Great Basin to hedge gold

Brendan Ryan | Wed, 10 Jun 2009 17:08
[miningmx.com] -- GREAT Basin Gold (GBG) is getting closer to finalising terms for the R1bn loan it needs to complete the Burnstone mine near Johannesburg.

The company is arranging an R850m senior debt facility and an additional R180m standby debt facility to cover potential cost overruns.

One of the conditions for the loan is that GBG must hedge some 300,000oz of gold. This is equivalent to about 20% of Burnstone’s expected production over the term of the loan, which is put at a maximum of seven years.

To secure the loans GBG was required to contribute equity funding equivalent to about 55% of the total Burnstone project cost. That commitment amounts to about R1.075bn, of which R560m had been spent by end-March.

GBG raised 149.5m Canadian dollars (about R1bn) through a share placement in March at C$1.30 a share to cover its remaining equity commitments to Burnstone.

The March quarterly report showed GBG had already borrowed R200m from Investec Bank and was looking for another R600m. At the same time, it was also negotiating terms for the additional standby debt facility.

CEO Ferdi Dippenaar told Miningmx on May 14 that “the R600m was covered by the project’s debt-funding facility arranged by Investec, the lead financier in a consortium of three banks”.

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

According to a company statement released on Wednesday, GBG “has granted a mandate to Investec Bank for the arranging of project funding for the company’s Burnstone project in South Africa.

“Significant progress has been made in the finalisation of a syndicate of banks for this purpose, with final credit approvals already obtained by some of the envisaged participants and in-principle approvals by the other potential syndicate members.”

GBG has had to put a matching R180m into a “standby equity account under the control of the lenders.” That money will be used to cover cost overruns before there is any draw down on the standby debt facility.

Dippenaar said: “Although the current financial market volatility has had a significant impact on the process to obtain approval for the project funding facility, the returns from the Burnstone project remain extremely positive under the current market conditions.

“The Burnstone project has been subjected to significant scrutiny by the lenders during their approval process and the project came out strong on every occasion.”

Asked whether the banks had toughened their approach to Burnstone, Dippenaar replied: “The banks have had to review their own positions and the amount of liquidity in the market.”

He said the gold hedge was a “zero cost collar” arrangement, with the prices to be finalised closer to completion of funding arrangements.

The loans are subject to a number of conditions precedent, including technical and legal due diligence and an “updated and agreed financial model”.

The GBG announcement said the loan documentation would be completed before the end of June.