When it comes to finding ways to raise money in today’s beaten down junior financing market, Lake Victoria Mining (US-OTC: LVCA) seems to have taken the task to a whole new level.
The Vancouver-based company has set up a website to sell gold forward at a discount to the precious metal’s spot price, but has yet to receive a mining licence — let alone build a mine — at its Kinyambwiga gold project on the southeastern side of Lake Victoria in northeastern Tanzania.
The price per ounce of its forward sales will fluctuate with the spot price, while the website www.buygolddirect.biz allows investors to choose the size and quantities of bars and delivery dates, and then check out online.
Accredited investors can buy 1 oz., 10 oz., 100 gram, 500 gram and 1 kilo gold bars for delivery dates that start in February 2015, CEO David Kalenuik explains in an interview.
“We reached the point where the economy dropped and nobody wanted to invest any money, and we knew we had to either fold up the tent, or do something creative,” Kalenuik says. “Frankly, we were pushed in this direction.”
Lake Victoria Mining has been exploring for gold in Tanzania’s Lake Victoria greenstone belt for the last eight years, and over that time has acquired four gold projects. Kinyambwiga — 220 km northeast of the city of Mwanza and 6 km from the shores of Lake Victoria — is the first of the projects the company plans to put into small-scale production.
In January the company received its environmental-impact assessment approval for a small open-pit mining operation at Kinyambwiga, and Kalenuik expects a mining licence before mid-April. The project sits between AngloGold Ashanti’s (NYSE: AU) Geita mine 250 km southwest, and African Barrick Gold’s (LSE: ABG; US-OTC: ABGLF) North Mara mine, 100 km northeast.
Kinyambwiga does not have a National Instrument 43-101 compliant resource, and management has no intention of pushing the project through a preliminary economic assessment, prefeasibility or feasibility study. The company is fully reporting in both the U.S. and Canada, and a 10-K Annual Report was recently filed on Sedar in Canada and on Edgar in the U.S.
The management team wants to get the project into production as quickly as possible, estimating that a 600-by-200 metre open-pit operation mined to a maximum depth of 70 metres can be built for $4.5 million and would produce 200 tonnes a day of mineralized material, or 4,000 oz. gold a year over a five-year mine life.
The company has contracted mine developer and operator Gerry Hess of Camlaren Mine Development who, using similar equipment with similar mineralization in various other parts of the world, has achieved all-in production costs per oz. gold of just over US$600, Kalenuik says.
The CEO says that if for whatever reason the company fails to produce and deliver the gold it has sold forward, investors can convert their gold purchases into the company’s common stock.
Roger Newell, chairman of the board of Lake Victoria Mining, estimates that if the company sold forward 5,000 oz. gold at US$950 per oz., the company could raise capital to build the mine and put it into production relatively quickly.
“For a small company like Lake Victoria Mining, forward selling provides an opportunity to finance a project with a well-drilled deposit,” Newell says in a telephone interview from his home in Denver, Colo. “If this was a high-risk project, if the capex was a lot higher or if the property was remote and access was difficult — it might be another thing. But this is such an easy project to get going.”
Having the gold come within 1 to 2 metres of surface is also an advantage, Newell adds. “The gold has been mined by artisanal miners for a long time, they have been mining large veins, and our drilling has confirmed that the gold is there . . . I see a low-risk project and for a relatively small amount of capital we can have a little gold mine running, which would be profitable and bootstrap our other properties.”
Newell points to other attributes that include a friendly local workforce and good security, due in part to an international highway within 20 km from the project, which runs from the nearby city of Mwanza all the way to Tanzania’s border with Kenya.
Before joining the junior’s board, Newell spent 18 years at Newmont Mining (TSX: NMC; NYSE: NEM) and Gold Fields (NYSE: GFI) as exploration manager and senior geologist focused on Nevada, and more recently as vice-president of development and president of the Mexican subsidiary of New York-based Capital Gold Corp., where he helped raise $18 million and put the El Chanate mine into production in northern Mexico. Capital Gold was later acquired by AuRico Gold (TSX: AUQ; NYSE: AUQ).
The metallurgy at Kinyambwiga is “straightforward” because much of it is free milling gold, Newell adds, claiming that metallurgical tests conducted at a gold lab in Harare, Zimbabwe and at another lab in Vancouver, B.C., both returned positive results. In addition, basic engineering has been completed on the project under the guidance of David Webb, a board member and geological engineer who has worked on small mines like this one, Newell says. The company’s geologist, Clive King, grew up and still lives in Mombasa, Kenya. He has worked for both Newmont and Gold Fields, and is a qualified person.
“We’ve been in Tanzania since 2007, and we’ve prospected east and west and north and south across the country,” Newell says. “We’ve developed a good reputation with the government and work hard at maintaining good relations with local stakeholders.”
Kalenuik adds that the Tanzanian government is “fond of the fact that we’re developing smaller projects that the majors aren’t interested in.”
“Their comments to us have been that, typically, unless a company finds an elephant, they either keep looking or move on to somewhere else,” Kalenuik says.
He notes that his management team — which includes his wife Heidi, who serves as secretary and treasurer, and Ming Zhu, the chief financial officer — take comfort from the fact that there are major companies operating in the country “that act as a stabilizing effect.”
He says that “if a country all of a sudden wants to do something new — they have to get it past the big majors . . . and as a small company we get handed the same rights as the majors do under the mining act.”
Lake Victoria Mining’s other projects are not as well situated as Kinyambwige. The closest is a project the junior picked up after Randgold Resources (LSE: RRS; NASDAQ: GOLD) finally dropped the project. Called Kabakari East, the project consists of a gold-bearing banded iron formation and is about an hour’s drive away.
“For a long time it was a Randgold project and they worked really hard on it,” Newell says. “It’s ideally situated for mining because it sits on top of a hill, and so it is a good location for an open-pit operation.”
Randgold dropped the property, Newell says, because it was more interested in developing its large Kibali project, now producing gold in the Democratic Republic of the Congo.
Lake Victoria Mining’s other project, Singida, is about a one-day drive from Kinyambwige in central Tanzania.
Newell believes that the open-pit mine at Kinyambwiga could take nine months to build. The company has already hired an experienced mine operator, who is in China pricing equipment.
As planned, the Kinyambwiga operation will have a jaw crusher, ball mill and a concentrating table on-site. The company has yet to sign a deal with a refinery, but Newell says there is a refinery in Switzerland that is interested in the project, and there are also several other refiners to choose from, including one in Tanzania.
When it comes time to deliver the gold to investors, Kalenuik says, shipments can be made right to their doorstep via Fedex.
“You could fit about four 10 oz. gold bars on the average iPhone,” he says. “It would weigh 40 oz. — it’s only that big. So you can ship through FedEx, or other couriers with insurance.”
Since the website went live earlier this year, the company has made isolated sales in Europe. But Kalenuik is confident there will be an appetite for more of the company’s discounted gold.
“We’re not trying to attract every single person — just someone who is willing to take a risk for a possible 30% annual percentage return,” he says. “We’re not producing coal or some elusive metal or product that investors at large don’t want to own.”
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