JOHANNESBURG (miningweekly.com) – Latin America gold mining company Minera IRL has secured the final major government approval required to start construction of its flagship project, the Ollachea gold mine, in southern Peru, with project financing still outstanding.

The Peruvian Ministry of Mines and Energy approved the construction permit, following the approval of the environmental- and social-impact assessment in 2013, Minera IRL explained in a statement on Monday.

"We are delighted to have received approval of the construction permit for Ollachea and are looking forward to starting development as soon as project financing is arranged, which we expect to conclude during the third quarter of 2014," said Minera IRL executive chairperson Courtney Chamberlain.

"We wish to acknowledge the government authorities' outstanding attention to rapidly facilitating the permitting process," said Minera IRL SA president Diego Benavides, who also thanked the community of Ollachea, “our true partners in the project”, for their unwavering support.

The project had strong community support, as evidenced by a 30-year surface rights agreement, noted the company.

PROJECT FINANCING
Following extensive technical due diligence, in accordance with a debt financing mandate, Minera IRL has received a committed letter of offer from Macquarie Bank for a senior project loan facility of $100-million.  Subsequent to the consolidation of the existing $30-million Macquarie finance facility, this would provide $70-million of new funds towards the construction of the Ollachea gold mine.

With respect to the existing $30-million Macquarie finance facility that was due to mature on June 30, Minera had negotiated with the bank to extend the term of the loan by one year to June 30, 2015. In addition to the existing terms, which would remain unchanged, there would be an upfront fee of $1.5-million and the company would issue 26-million options with an exercise price that would be priced in the context of the market to Macquarie Bank at a later date that was subject to regulatory approval and final documentation. The existing 18.8-million options currently held by Macquarie Bank would be cancelled when the new options were issued.

As per Minera IRL's June 4 announcement, a recently completed optimisation of the 2012 Ollachea gold project definitive feasibility study (DFS) reported that the estimated initial capital cost to build the Ollachea project was $164.7-million, including a 12% contingency. The company will also need to fund an additional $12-million of working capital for general sales tax for total preproduction capital of about $177-million.
 
“As a result, the company continues to advance discussions with various parties to obtain the balance of the funding required. Sources of additional financing may include, but are not limited to, the sale of a production royalty, the sale of a royalty stream, subordinated debt instruments, the sale of an interest in the project or equity financing,” said Minera IRL.

Until such time as there is more certainty with respect to the sources of the remaining funding required, the company did not feel it was in a position to execute the committed letter of offer. Accordingly, Minera IRL was now targeting the completion of financing negotiations by the end of the third quarter of 2014 and had extended its debt-financing mandate with Macquarie Bank.

PROJECT HISTORY

The Ollachea orogenic gold deposit was discovered by Minera IRL in late 2008 after acquiring the property from Brazilian mining giant Rio Tinto in 2006.  Since, the company has completed more than 81 000 m of surface diamond drilling in 208 holes, resulting in the delineation of significant gold mineral resources and reserves at Ollachea.

The 2012 DFS and subsequent optimisation process reported a robust underground mining operation with probable mineral reserves of 9.2-million tonnes, grading 3.4 g/t of gold, containing one-million ounces.

The Ollachea gold mine has a scheduled production of 930 000 oz over an initial nine-year mine life at an average site cash operating cost of $507/oz of gold produced.  The up-front capital cost is estimated at $164.7-million with a total life-of-mine capital cost estimate of $220-million.

Exploration and resource infill drilling has defined indicated mineral resources of 10.1-million tonnes, grading 4 g/t of gold, containing 1.3-million ounces at a 2 g/t gold cutoff, plus inferred mineral resources totaling 12.1-million tonnes, grading 3 g/t of gold, containing 1.1-million ounces at a 2 g/t gold cutoff.

Significant open-ended potential exists to increase mineral resources both along strike and at depth, as evidenced by underground drilling results along the eastern extension of the Minapampa deposit.