Friday, March 28, 2014

(SUNDAY MAIL ZW) US$100m for new gold project
Sunday, 22 December 2013 00:00
Business Editor

African Consolidated Resources (ACR), which is listed on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE) has signed term sheets with one of Nigeria’s biggest banks as it inches closer to its US$100 million gold project in Chegutu, the Pickstone Peerless Project.

Experts define term sheets as documents outlining the terms and agreement of a business agreement. They often precede a proposed final agreement.

Having recently completed a feasibility study, which indicated initial mineral reserves of more than one million ounces, the resource company is now actively pursuing funding and equity partners for the project.

In its financial report for the six months ending September 30, 2013, released last week, ACR confirmed that it has signed term sheets with a major African financier, but did not disclose the name of the entity.

However, people familiar with the transaction told The Sunday Mail Business that First Bank of Nigeria – Nigeria’s biggest bank by assets at US$21 billion as at June 30 this year – had been roped in.

However, the bank will only finance operations after a due diligence exercise has been conducted.

It is believed that, if successful, First Bank will inject between US$20 million and US$70 million.

Production can only start 11 to 14 months after initial funds have been injected.

But for the Nigerian bank to chip in “initial development equity capital in order to get oxides into production” has to be undertaken with equity capital.

Preliminary estimates suggest that the Chegutu mine has the potential to eclipse the Mzi Khumalo-controlled Metallon Gold, which is currently Zimbabwe’s largest gold producer, with an estimated annual production of 85 000 ounces.

“Pickstone Peerless represents the largest ever open pit gold mine to be mined in the country’s history. This asset is of national importance and will go a long way to re-establishing Zimbabwe’s gold mining industry.

“We believe that the Government recognises this and the potential of this project to make a significant impact on the reconstruction and development of Zimbabwe’s rebirth,” ACR said in a statement accompanying its interim financials.

Although ACR estimated at the beginning of the year that initial project costs were around US$10 million for the design and commissioning of a plant for a 200 000-ounce starter pit, it has since reviewed the figure to US$27,3 million on increased costs of stockpiling.

Added ACR: “This level of funding should be sufficient to achieve production on the oxides on the basis of processing 20,000 tonnes per month.

“Thereafter, further CAPEX (capital expenditure) will be required to expand production to 50 000 tonnes per month and to deal with sulphide ore, but it is believed that whatever is necessary can all be funded by a loan facility.

“We are very pleased that, as announced, a major African bank has agreed such a facility, with an indicative Term Sheet having been agreed subject to customary due diligence, credit committee approval and also to AFCR securing equity for the initial plant construction.

“The construction timeline has been reviewed in the light of and subject to capital funding, notwithstanding emerging and encouraging developments in Zimbabwe. Notably, production of first gold is estimated to take place within 11 to 14 months of project finance being secured.”

Bullish news on the new project takes place at a time when gold prices have been declining on the world market.

Last week, prices of the yellow metal dropped below US$1 200 an ounce as the United States Federal Reserve decided to trim its economic stimulus that was pumping wads of cash into the global economy.
Prices have dropped as much as 38 percent since reaching a record $1 921.15 an ounce in September 2011.

In the period when the United States began the programme of quantitative easing, which entails buying securities in order to increase liquidity in the market, between December 2008 to June 2011, gold prices have risen by 70 percent.

However, international investment analysts Goldman Sachs Group project that the price might drop to US$1 050 by the end of 2014.

“But ACR believes that its project is “very robust to any further lowering of the gold price”.
It further notes that even at a gold price of US$1 100 and a royalty rate pegged at seven percent the project will be viable.

While the company is optimistic about the Chegutu venture, it is currently bearing the brunt of increase licence fees for its claims at Chakari and Gadzema.

Claim holding costs in Zimbabwe have recently been increased by over 5 000 percent to try and weed out speculative behaviour from the mining sector.

The company has however decided to keep the claims.
Most importantly, ACR believes that the new Government will be able to provide a platform for future development.

“We are optimistic about the emerging political situation in Zimbabwe.
“The newly elected government is bedding down and appears to be taking real steps to adopt rational and more business-friendly policies. We look forward to continue to working with them,” added the company, further noting: “The company is in the course of preparing an indigenisation proposal which will be presented to the appropriate authorities and committee before disclosure can be made available.

“The company seeks to have this matter resolved as early as possible in the new year in support of the funding imperatives and mindful of the importance that is placed on this by the Government.”


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