Olympus raises US$21.9M for gold plant

Southeast Asian gold producer Olympus Pacific Minerals (OYM-T, OYM-A, OLYMF-O) has become one of the first companies to develop and present a syndicated gold loan offering through a brokerage firm.

Olympus has entered a brokered private placement financing of units for gross proceeds of up to US$21.96 million to pay for a second processing facility in Vietnam, where it owns the Phuoc Son and Bong Mieu gold mines.

The notes mature on May 31, 2013, and bear interest of 8% a year.

The news of the funding sent Olympus shares up 8.9% or 2.5¢ per share to close the day at 30.5¢ per share. (Over the last year, the junior has had a trading range of 20¢- 40¢ per share and 322.7 million shares outstanding.)

Each unit of the offering is made up of an 8% senior secured redeemable gold delivery promissory note in the principal amount of US$10,000 and a detachable warrant for the purchase of 3,470 common shares, exercisable on or before May 31, 2013, at an exercise price of 60¢ per share. The warrants may be exercised on a cashless or net exercise basis.

Olympus will deposit gold to the credit of note holders twice a year on six different dates, starting from Nov. 30, 2010. The deposits will be on the last business day of each May and November, until the May 23, 2013, maturity date.

If the gold price at the time of delivery is US$900 per oz. or below, in the first year Olympus will deposit a maximum of 5,600 oz. gold, in year two, 8,400 oz. gold and in year three, 10,400 oz. gold for a total of 24,400 oz. gold.

If the gold price is at US$1,200 per oz. or above at the time of delivery, Olympus would deliver 4,200 oz. gold in year one, 6,300 oz. gold in year two and 7,800 oz. in year three for a total of 18,300 oz. gold.

“That won’t change if gold goes up to US$2,000 per oz.,” says James Hamilton, head of investor relations, “so you can see there’s a lot of upside for investors.”

Note holders will also be entitled to choose gold delivery or cash. Olympus has a one-time redemption option.

Hamilton says that the amount of gold the company will pay out over the three-year term represents just 6-8% of its intended total gold production and that the financing is a good fit for Olympus because it is non-dilutive.

“For an emerging producer it’s actually a good way to raise money,” he says. “The underlying attraction is that it’s not dilutive for shareholders and management is a major shareholder in this company with between 12% and 15% (of shares).” (The largest shareholder with about 30% is Dragon Capital.)

Hamilton also notes that the brokerage firm, Euro Pacific Capital, founded by Peter Schiff, has a “strong retail following” and is “very bullish” on gold.

“They wanted to diversify their gold and wanted something focused on Southeast Asia. They had been looking and had gone through quite a few companies and hadn’t found one they liked,” Hamilton says. “They liked what they saw with us and, after some due diligence, we decided to work together.”

Proceeds from the financing will go towards completing the company’s second processing plant in Vietnam, at its Phuoc Son mine, in central Vietnam near the city of Da Nang. Phuoc Son is about 75 km to the northwest of the company’s other mine, Bong Mieu.

Olympus has been processing ore from both mines. It acquired the Bong Mieu mine from Robert Friedland’s IndoChina Goldfields in 1997.

Any money left over will be used for underground development at both mines and for exploration and daily expenses.

In addition to the two producing mines, Olympus has an early-stage exploration property to the south called Tien Thuan, which it acquired through its merger in December 2009 with Zedex. Hamilton believes Tien Thuan could be a company maker.

“There’s outcropping and we have identified about 11 km of quartz veining that is showing some fantastic gold assays.”

Outside of Vietnam, Olympus has a fourth property named Bau in eastern Malaysia near the city of Kuching. It is a historical goldfield with mining dating to the 1850s, Hamilton notes, and the company plans to start drilling it this year. In the 1980s, Cameco (CCO-T, CCJ-N) spent about $20 million drilling Bau, Hamilton says, and Olympus has inherited all of its data. Olympus holds a 51% interest in the property with a private Chinese family from Kuching holding the remainder.

“We have re-digitalized all the aero-magnetic work and we’ve identified some really significant electrical conductivity anomalies anywhere from 300 metres to 1,000 metres below surface,” Hamilton says. “No one has ever looked that deep; previous activity was down to 200-300 metres and we’ve identified at least three or four of these areas and will start poking holes in them. The geology is really spectacular. It’s the low-hanging fruit in our portfolio.”

In other news, Olympus recently released updated resource estimates for its Phuoc Son mine, which started underground production from the South deposit in 2009, and its Bau gold project.

Phuoc Son has measured and indicated resources of 648,974 tonnes of 10.08 grams gold per tonne for 210,312 oz. contained gold, and additional inferred resources of 2.49 million tonnes grading 6.06 grams gold for contained gold of 485,219 oz. The company noted, however, that the resource was “impaired by first quarter 2010 production of 10,446 oz. from the South deposit,” adding that second quarter production figures were not yet available.

The Bau project, which Olympus acquired in late 2009, has a measured and indicated resource of 10.96 million tonnes at 1.60 grams gold for 563,900 oz. of contained gold, plus inferred resources of 35.81 million tonnes at 1.64 grams gold for 1.89 million oz. contained gold.