$6.5 million on predevelopment activities over a period of two years.

A current unsecured loan to EnviroGold from Moonstar Investments Pty Ltd, a trustee company of which Johnson is a director, has been increased to $3.5 million and the loan period extended to 31 July 2011 on the basis of interest being accrued on a monthly basis at 10% pa rather than on an interest free basis as had previously been agreed.

The majority of this advance has been on-loaned by EnviroGold to EVGLL on a secured basis to maintain construction momentum of the project, albeit at a slower rate than originally planned.