Aur, Louvem prepare for challenge of funding

By completing a feasibility study on their Louvicourt Twp. property, Aur Resources (TSE) and Societe Miniere Louvem (TSE) have done the easy part in their bid to bring the project into production, analysts say.

The real challenge, they say, will be raising $342.3 million to finance underground development and construction of a 5,000-ton-per-day concentrator at the Val d’Or, Que., operation held 55% by Aur and 45% by Louvem. Nevertheless, the scale of the project is such that even a relatively small company like Aur could have a good shot at raising the $188 million needed to fund its share of construction costs, says Ray Goldie, base metals analyst at Richardson Greenshields in Toronto.

Starting in 1994, Louvicourt is expected to produce 1.8 billion lb. copper, 671 million lb. zinc, 512,600 oz. gold and 13.9 million oz. silver while employing over 500 people. It is slated to break even on a cash operating basis at a copper price of 51 US cents per lb.

And even though Aur’s 43.5 million common shares have fallen slightly to about $3 since the feasibility results were announced, Goldie says it could finance the project without suffering significant share dilution. Part of the funding could come from Vancouver affiliates Teck (TSE) and Cominco (TSE), which already hold a combined 21% interest in Aur, he says.

Having purchased 52% of Louvem, Toronto-based resource giant Noranda is also expected to play a significant role in helping the junior to raise $154 million for its share of costs.

At Louvem’s recent trading price of $3, Noranda can increase its stake in the Val d’Or company by about 3.6% by exercising an option to purchase $2-million worth of shares from treasury.

By the time Louvicourt is in production, analysts expect Noranda to have access to mine cash flow by acquiring the Louvem shares it doesn’t already own, including the 21% still held by St. Genevieve Resources (TSE). At present, Noranda can only equity account for cash derived from Louvem assets. As the joint venture prepared to begin discussions with propective lenders recently, a number of other factors were riding in its favor. They include a drop in interest rates to 9% from 14.75% in mid-1990, and the participation of three major mining companies.

With such strong support, Gill could talk key lenders into putting up as much as 80% of Aur’s share of capital costs, says Loewen Ondaatje McCutcheon analyst John Hainey, with the balance coming from an equity issue. “The very high quality of the project should support such a high proportion of loan financing,” he said.

If project financing isn’t in place by next summer, the most likely alternative would be for Teck and Cominco to take over Aur, or to take over part or all of Aur’s interest in Louvicourt, says Goldie.

Meanwhile, Aur and Louvem are expected to set up a management company to administer mine financing. Under traditional practices in the mining industry, the loan would be conditional on the borrowers giving certain completion guarantees that require them to achieve 60% of full scale production within a specific period. Failure to do so would make them liable for the loan amount.