[miningmx.com] – ASANKO Gold said a $150m loan from metals merchant Red Kite Group would set in motion plans for the company to consolidate gold projects in West Africa.
“The whole design of the financing is the flexibility it gives us for merger and acquisition activity,’ said Peter Breese, president and CEO of Asanko Gold.
The loan from Red Kite, arranged through its division Red Kite Mine Finance (RK Mine Finance), will be pumped into building Asanko Gold’s $286m Asaase gold mine in Ghana which is expected to produce up to 200,000 ounces a year by the fourth quarter of 2015. According to Breese, Asaase will generate free cash flow of $87m based on a gold price of $1,300 to $1,400/oz.
The loan deal is essentially an off-take agreement in which RF Mine Finance has a nine day window in which to pay the lowest gold price once the gold has been shipped to a refinery, most probably Johannesburg’s Rand Refinery.
Red Kite Group has about $2.3bn under management, according to a statement on the company’s website. Investors in Red Kite funds include college endowments, foundations, family offices, pensions and other institutional investors, said Asanko Gold in a statement today.
“In traditional financing they [lenders] would sweep up all the cash and control the whole corporate. This has been designed around us becoming a consolidator,’ said Breese who was formerly the head of Russian firm Norilsk’s international operations following its $6bn takeover of LionOre of which he was CEO.
He, and long-standing colleague from LionOre, Colin Steyn, who is also on Asanko Gold’s board, have worked together on a number of mining startups since LionOre was bought by Norilks, including Mantra Resources and Coalspur.
Breese said Asanko Gold was targeting projects in West Africa where a significant resource had already been identified; where there was a production profile; and where testwork, including metallurgical studies, had been completed. Asanko Gold’s plan was to become a mid-tier gold producer, said Breese in a conference call today.
Although the loan agreement with RK Mine Finance was unburdened by the debt covenants of bank-related loans, and allowed Asanko Gold to build cash for corporate activity, there were still some conditions precedent.
One was making sure the definitive feasibility study matched findings in the pre-feasibility study completed in May, 2013. Breese acknowledged there were already some changes such as increases in power costs. As a result, Asanko Gold was studying the “trade-offs’ between buying state-owned power, or sourcing its own power from an independent power producer. The DFS was due to be complete by year-end with construction on Asaase due to begin in the first quarter of 2014.
The structure of the loan with RF Mine Finance was for a $130m loan and an additional $20m overrun facility. Drawdown of the loan turned on deploying a portion of company capital first. Cash on hand stood at about $185m. Total capital expenditure of $330m had been estimated before Asaase was cash flow positive.
The balance of the funds were provided by two-year warrants worth $37m with Johannesburg’s Highland Park, a private investor and one of the founding investors of LionOre.
