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UPDATE - Minera IRL expects construction go-ahead soon at Ollachea

Published: 09:28 15 May 2014 EDT

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-- adds broker comment--

Minera IRL (LON:MIRL, TSE:IRL) expects to receive the construction permit for its flagship Ollachea gold mine in Peru this quarter, with first production still scheduled for 2016.

Discussions continue over financing the project, which will cost an estimated US$178mln to construct.

Macquarie Bank is nearing completion of technical due diligence over a facility  of US$120mln that will include its current US$30mln bank overdraft.

Talks are underway with other finance groups over funds for the remainder of the construction costs.

Courtney Chamberlain, executive chairman, in a conference call to investors, said funding options include a sale of royalties over future production and a sale of a stake in the project.

Any issue of shares to raise funds would be “a final piece” to the project financing, he added.

Minera saw losses rise in the first quarter of 2014, despite a better than expected performance  from its producing mine at Corihuami.

Gold production was 10% above expectations at 5,834 ounces while total cash costs were significantly lower than budgeted.

The miner re-iterated its full year production guidance from Corihuarmi of 21,000 ounces in 2014 and 15,000 ounces for 2015 with the decline reflecting the depletion of reserves, though a drill programme soon to start may extend its life further.

At the Don Nicolas development in Santa Cruz, Argentina, civil engineering works and construction of infrastructure began in the first quarter of 2014.

Production at Don Nicolas is scheduled for the second quarter of 2015. A feasibility study is also underway for a heap leach facility to handle low grade material.

Revenues for three months to March were US$7.59mln (US$9.2mln), with a net loss of US$1.49mln (US$1.13mln).

Broker Sanlam added it is unclear from today’s statement how near the company is to raising the equity proportion of funding for Ollachea. 

Finding the equity should be a significant catalyst for the stock but it is a large number (US$90m) and not helped by the 50:50 debt to equity ratio. 

The other significant issue for the broker is Don Nicolas’s progression, where Sanlam said it seems strange that detailed engineering has not yet started as commissioning is due in a year’s time.

“That said, progress is being made and we hope that worst case scenario is some additional delay. 

“Minera has good projects at Ollachea and Don Nicolas but the mine financing crunch and softish gold price are conspiring against them.”

Shares rose 3% to 8.36p.

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