Aureus looks to put Liberia on the production map

Liberia is getting close to getting its first modern commercial gold mine.

Aureus Mining (AUE-T, AUE-L) is turning to the debt market to secure the rest of the capital it needs to build the New Liberty mine in the once tumultuous country.

Two of South Africa’s leading banks, Nedbank and Rand Merchant Bank have been mandated to raise US$108 million for the development. The South African export credit agency, Export Credit Insurance Corp. of South Africa (ECIC) will also be approached to support the financing. ECIC support comes with political and commercial risk insurance for the banks.

The debt facilities have a term of six years with no mandatory gold hedging required and Aureus says the cost of the debt will be 5% — a very favorable rate for an emerging producer.

Once the loan is drawn down, interest payments will begin, but capital repayments do not have to be made until production is reached.

Aureus has already received credit committee approvals and it expects to sign the final loan agreement in the third quarter. That timeframe would allow it to make its first drawdown by the end of the year.

The debt structuring comes after the company did a large equity issuance in November of last year. That financing raised US$80 million and Aureus finished 2012 with US$79.4 million in its coffers.

BMO Capital Markets analyst Andrew Breichmanas says the combination of the debt and equity deals will provide sufficient funding for New Liberty construction.

Aureus also expects to update a feasibility study on the project in the second quarter of this year. It released its first feasibility study in October of last year. That study pegged initial capex at US$154 million including contingencies.

“But optimization studies and a more favourable pricing environment may improve costs,” Breichmanas wrote his recent research note.

The company is targeting production at New Liberty for the end of 2014. If it succeeds, the feat will represent Liberia’s first commercial gold mine.

“New Liberty continues to offer appeal as a high-grade open-pit development project capable of achieving meaningful production rates from modestly scaled operations,” Breichmanas wrote. “Manageable initial capital expenditures should enable rapid payback while the company evaluates its prospective regional land package for longer-term growth.”

BMO has Aureus rated as “Outperform” with a target price of $1.00 per share.

New Liberty is expected to turn out 120,000 oz. of gold per year with an average head-grade of 3.7 grams gold for the first five years. Ore will be pulled from a pit that expands in four phases, with the first phase mining the Kinjor zone, the second the Larjor zone, the third the Latiff zone and the final phase mining the Marvoe zone. Once the final pit expansion is complete the resulting super-pit will extend 2-km along strike.

The deposit currently has measured and indicated resources of 9.96 million tonnes grading 3.63 grams gold for 1.14 million oz. of gold and inferred resources of 5.7 million tonnes grading 3.2 grams for 593,000 oz. of gold.

The company’s last feasibility study estimated a pre-tax net present value of US$234 million and an internal rate of return of 37% using a gold price of US$1,400 per oz. and a discount rate of 5%.

To build the mine, which will be situated in the north-west section of the country, Aureus will have to relocate a village 2-km to the east. The relocation is expected to get underway some time in the first quarter of this year. The company says the village will be a source of labor for the project.

Since announcing the debt financing on March 20 the company’s shares have climbed 13% and were trading for 61 cents in Toronto on March 21.