AIM-listed Peninsular Gold recently announced that it has accepted and signed a credit approved project finance term sheet with Nedbank Ltd. of South Africa to provide project financing of up to US$15 million that will enable it to bring online a producing operation at its Raub project in Malaysia.
The financing is expected to be sufficient to see into operation a Carbon-In-Leach (CIL) plant producing around 25,000 ounces a year at cash costs of around US$200 an ounce. Cash costs like these should make the venture a very profitable one at today?s gold price and provide Peninsular with a springboard from which to delineate new resources from its project areas, which are grouped in the area around the town of Raub about a one and a half hour drive north of Malaysia?s capital Kuala Lumpur, and thence to grow production through the expansion of the planned CIL plant and/or through the construction of a new facility.
Plans for the plant have been settled upon, all approvals, including the vital environmental and mining permissions, are in place and production is expected to be achieved by the end of 2007. Feedstock for the CIL plant will be partially sourced from tailings deposits that have resulted from historic mining at Peninsular?s Raub project, but which still contain significant gold. The benefit of having tailings is that they are easy, and cheap, to process, having already been processed once before. This gives Peninsular a significant start-up advantage at Raub.
Peninsular?s resource base stands at 180,000 ounces of proven reserves in the form of tailings at Raub, 135,000 ounces of inferred resources at Raub, and 528,000 ounces of inferred resources at Tersang. Drilling continues ongoing at Raub and at Tersang with the aim of boosting these figures. In addition, early stage exploration, consisting mostly of trenching and geophysical work, has begun at the Chenua project.
The financing package is still subject to the completion of legal documentation, the successful outcome of legal and financial due diligence and the fulfilment of the usual pre-conditions for this type of funding. But the requisite arrangements are being made and the funds should be more than enough to get Peninsular into production.
The package consists of a US$14 million senior debt facility and a convertible subordinated loan of US$1 million. The senior debt facility has a term of five years, with repayment of the principal spread over four years commencing after the end of year one. Both senior and subordinated debt will incur interest at US$ LIBOR (London Interbank Offered Rate) plus 3.5%.
Nedbank Ltd. will seek to obtain South African Export Credit Insurance Corporation (ECIC) support for up to 50% of the loan amount and if this is achieved then the amount of the supported debt will incur interest at ECIC rates, which are lower. Before full repayment of the senior debt facility, Nedbank Ltd can convert the subordinated loan into ordinary shares in Peninsular at a conversion price of 48.29 pence. All in all, it?s a more than adequate deal.
Another advantageous aspect of the Raub project is that it has been awarded Pioneer Status by the Malaysian Industrial Development Authority (MIDA). Under the Pioneer Status scheme, which is intended to encourage investment in Malaysia, Peninsular through its wholly owned subsidiary Raub Australian Gold Mining (RAGM) will be entitled to an 85% tax exemption on statutory income from the project for a period of 5 years from the day that output reaches 30% of its capacity. This means that for that period, RAGM will be taxed at a rate of only 4.2%, based on the 28% tax rate that would otherwise prevail
Peninsular?s share price has kept relatively resilient in comparison to some other junior mining stocks. The shares currently stand at around 49.5p, and further announcements that can be expected as development goes on could give them some traction.