Gammon gets break on debt

Gammon Gold’s (GAM-T, GRS-N) lenders have again agreed to amend the terms of a credit facility.

Gammon says the Bank of Montreal and the Bank of Nova Scotia have agreed to allow it to draw down on the remaining portion of its US$50 million credit facility, even though it is in breach of certain covenants attached to the loan.

And while certain financial covenants remain, production and cash operating covenants have been removed.

Gammon says the continued access to the loan facility gives assurance that it has access to contingency funding if required, but said that the company plans to mainly rely on cash flows for liquidity.

Gammon’s flagship project is the Ocampo mine in Mexico’s Chihuahua State which went into commercial production in January 2007 – production at the mine failed to meet the company’s own initial guidance and cash costs have been higher than anticipated.

Gammon also operates the El Cubo operation in Mexico’s Guanajuato State where a workers strike recently ended.

In November of last year Gammon announced the deadline for repayment of the same credit facility – made up of a US$30 million non-revolving term loan and a US$20 million revolving line of credit — had been extended.

Initially repayment was due at the end of December 2008, but the new terms extended repayment on the non-revolver to 19-months from the end of November, while the revolving line is due in 12 months from the same point in time. Interest payable on the loan is LIBOR plus 3.5%.

In its most recent MD&A report from May 13, the company says it had to pay $22.5 million in principal repayments on the non-revolving facility in 2009.

As of March 31 the company had $76.4 million in contractual obligations due by the end of this year.

The company’s shares finished the day 5¢ higher at $8.12 on 212,000 shares traded.