Bema, Amax renegotiating gold loan to build Refugio

Low gold prices and investor indifference have made the past year a challenging one for Bema Gold (TSE), a Vancouver-based junior attempting to finance its Refugio gold project, a joint venture, in the Maricunga district of northern Chile.

Bema President Clive Johnson told shareholders at the company’s recent annual meeting that Amax Gold (NYSE) completed its due diligence and should soon close its purchase of a 50% interest in the project held by Bema’s Chilean partner.

Once this closes, Bema and Amax expect to enter into a definitive agreement aimed at establishing a jointly owned company to build a 33,000-ton-per-day heap leach operation as recommended in last year’s feasibility study. “All the pieces are falling into place,” Johnson said, adding that a new deal is also expected soon from Sharps Pixley of New York, which is acting as lead bank and loan syndication manager.

Capital costs for Refugio are estimated at US$120-130 million. The major portion is a US$75-million gold loan being arranged by Sharps. Because the deal was tied to a market price for gold of more than US$350 per oz., Bema and Amax had to renegotiate certain aspects of the gold loan. Bema’s financing plan also involves US$25 million of mining equipment lease-to-purchase from Caterpillar, and US$20-30 million of equity to be contributed equally by Bema and Amax.

Johnson said an independent audit by Pincock, Allen & Holt recently confirmed the findings of the feasibility study with respect to geological and minable reserves, estimated gold recoveries and process design work, as well as the operating and capital cost estimates. The audit, which included a site visit, was commissioned by Sharps.

The Refugio project is expected to produce an average of 233,000 oz. gold annually at an operating cost of US$189 per oz. over a mine life of at least 9.4 years.

The base case reserves are reported as 112 million tons grading 0.03 oz. gold per ton with a strip ratio of 1-to-1. The project has further reserves of 204 million tons of 0.026 oz. gold which could extend the mine life to 17.2 years. Bema is still producing gold from secondary leaching at its Champagne mine in Idaho, where minable reserves were depleted earlier this year. The open pit operation turned out 15,800 oz. gold and 157,000 oz. silver in 1991.