TORONTO (miningweekly.com) – Vancouver-based Andean American Mining hopes to draw down on a project debt facility in the third quarter for the construction of its Invicta gold/silver/copper/lead/zinc mine in Peru, with the first production targeted for the second half of 2011.

The company expects to achieve two key milestones in the coming weeks: the completion of an independent engineers' technical report which is the last precondition to be met for final approval of the debt finance, and approval from local communities for the use of land, CEO John Huguet said in Toronto on Thursday.

Barclays Capital and WestLB are joint lead arrangers for a senior debt financing of up to $68-million to fund the project.

Andean published an optimised feasibility study earlier this week for Invicta, which is expected to produce an average of 97 930 oz of gold, plus silver and base metals for a total gold-equivalent output of some 160 857 oz/y.

Cash costs on a coproduct basis are forecast at $451/oz of gold, and negative $127/oz on a by-product basis.

Preproduction capital is estimated at $65-million, of which $13-million has already been spent.

The company plans to hedge its base-metals production once it gets closer to start-up, Huguet told Mining Weekly Online, on the sidelines of a seminar on Peru, hosted by MineAfrica's On the Ground group.

The idea is to fully gear the project towards upside movement in the price of gold, while ensuring a certain level of cash flow from the by-products.

The firm also signed a strategic partnership agreement in March with metals trader Trafigura, which made a C$3-million equity investment in Andean, and has long-term offtake agreements for the sale of the firm's copper, lead and zinc concentrates.

Trafigura has also put up a $15-million project finance, cost overrun and working capital facility and agreed to stand in with the full project debt if the banks are three months late, in exchange for the right to buy another 16% of the company.

The company will start a drilling programme in June on a new high-grade zone at Invicta, and will also continue resource definition drilling while construction and development is under way.

While the mine is currently planned with a five-year life, Andean believes it could add another 12 years, even before operations begin, Huguet said.

The resource remains open at depth, and the company suspects it may be at least as deep as the 2,7-kilometer length of the deposit, he said.

But the firm will wait until the initial mine starts generating revenue before finding out how big the deposit really is.

“We intend to ask those questions with operating profit, not with dilutive equity,” Huguet said.

Andean recently appointed Bruce Ramsden as CFO – he previously held the same position at Tiomin Resources - and expects to name a new president soon.

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