Tiomin lines up funding for Kwale (August 14, 2006)

Tiomin Resources (TIO-T, TMIRF-O) has reached final agreements with a lending syndicate for US$155 million in debt financing for the Kwale titanium-sands project in Kenya, fulfilling conditions on an earlier equity financing.

The debt financings allow the release of $60 million (US$53 million) from a 200-million-unit financing at 30 that Tiomin arranged in June. The units consist of one share plus half a warrant, which is exercisable at 36 until early December 2007. Those are eligible for conversion to shares and warrants at the close of business on Aug. 3.

The loans consist of US$120 million in senior debt and US$35 million in junior debt, both secured by the assets of the Kwale project. Tiomin’s Kenyan operating subsidiary will start to draw those loans in February, after being financed out of the equity funding to start construction. A third loan covers cost overruns.

The US$120-million loan, advanced by a bank syndicate and equipment financier Caterpillar Financial, bears interest at the London Interbank Offer Rate (LIBOR) plus 3%, with a 1% annual commitment fee on the undrawn part of the loan. The African Development Bank is providing US$40 million of that loan; that part is repayable in 9 years, the other US$80 million in eight years.

The junior loan, advanced by Chinese nickel producer Jinchuan Group, bears interest at LIBOR plus 4%. Jinchuan gets warrants for US$35 million in Tiomin shares, exercisable at C65, and payable either by cash or by reducing the amount of the loan. A second warrant agreement allows Jinchuan to call on past-due interest by taking the equivalent in Tiomin shares, at a share price equal to the previous 20 trading days’ average. Jinchuan and Tiomin also have an agreement for strategic co-operation on other projects.

The Kwale project has been highly controversial and attracted opposition from Western non-governmental organizations, particularly over issues related to compensation for local residents. It received a mining licence, good for 21 years, in July 2004, and an agreement, providing for a 50% reduction in corporate tax for 10 years and a 2.5% gross-revenue royalty for the government, was signed early in 2005.

An October review confirmed the findings of a 2004 feasibility study on the project, which put the operating cost of the project at US$1.75 per tonne milled and annual pretax cash flow at US$35 million.

Tiomin has concluded sales agreements for the project’s rutile and zircon production, and about two-thirds of its ilmenite, over the currently projected 11-year life of the mine. Reserves in the first two dunes to be mined stand at 38.2 million tonnes grading 6.8% total heavy minerals (rutile plus ilmenite plus zircon) and a probable reserve of 102.6 million tonnes running 3.8%. The resource is 254 million tonnes at an average 3.5% total heavy minerals.