Asanko Gold (TSX: AKG) has taken a major step towards turning its Esaase gold project in Ghana into a mine.
Despite tight capital markets the company has secured $150 million in debt financing from London-based Red Kite Mine Finance Trust, a hedge fund operated by RK Capital partners that finances mining companies.
The loan comes without hedges, but it does have an offtake agreement with Red Kite. The offtake calls for all of Esaase’s future production to go to Red Kite. The sale price will be based on a spot price chosen nine days after shipment.
As for the loan itself, $130 million of it comes with a London interbank offered rate (LIBOR) for interest, plus 6%. Asanko can tap into another $20-million overrun facility, but that comes at a greater cost, as the interest rate moves up to LIBOR plus 10%.
There is also a 1.5% arrangement fee that is payable on execution, and any drawdowns also have a 1.5% fee.
But Asanko won’t be feeling the bite of those interest payments anytime soon. With the loan the company can get Esaase up and running before worrying about making good, as the deal struck with Red Kite allows for a two-year principal and interest holiday. After the holiday is over, Asanko will make quarterly repayments over four years, and it has the option for early repayment.
Considering that Asanko already has $185 million in cash sitting in its treasury, the Red Kite financing means the projected $286 million capex to build the mine is essentially covered.
Investors will get a firmer handle on expected costs and other mine economics in an upcoming definitive feasibility study that is due out in the fourth quarter. The company expects to start construction in next year’s first quarter. It is targeting production for the fourth quarter of 2015.
Esaase is located 35 km southwest of Kumasi in southwestern Ghana. The property covers 210 sq. km and is accessed by a road from Kumasi.
A preliminary economic assessment estimated an after-tax net present value of $355 million using a 5% discount rate and a US$1,400 oz. gold price.
The project hosts proven and probable reserves of 52.34 million tonnes grading 1.41 grams gold for 2.37 million oz.
On Oct. 24 — the day news of the financing was released — the company’s stock was up 5% to $2.60, on a heavy volume of 1.7 million shares traded. Scotiabank analyst Leily Omoumi has Asanko stock rated as “sector perform,” with a $3.25 price target.
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