The first limited recourse deal in Asia for a junior miner without political risk insurance, financing for the brownfield $149.9 million Masbate gold mine project closed in May 2008.

Sponsored by CGA Mining – a junior mining company with two other exploration assets (the Segilola gold project in Nigeria and the Mkushi copper project in Zambia) and no existing income stream – Masbate will be CGA's first mining operation to deliver cash flow.

The project is being built on a fixed lump sum contract by Leighton, which will also provide mining services under an alliance agreement with CGA. The project was originally operated by Atlas Mining Corporation for 14 years, between 1980 and 1994. A total of 17.4 million tonnes were processed at a grade of 2.12g/t resulting in gold production of 1,078,326 ounces of gold and 944,474 ounces of silver. Overall plant recovery of 86% was achieved during the operating period. The operation ceased due in 1994 because of financial problems in the Atlas group.

Despite the problems of its first owner, the Masbate project is a known entity and is forecast to produce low to medium grade ore (1.65g/t), with reserves of approximately 1.984mn oz and a yearly output of around 180,000-220,000oz, over a 10-year life. The previous operation also left a lot of mine infrastructure intact – airfield, jetty etc – and a skilled local population that has been forced to return to local subsistence farming and fishing. Mine workers that had migrated to other parts of the country are also returning home to work at the project.

Lead arranged by BNP Paribas with DZ Bank, Standard Chartered, and WestLB joining on a club basis, the $80.3 million financing comprises a $75.3 million A tranche and a $5 million standby facility. Equity on the project is $74.6 million.

The corporate set up for the project financing is based on a Netherlands tax-efficient borrowing structure. The loans were extended to an affiliate borrower in the tax-efficient jurisdiction. The project companies provided security, which included, among others, a mortgage of substantially all of the assets, a pledge of shares of the project companies and an assignment of the contracts granting mining rights to the project companies.

The proceeds of the loans extended to the affiliate borrower were on-lent to the project companies via inter-company loans and/or issuance of preferred shares.

In addition, title to the ore is transferred to the refiner at the gold room door and proceeds paid into an offshore account thus giving lenders further comfort.

Masbate Gold

Status: Signed 25 May 2008
Description: Brownfield gold mine financing without PRI.
Borrower: CGA Financing Company B.V
Sponsor: CGA Mining Ltd (100%)
Mandated lead arranger: BNP Paribas (also financial advisor, technical bank, offshore security trustee and facility agent)
Lead arrangers: DZ Bank, Standard Chartered, WestLB
Financial adviser: BNP Paribas
Sponsor legal counsel: Salter Power (international), Sycip Salazar (local)
Lender legal counsel: Malleson (international), Quisumbing Torres (local)
Technical adviser to lenders: BDA
Insurance adviser to lenders: Willis