Bad notes delay Norsemont payment

The frozen asset backed commercial paper market continues to effect miners as Norsemont Mining (NOM-T) announced it will have to delay a payment attached to its 100% acquisition of its flagship Constancia project in Peru.

 Norsemont made a deal with Mitsui Mining and Smelting in November of last year that saw Mitsui transfer its 30% interest in the project for US$9.8 million. The amount was to be paid in five installments over 12 months.

 But with roughly $7 million of its funds tied up in commercial paper notes bought from Canaccord Capital (CCI-T), Norsemont was left with only $2 million in cash on hand – not enough to meet the US$3 million payment that is due on Dec. 31.

 Patrick Evans, Norsemont’s chief executive, says the company will make the payment at the delayed date.

 “We expect to be able trade out of the (commercial paper) investment by March,” Evans says.

 And while Canaccord has said it will guarantee the repayment of funds to individual investors, it has not made any such promise to companies.

 But Evans says that Norsemont fully expects to recover at least 90% of its initial investment and that as insurance, Canaccord has told the company it will provide it with a line of credit — secured against the notes –- of up to 90% of value of the investment.

 While the lending rate on such a line of credit has not been determined, Evans says it will be “prime minus something.”

 As for Mitsui’s position, the company has agreed to defer the payment to March 31. Norsemont, however, will have to pay interest on the amount at a rate of LIBOR plus 3%.

 The last payment of US$4 million is set to be paid on June 30, 2009.

 Evans says Norsemont is not in any jeopardy of losing its interest in the project as Mitsui has already transferred the 30% stake to Norsemont.

 “We expect to meet payment,” Evans says. “We should have news out soon with details… but we have every intention of meeting it.”

 Constancia sits 600-km southeast of Lima within the Yauri-Andahuaylas metallogenic belt. The area is known for hosting copper-gold-molybdenum porphyry deposits like Xstrata’s (XSRAF-O, XTS-L) Antapaccay and Grupo Mexico’s Los Chancas.

 The project is a polymetallic deposit containing copper, molybdenum, silver and gold.

 It has an indicated resource of 256.3 million tonnes grading 0.5% Copper for a total of 2.85 billion lbs, and an inferred resource of 156.5 million tonnes grading 0.33% copper for 1.14 billion lbs of copper.

 A scoping study completed by Norsemont estimates the project will produce over 90,000 tonnes of copper annually and has a net present value of $530 million using an 8% discount rate.

 For 2009, Evans says the company will push through on the completion of a feasibility study – which is slated to be done by the end of April – and continue with its drill program on targets lying out side of the main orebody at Constancia.

 It will cost roughly $6 million to finish feasibility and Evans says the company is looking at doing an equity financing to raise the funds in the near future.