Avanti secures $640M financing for Kitsault

Avanti Mining (AVT-V) has secured a much-needed major financing for its Kitsault molybdenum mine in northern B.C., with five lenders agreeing to provide up to $640 million in loans.

The proposed lenders include UniCredit Bank, KfW IPEX-Bank, Export Development Canada, Korea Development Bank and Caterpillar Financial, with final approval still required and depending on several conditions being met. The financing includes $560 million in senior debt for a 12-year term, plus $80 million as an eight-year stand-by loan for cost overruns, with interest rates based on the London Interbank Offered Rate.

The financing deal comes not long after the company extended the deadline of a $5-million bridge loan from April 15 to June 15. The company ended 2011 with a working capital deficiency of $5.6 million and accumulated debt of $21.5 million.

Avanti has now removed a major risk overhang to its Kitsault mine, with the financing covering a significant portion of the estimated $837 million in capital costs for the project. 

To fill the rest of the funding gap the company is looking into selling off the silver by-product from the mine and bringing in a partner.

The Kitsault mine, which last saw production in 1982, is close to tidewater, road accessible and linked to the BC Hydro grid. 

A December 2010 feasibility study established 233 million tonnes of proven and probable reserves grading 0.081% molybdenum, from which a 40,000-tonne-per-day operation should produce 373.9 million lbs. moly over a 16-year mine life. Cash operating costs are estimated at US$4.76 per lb. moly, the strip ratio is estimated at 0.77 to 1 and payback is estimated in 2.7 years.

Based on a life-of-mine average price of US$16.76 per lb. moly, the study set an after-tax net present value of US$774 million using an 8% discount rate and 26.3% internal rate of return. Undiscounted after-tax net cash flow is estimated at US$2 billion. Moly has been trading at a little over US$14 per lb.

The company submitted its final Environmental Impact Assessment and the Nisga’a First Nation’s Economic, Social and Cultural Impact Assessment on April 17, starting the 180-day provincial review period. The Canadian Environmental Assessment Agency has not yet completed screening the company’s environmental assessment application.

The company is targeting to have its permits in place and construction started around year-end, with mine start-up in late 2014.

In anticipation of operational ramp-up the company has hired Mark Premo as chief operating officer and CEO of subsidiary Avanti Kitsault Mine, with an  expected start date in June. Premo was most recently president and CEO of Chevron Mining in Englewood, Colo., and also oversaw Chevron’s Questa moly mine in northern New Mexico. He has over 34 years of surface and underground mining experience. He will join a management team that includes Craig Nelsen as president and CEO, who previously held executive positions at Gold Fields, Metallica Resources and Lac Minerals; Kenneth Collison as senior vice-president of project development, who was formerly chief operating officer of Thompson Creek Mining; and Joseph Sangiuliano as project director, who most recently managed projects at Thompson Creek.

The company bought the Kitsault mine in late 2008 for US$20 million, while the vendors hold a 1% net smelter return royalty.

As far as resources go, the project contains 298.8 million measured and indicated tonnes (inclusive of reserves) grading 0.072% molybdenum and 4.20 grams silver per tonne for 472.5 million lbs. moly and 40.3 million oz. silver. Inferred resources add another 157.1 million tonnes grading 0.05% moly and 3.65 grams silver. Avanti completed 10,000 metres of drilling in 2011 to improve the resource, while the nearby Roundy Creek and Bell deposits provide further potential mine life.

Avanti’s share price climbed 2¢, or 20%, to 12¢ on the financing news, with 809,000 shares traded. The company has 426 million shares outstanding, plus 16.5 million options averaging 29¢ and 81 million warrants averaging 25¢.