LONDON, April 12 (Reuters) - Chaarat Gold said it is making progress in its talks with a Chinese investor, giving it confidence it will be able to source the $450 million it estimates it needs to take its project in Kyrgyzstan to full production.
A deal with Shandong Gold Group, China’s second-largest producer of the metal by reserves, is one of the options for London-listed Chaarat.
“Shandong Gold is ... talking to us because they know it’s one of the best deposits in Asia, if not in the world, and they want to be there first,” Chief Executive Dekel Golan told Reuters on Friday.
Chaarat, which first said Shandong was considering an investment in the company in November, is trying to develop a gold deposit in mountains in the far west of the impoverished former Soviet Republic.
With a market capitalisation of about $80 million, Chaarat has $25 million in the bank and is considering a range of options to help make up the financing shortfall.
Golan said talks on the possible Chinese investment were “pretty advanced” and listed other options for meeting the balance of the funding. “Some of that money will be generated from production, some ... is going to be either debt or some other facility, it’s not going to be only equity,” he said.
Any Chinese deal would follow last year’s trend of Chinese companies investing in gold miners as domestic demand soared for bullion, sought for jewellery and as an inflation hedge. Shandong last September agreed to buy part of Australia’s Focus Minerals Ltd for $227.5 million.
The funding climate for smaller and mid-sized companies like Chaarat, with projects in the exploration phase or at an early stage of development, is tough, pushing companies to consider a range of options including bank debt, partnership deals, project financing and offtake deals.
Chaarat’s partnership options may be limited, however, as others could be put off by political risks in Kyrgyzstan, which remains volatile after two revolutions in eight years, and a dispute between the government and Canada’s Centerra Gold , which is developing the country’s largest gold deposit.
Golan believes the qualities of Chaarat’s project will help it overcome any financing difficulties, pointing to low power prices in Kyrgyzstan combined with the high grades it has found.
Gold has had a weak performance so far this year - down more than 5 percent after 12 straight years of gains - but the cost of producing it is rising, particularly in Africa where miners are struggling with soaring power costs.
Chaarat’s project is due to start producing some gold in the second half of this year and Golan ruled out raising fresh equity before the first gold is poured. The group is targeting production of 200,000 ounces per year by 2017.