Petaquilla opts for $140 million loan to advance projects in Panama and Spain
By Steven Ralston, CFA
Petaquilla Minerals (Toronto:T.PTQ) announced that a five-year $140 million loan facility is expected to close on or about January 15th. The loan facility is being made available by Red Kite Mine Finance Trust I in two tranches, the first for $90 million at 3-month LIBOR (or 1.0%, whichever is more) plus 750 basis points (bps) and the second for $50 million at 3-month LIBOR plus 850 bps. The first tranche will be available upon closing and the second tranche upon the completion of an updated NI 43-101 resource estimate on either the Molejón project in Panama or Lomero-Poyatos in Spain.
Management plans to use part of the net proceeds to unwind the company’s obligations under the forward gold and silver purchase contracts with Deutsche Bank, thereby terminating the contractual selling levels of $1,090 per ounce on roughly 40,000 gold ounces and $26.50 per ounce on about 420,000 silver ounces. The estimated cost for eliminating the company's obligations with Deutsche Bank, including the unwinding of the forward gold and silver purchase contracts and the convertible debt repayment, is approximately $70 million.
Additional net proceeds from the loan facility, along with the savings from prepaying the gold and silver contracts, will be directed towards advancing the Lomero-Poyatos project towards on-site production, which is expected to be achieved in mid-2014. Management estimated that approximately $80 million will be required for the further development of the Lomero-Poyatos mine, namely drilling, metallurgical test work and process flow-sheet and engineering design for a full feasibility study, along with the construction of water treatment plants and a floatation circuit.
The loan’s term may be extended by one year and can be repaid prior to maturity without penalty. In addition, the cost of the loan facility includes originating fees and a $5.00 off-take from every troy ounce of gold sold by Petaquilla for the next seven years from the company's projects in Panama and Spain. The off-take agreement also applies to copper, zinc and lead production, presumably on a gold-equivalent basis. Management estimates that the all-in cost of the loan facility is approximately 10.3%.
Obviously, the $140 million loan facility supersedes the previously proposed private placement of five-year $210 million senior secured notes announced in July 2012 since the use of net proceeds for both are roughly equivalent.
We reaffirm our Outperform rating and our price target of $1.75.
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