Olympus Pacific goes it alone (September 15, 2008)

Olympus Pacific Minerals (OYM-T, OLYMF-O) is debt-free with about $16 million in the bank. But when the junior Canadian gold producer recently tried to borrow a total of $50 million from several banks, it found the terms not to its liking.

For one thing, the banks were only prepared to lend $30-35 million and Olympus would have had to spend all of its own money first before it could access the bank loan. Secondly, it would have had to hedge a portion of its gold and thirdly, the interest rates were too high.

“We took a step back,” recalls James Hamilton, Olympus Pacific’s vice-president of investor relations. “We decided to look at self-funding options.”

Since then, Olympus Gold has been granted permission to truck and toll-treat ore from one of its gold projects in Vietnam at a second gold mine 74 km away.

The anticipated increase in production will enable the company to generate more internal cash flow that could partially or fully fund the development costs at its high-grade Phuoc Son gold property and will give Olympus greater financing options to develop both properties.

Under the arrangement, high-grade ore from its Phuoc Son gold property will be trucked and treated at its Bong Mieu plant.

“It’s an interim measure,” Hamilton says. “As we build our treasury, we’ll keep developing Phuoc Son.”

The tale is all too familiar to many mining juniors trying to raise financing in the current market. And with the lingering credit crisis tightening the screws on most junior mining companies, more and more companies may have to look at self-funding as an option, Hamilton says.

“We’ve gone through a very difficult time in the last year with the subprime mortgage crisis and the juniors being disconnected from the bullion price,” he says. “It’s been a real mess these last fifteen months.”

Luckily for Olympus Pacific, it had other options. The Torontobased miner was the first foreign company to commission a gold plant in Vietnam in 67 years. A French company was the last to produce gold before the Japanese invaded the country during the Second World War.

It completed construction of its Bong Mieu gold plant in December 2005 and it went into production in September 2006. For the last two years, the company has been putting ore grading 3 grams per tonne through the plant.

Olympus wants to build a second plant at its Phuoc Son property.

But for now, the company will truck and toll-treat its high-grade sulphide ore from Phuoc Son to Bong Mieu for three months in order to review operational costs and recoveries before any decisions are made with respect to plant upgrades and production increases.

Measured and indicated resources at the Dak Sa deposit on Phuoc Son total 600,260 tonnes grading 10.95 grams gold per tonne, 14.92 grams silver, 1.13% lead and 0.55% zinc, for 211,000 contained ounces gold, 6,770 tonnes of lead and 3,270 tonnes of zinc.

Olympus hopes to increase the resource to 900,000 oz. gold by the end of this year. It completed a feasibility study for the proposed gold plant in April.

The Bong Mieu mine project has a resource of almost 665,000 oz. gold, or about 834,000 gold-equivalent oz. when the tungsten content is considered.

Phuoc Son is located on a plate tectonic zone known as the Phuoc Son Zuture zone (PSZ), which the company describes as “one of the most important structural controls of gold metallogeny in central Vietnam.”

Olympus is trading at about 18.5 and has a 52-week trading range of 14.5-62 a share.