South African junior miner Pamodzi Gold hopes to soon finalise an innovative finance deal worth around $50 million in which it makes payments in physical gold, its chief executive said.
The black-owned firm has been squeezed by the global credit crunch and has been seeking funds for working capital for months, Peter Steenkamp told Reuters in an interview at a mining conference late on Wednesday.
When the credit crisis happened was just the time when we had to do the capital raising. Our advisors said to wait awhile, Steenkamp said on the sidelines of the World Mining Investment Congress in London.
Steenkamp, former chief operating officer at Harmony Gold, said it was in talks with an investment bank for an offtake deal in which it would deliver physical gold as payment for the loan.
The total amount has not been finalised since the lead bank would probably syndicate the loan, but Pamodzi would be happy if it raised $50 million, he said.
It will depend on the appetite in the market... we should know in three weeks at the most, maybe two.
The firm needs to spend money to improve operations at two major acquisitions, the Orkney operations purchased from Harmony in exchange for shares and the President Steyn mine bought from Thistle Mining Inc. Harmony is Pamodzi Gold's biggest shareholder with a 32 percent stake.
AIMS FOR 1 MILLION OUNCES
The firm aims to boost output to 370,000 ounces this year and 425,000 ounces in 2009 from 127,000 ounces last year.
The longer term aim is to eventually reach output of 1 million ounces per year, which might include further acquisitions.
Our focus now is to get our current operations running at optimum levels, that's the most important thing... at the moment we're not approaching any other companies, Steenkamp said.
Pamodzi inherited a hedging programme after buying operations from Bema Gold, which has depressed income.
The hedge, in which gold is sold in advance at a fixed price, has 150,000 ounces remaining through 2012.
The hedge was fixed at $350 per ounce compared to the current gold price of $872 per ounce.
Steenkamp said Pamodzi had hoped to buy back the hedges but with loans so difficult to find in the current climate, it will likely have to live with the firm's higher output diluting their impact.
At current prices, it would cost around $75-80 million to buy back the hedges and cancel them.
Most gold investors are optimistic about prices and prefer gold companies that are unhedged so they can benefit from the full impact of rallies.
We have to change investors' perception that we're a hedged company. Last year it was 30 percent of production, but this year it will be down to 10 percent and most probably less than 5 percent over the next two years, Steenkamp said.
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