European Minerals Corporation
TSX : EPM
AIM : EUM

European Minerals Corporation

October 18, 2006 09:30 ET

European Minerals Corporation: Varvarinskoye Debt Facility Completed and Project Update

LONDON, UNITED KINGDOM--(CCNMatthews - Oct. 18, 2006) - European Minerals Corporation ("EMC" or the "Company") (TSX: EPM) (AIM: EUM) is pleased to announce the signature of the amended project debt facility in respect of its Varvarinskoye gold/copper project in Kazakhstan which confirms that the project is now fully funded through to production.

Completion of the debt facility of US$75.4 million had been delayed largely due to revisions to the facility documentation arising from the termination of the turnkey contract with MDM Ferroman (Pty) Limited and the appointment of SENET CC as EPCM contractor earlier in the year.

The facility is with Investec Bank (UK) Limited and Investec Bank Limited ("Investec") and with Nedbank Limited and NBSA Nominees Limited ("Nedbank") to fund the debt portion of the Varvarinskoye project financing. EMC is the guarantor of the debt until project completion and JSC Varvarinskoye, its 100% owned subsidiary, is the borrower. The limited recourse debt facility now consists of:

(i) a commercial loan of US$28 million (the "Commercial Loan");

(ii) a loan facility supported by the Export Credit Insurance Corporation of South Africa of US$39.4 million (the "ECIC loan"); and

(iii) a convertible loan facility (the "Convertible Loan") of US$8 million.

Investec acted as arranger of the debt facility.

The Commercial Loan and the ECIC Loan are each for an eight year term with semi-annual repayments currently scheduled to commence 30 November 2007. First drawdown is expected to be before the end of November 2006.

The Convertible Loan is available for a term of 18 months from 17 October 2006 with semi-annual repayments commencing 31 May 2012 until final repayment date on 30 November 2013. The principal amount of the Convertible Loan can be converted into common shares of the Company at the option of Investec and Nedbank (the "Lenders") at an exercise price of US$0.93 per share (the US dollar equivalent of C$1.06) and can be repaid by the Company at anytime without penalty.

Interest rates are:

Libor plus 1.25% for the ECIC Loan fixed for the full term of the loan; and

Libor plus 2.80% for the Commercial Loan and the Convertible Loan, falling to Libor plus 2.30% when the project has passed standard completion tests, stipulated by the Lenders.

Endeavour Financial Corporation acted as Financial Advisers to the Company in connection with the debt facility.

Gold Hedging Facility

The gold hedging facility implemented in December 2005 remains in place (press release 6 December 2005). EMC has sold into the hedge a total of 443,000 ounces of gold at a price of US$574.25 per ounce. The hedge is in the form of a monthly US dollar flat forward un-margined gold sale facility for the eight year term of the Varvarinskoye project debt facility. The 443,000 ounces hedged represents 50% of the gold production scheduled during the term of the debt, but less than 20% of the reserves at Varvarinskoye. The implementation of the gold hedging facility satisfied a condition of drawdown of the debt facility.

Project Update

Construction

Some construction delays, outside of the control of the Company, have recently been experienced. These relate to late delivery of structural steel and a delay in the manufacture and delivery of the semi-autogenous grinding mill for the gold circuit, which will delay commissioning. In light of this a revised construction and commissioning schedule is being prepared. The Company currently estimates that as a result of these delays commissioning will probably commence in October 2007.

Reserves/Production

The Company is close to completion of a revised mining plan and an updated reserve estimate for the project. The mining plan is being revised in conjunction with the detailed construction and commissioning schedule to avoid incurring mining costs ahead of plant availability.

The Company will provide a further update once these reviews have been completed.

Cost to completion

Overall project capital costs are now estimated at approximately US$158 million, an increase of some 9%, compared to the previously announced estimate of US$145 million (press release dated 24 February 2006).

The reasons for the increase can be categorised as follows:

- US$3.5 million for additional general and administrative costs resulting from the delays in the construction schedule;
- US$2.5 million for additional financing costs, including increased banking fees, insurance costs and legal fees;
- US$2.5 million for additional pre-stripping costs in respect of a larger initial open pit arising from the revised mining plan;
- US$2.5 million for Tenge/US$ exchange rate losses since February 2006 (during this period the exchange rate has moved from 135 Tenge to 122 Tenge to the US$); and
- US$2.0 million for contingencies.

The Company had expended approximately US$90 million on the project to the end of September 2006 and a further US$68 million is required to meet the estimated project capital costs. The Company now has the project fully funded through to production.

At 30 September 2006, the Company had cash balances of approximately US$40 million, of which US$20 million is restricted as security in a cash overrun account related to the Varvarinskoye project debt facility, in order to fulfil a condition precedent to drawdown.

Site Works

Considering the numerous financial and operational challenges of the past twelve months the Company is pleased with progress to date on the development and construction of the Varvarinskoye project.

By the end of September 2006 the entire mining fleet had been purchased and delivered to site on budget (US$24 million). The 70km dedicated power line has been completed, providing electricity at 2.8 US cents/kw hr. In addition, 6.2 million tonnes of pre-strip material has been removed on schedule and preparations are being made for stockpiling of ore.

Civil engineering work on the water storage and tailings dams is nearing completion. Processing plant equipment is arriving on site and work on various infrastructure buildings, including the accommodation camp is progressing.

Tony Williams, EMC Chairman, commented today "The conclusion of the debt facility confirms that our Varvarinskoye project is now fully financed through to production. Despite all the hurdles we have faced, we are still confident that the Company will develop a significant low cost gold and copper mine next year. We acknowledge the continued support of our lenders and shareholders and all of our employees and consultants who have maintained the progress of construction during 2006."

Forward-Looking Statements

This press release contains or refers to forward-looking information. Such forward-looking information includes, among other things, statements regarding targets, estimates and/or assumptions in respect of mineral resources and reserves, future production and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to: the grade and recovery of ore which is mined varying from estimates; capital and operating costs varying significantly from estimates; inflation; changes in exchange rates; fluctuations in commodity prices; delays in the development of, and the commencement of operations at, the Company's Varvarinskoye Project caused by unavailability of equipment, labour or supplies, climatic conditions, delays in the delivery and installation of plant and equipment or otherwise; termination or suspension of the Company's debt facility; failure to raise any additional funds required to finance the completion of the Varvarinskoye Project; uncertainty of outcome of any litigation; and other factors. Forward-looking statements are subject to significant risks and uncertainties and other factors that could cause actual results to differ materially from expected results. Readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and the Company assumes no responsibility to update them or revise them to reflect new events or circumstances, except as required by law.

Contact Information

  • United Kingdom
    Tony Williams
    Chairman
    Tel: +44 (0) 20 7529 7508
    or
    or
    Bert Kennedy
    President & CEO
    Tel: +44 (0) 20 7529 7508
    or
    North America
    Vanguard Shareholder Solutions Inc.
    Keith Schaefer
    Tel: 1.866.448.0780
    ir@vanguardsolutions.ca