Great Basin Gold seeks funds

Brendan Ryan & Allan Seccombe | Thu, 14 May 2009 14:32

[miningmx.com] -- GREAT Basin Gold (GBG) was officially awarded its new order mining right for the Burnstone mine on February 17 and is on track to start production in June 2010.

But GBG still needs to find more funds to complete the mine and is in negotiations with potential lenders to raise about R600m in debt.

GBG president and CEO Ferdi Dippenaar said good progress was being made with infrastructure development at Burnstone.

"It's becoming more than just a single-end decline. It's getting extremely busy underground," he said.

The decline shaft had reached a length of 2,247m by May 4; the vertical shaft had been sunk to a depth of 233m on that date, heading towards a final depth of 501m.

GBG raised C$149.5m through a share placement in March at C$1.30 a share. This boosted cash and cash equivalents on hand to $144.2m at the end of March, from $33.5m at the end of December.

Despite this, the company needs yet more funds to complete Burnstone and is in extended talks with bankers to raise them.

Dippenaar said GBG remained in negotiations to finalise these project loan facilities, but the deteriorating credit markets had caused delays in getting final approval from lenders.

He said non-binding commitments had been received from lenders to provide the remaining R600m of the facility, subject to GBG “spending the agreed amount in equity on the project and completion of definitive agreements”.

An additional stand-by debt facility would be made available by lenders, subject to GBG putting in additional equity. The standby debt facility and the required equity contribution from GBG remain under discussion.

Dippenaar said in GBG's March quarter management discussion and analysis document that: “Failure to secure the project finance facility in time will require a re-assessment of the development schedule or, an alternative external source of finance.”

He later told Miningmx the R600m was covered by the project's debt-funding facility arranged by Investec, the lead financier in a consortium of three banks.

"It is being finalised as we speak. This is not a new issue, but one that has been ongoing, and is nearing completion," Dippenaar said.

"Burnstone goes ahead, there is no need to stop it."

The March quarterly accounts show a loss of $4.9m recorded on “stock-based compensation”.

Notes to the accounts show this is because “directors, employees and certain consultants” were allowed to cancel certain unexercised stock options and receive new options. These were equal to 50% of the cancelled options at an exercise price of $1.25 and with a 24-month vesting period.

Over the past year GBG shares have fallen from a high of $3.73 to a low of $0.71, from which they have recovered to current levels of around $1.56.

The exercise prices for the previous options are not given, but they were clearly “under water” and the holders are now back in the black through this act of management generosity.