Bank terminates gold loan on ERG’s tailings project

ERG, 61.6% owned by Pamour Inc. (TSE), which in turn is 67.5% owned by Giant Resources of Australia, says upon termination of the gold loan, the debt was converted into a U.S. dollar loan.

Under the gold loan agreement, ERG owes the bank 81,800 oz gold. At current gold prices, just above $400(US) per oz, the outstanding loan would be worth about $33 million.

ERG says it is Giant Resources’ understanding there has been no demand on ERG for repayment and there is no immediate intent to make a demand.

A method of financing, gold loans involve a bank lending a company gold from its vaults (usually at a low rate of interest). The company can then sell the gold on the open market. The company then repays the loan within a specified time period in physical gold from its own mine output.

ERG arranged the loan in September, 1988, and in selling the gold realized cash proceeds of about $40.8 million(C). The funds were used to finance completion of the tailings project, which involved construction of a mill. (Total capital cost was $78 million.) According to ERG’s latest annual report, the loan documentation includes a completion guarantee by Giant Resources in support of certain ERG obligations.

In Australia, debt troubles have led Giant Resources to put its Canadian mining assets, including Pamour and ERG, up for sale.

ERG had been negotiating to reschedule the principal bank payments. In its latest quarterly report (covering the three months ended Sept 30) to shareholders, ERG says the bankers had waived the originally scheduled repayments but had yet to reschedule the loan.

The tailings project was started up during summer, 1988. It was shut down in November, 1988, for the winter, and reopened in the spring of this year. Winter shutdown this year occurred Nov 9. Old tailings ponds in the Timmins area are providing feed for the project.

Gold production, from the project’s first pour to Sept 30 of this year, totalled 38,519 oz.

ERG says the project was not considered to have reached a commercial level of production during the quarter ended Sept 30. Shortfalls were reported in head feed grades, tonnages reclaimed and metallurgical recovery.

At the official opening of the project in October, 1988, the company was projecting recovery of 110,000 oz during the first full year of production.

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