Vengold offering may net $46 million

A syndicate of underwriters, led by Midland Walwyn Capital, have entered into a financing agreement with Vengold (VEN-T) to purchase up to $46 million worth of its shares.

The underwriters have agreed to buy 22.5 million shares at $1.83 each, for gross proceeds of $41.2 million. Moreover, they have the option of purchasing an additional 2.5 million shares, under the same terms, by the closing date of April 23.

Vengold currently has 94.4 million shares outstanding, or 114 million on a fully diluted basis.

Vengold intends to use the proceeds for acquisitions, including a greater stake in the Lihir gold mine in Papua New Guinea, and for general corporate purposes. If the full amount of the offering is exercised, Vengold will be sitting on approximately $60 million in cash.

The Lihir mine is owned by Lihir Gold (LIHRY-Q). During the past year, Vengold completed a series of transactions involving share swaps and open market purchases to increase its stake in Lihir Gold to 10.3% from 5.7%.

The open-pit mine is managed by a wholly-owned subsidiary of London-based Rio Tinto (RTP-N) that holds a 17% interest. Australian-based Niugini Mining (50.5% owned by Battle Mountain Gold [BMG-N]) holds a 17% interest, the PNG government holds 8.5% and landowners own 7%. The remainder is held publicly.

Lihir is an open-pit operation that started production in May 1997, initially processing oxide ore. Commercial treatment of sulphide ore commenced Oct. 1, 1997. Treatment involves pressure oxidation technology using autoclaves, followed by conventional carbon-in-leach processing to recover the gold.

Construction of the plant was completed within the cost estimate of US$815 million.

During the fourth quarter of 1997, which was the first full quarter of production, the operation produced 150,170 oz. gold at a cash operating cost of US$148 per oz. Total cash costs were US$155 per oz. and total production costs were US$214 per oz. Reported costs were lowered by US$64 per oz. by the effect of capitalizing costs related to waste stripping and stockpiling of lower-grade ore for future processing.

Lihir sold 212,456 oz. gold in 1997 at a realized price of US$384 per oz. At the end of the year, approximately 1.3 million oz. gold were hedged unconditionally. The mine is projected to produce about 625,000 oz. in 1998.

At the end of 1997, minable reserves stood at 101.8 million tonnes grading 4.39 grams gold per ton, equivalent to 14.2 million contained ounces of gold.

The reserve estimate was based on an economic cutoff grade of 2 grams and assumed a long-term gold price of US$365 per oz.

Vengold’s share of fourth quarter production totalled 15,500 oz. gold. During this period, the company’s earnings from mining operations was US$1.9 million on revenue of US$5.9 million.

For the year ended Dec. 31, 1997, Vengold recorded a net loss of US$12.5 million, primarily the result of a US$5-million writedown of its mineral properties in the Kilometre 88 region of Venezuela and increased exploration expenditures.