Ottawa won’t guarantee key loan for Neptune

After taking a close look at the Northwest Territories project and Neptune’s financial position, the Department of Indian and Northern Affairs informed the company that it would have to look to the private sector for financial backing.

The decision came as both a surprise and a disappointment to President Margaret Witte who is still attempting to secure the necessary financing for a project she expects will produce 230,000 oz gold annually beginning next year.

“We are very disappointed in the federal government but we are fighters and we will work with our partners to pull out of this financial hiccup,” she said.

With project development well under way, Neptune has $15 million left over from the $43 million which partners Gold Reserve Corp. and Northgate Exploration (TSE) agreed to provide in exchange for an equity stake in the company.

Gold Reserve of Spokane, Wash., holds a 33% stake in Neptune while Toronto-based Northgate can earn a 20% interest the company.

But under an agreement with the Bank of America Canada, Neptune is unable to draw on a $90-million project loan until it secures $18 million in loan guarantees.

That is why the government decision is considered a blow to Neptune’s immediate planning. While Witte said her company has been the victim of discrimination, a government spokesman claimed that fiscal restraints would have prevented the guarantee from getting cabinet approval.

“We were not sure that the initial $15 million would have been the end of the story,” said Richard Van Loon, deputy minister in the Department of Indian and Northern Affairs.

“We decided that if everything at the project hadn’t gone according to plan, we might have found ourselves in an open-ended situation where we would have had to take money from native Indian programs and put it into the project,” said Van Loon.

“It would have been easier to do in the early 1970s before governments started worrying about deficits,” he said.

After saying no to Colomac once before, the federal government decided to re-evaluate its decision only because Neptune agreed to install a $1-million benefits package designed to employ 70 native Indians.

The Northwest Territories government also agreed to provide its own $3-million loan guarantee as long as the federal government guarantee was forthcoming. Now that the federal government has backed out, the provincial government is considering other options.

“We will have to review the situation when the company approaches us,” said Pierre Alvarez, a deputy minister in the Northwest Territories’ department of Energy, Mines and Resources.

While the federal decision is not considered a critical blow to Colomac, psychologically it has come at a bad time for the junior company which is in the process of moving its head office to Vancouver.

Neptune is currently attempting to truck about $25 million worth of equipment and supplies from Rae Edzo near Yellowknife to the project site before a frozen road thaws out. When the trucking season ends in April, Neptune expects to have on-site all the equipment it needs to build a 10,000-ton-per-day mill and plant facilities.

During the rest of the year, all equipment must be brought in by helicopter.

“The government decision sends the wrong type of signal to suppliers and contractors,” said Northgate President John Kearney who is confident that this latest hurdle can be overcome.

Because Northgate has $160 million in its treasury, Van Loon suggested that the Toronto company is capable of becoming Neptune’s guarantor of last resort.

Kearney told The Northern Miner that Northgate will review the situation and see how it can assist the project. But Witte hasn’t said yet whether the alternative arrangements she is seeking will include a Northgate deal.

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