Rosebel gold project enters homestretch (December 23, 2002)

Cambior (CBJ-T) is a step closer to construction at its Rosebel gold project in Suriname after that country’s National Assembly agreed to remove state-owned Grassalco’s option on the project.

Under a 1994 mineral agreement, Grassalco (Grasshopper Aluminum Co.) was entitled to acquire a 20% stake in project by covering 20% of the accumulated project costs at the time of exercise. Recently, the government amended the agreement so as to eliminate the option in exchange for a 5% interest in Rosebel’s operating company.

The amendment also delays payments due to Grassalco until production begins, and the government granted the project a beneficial tax regime. The taxation rate will be the lesser of the regular statutory rate in force at the time (currently 36%) or 45%.

With Rosebel’s feasibility study and environmental impact study approved, the government of Suriname recently granted Cambior a 25-year right of exploitation, which is renewable. This was accompanied by a construction and development permit.

Cambior is in talks aimed at securing political-risk insurance for Rosebel — the final piece of the puzzle required before construction of the US$95-million project can begin.

Cambior has about $69 million in place for Rosebel’s development. Most recently, Jipangu, already the company’s major shareholder, exercised 4.95 million warrants at US83.3 apiece to boost its stake in Cambior to 28%, and add US$4.1 million to the miners coffers.

Another US$65 million comes in the form of a US$55-million non-revolving term loan and a US$10-million revolving credit facility arranged with a group of banks led by Scotia Capital and including Standard Bank London, the Bank of Nova Scotia, and NM Rothschild & Sons.

Under the deal, Cambior must hedge 30% of its production at a minimum of US$290 per oz. during the life of the loan. The hedge requirement decreases in tandem with loan repayments. Delivery of ounces can be delayed until the loan’s final maturity at the end of 2007. The hedge book is not subject to margin calls.

Cambior plans to fund the remaining capital cost from cash on hand and cash flow. At the end of September, the company had US$35 million in cash.

“Construction should begin once political-risk insurance is obtained,” says Chief Executive Officer Louis Gignac. “We are following our established calendar, and commercial production from the project is scheduled for the beginning of 2004.”

Construction at Rosebel, which lies 80 km south of the capital city of Paramaribo, is expected to last a year.

Based on current reserves, the operation is slated to produce 220,000 oz. gold per year at an average mine operating cost of US$187 per oz. During its 8-year life, the mine will employ 600 people.

At last count, Rosebel had a reserve of 36.9 million tonnes grading 1.63 grams gold per tonne, equivalent to 1.9 million contained ounces. Reserves were recently boosted by 43%, owing to the addition of a crushing and grinding circuit to allow for the processing of Rosebel’s transitional and hard-rock ores. The estimate is based on an assumed, long-term gold price of US$300 per oz.

Of the reserve, 21.2 million tonnes grading 1.47 grams gold are soft-rock material, 11.7 million tonnes are transitional material grading 1.81 grams gold, and the remaining 3.9 million tonnes are hard-rock material averaging 1.93 grams gold.

Total measured and indicated resources of 68 million tonnes grading 1.5 grams gold are found in six deposits: Kollhoven, Pay Caro, East Pay Caro, Mayo, Royal Hill and Rosebel. These lie within 15 km of each other, and most remain open laterally and at depth.