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Message: Rusoro sees feasibility study by mid-2010 on Venezuela mine expansion...

Rusoro sees feasibility study by mid-2010 on Venezuela mine expansion...

posted on Oct 15, 2009 07:06PM

Rusoro sees feasibility study by mid-2010 on Venezuela mine expansion

15th October 2009

TORONTO (miningweekly.com) – TSX Venture Exchange-listed Rusoro Mining will finalise a feasibility study on expanding output at its Choco 10 mine, in Venezuela, in the first half of next year, and will then set about raising the $220-million or so that it needs to fund the project.

Choco 10, which Rusoro bought in 2007 from South African bullion miner Gold Fields, currently produces at about 150 000 oz/y of gold.

In April, the company completed a scoping study on a proposed expansion that would boost output to more than half a million ounces a year over a 10-year mine life.

The feasibility study is on track for completion in the second quarter of 2010, Rusoro president George Salamis said in a recent interview at the company's Vancouver headquarters.

“We really bought that mine not for what it produces today, but for what we think it can produce.

“So that preliminary study was a great green light to move forward.”

In September the company also received a key permit for the Increible 6 deposit, located next to Choco 10 and which forms part of the expansion plans.

Once the feasibility study for the expansion is finalised, the construction period is likely to last about two years.

The capital cost for the project is estimated at about $220-million, and Rusoro is considering a range of options for sourcing the finance.

“We're just starting to consider how we finance the expansion, and we are really considering all bets,” Salamis said.

The firm will look at equity, debt and 'quasi' debt, but is aware that it project debt for a mine in Venezuela will likely be hard to come by.

This means it will need to look at more nontraditional sources of funding – some options include export credit agencies and Russian banks, as well as the binational investment bank set up this year by Russia and Venezuela to finance the joint development of resource projects.

“So we are looking at all of the above. And we have our own cash flow coming in too, obviously, but really, we have time to put that all together. We need to get the study done first,” he added.

Elsewhere in Venezuela, Rusoro started a prefeasibility study this year on another project, San Rafael/El Placer, and expects to start test mining at the property by the end of this year.

The company also has a 50-50 joint venture with the country's government on the Isidora gold mine and mill that it bought last year from US-based Hecla Mining.

The joint venture is running well. “and the government is happy with what we are doing”, Salamis said.

The firm has had a relatively smooth time in Venezuela, in part thanks to Russian chairperson Vladimir Agapov's relationship with President Hugo Chavez.

Chavez “recognises the Agapov family as being one of the pioneers on the gold production side, because they did operate mines privately before Rusoro went public, and delivered on promises, and that's what President Chavez wants to see”, Salamis said.

Agapov, CEO Andre Agapov and Peter Hambro are all large shareholders in Rusoro.

Venezuela has said that Rusoro is its 'partner of choice' in the gold sector and that it wants to work with the company on other projects.

“We view Isidora very much as the test case for that, and so far the joint venture relationship is working fairly well,” Salamis said.

“So yes, we'd love to cooperate on other projects. But I can't be more specific at this time.”

Because of its Venezuela postcode and given Chavez's nationalisation of other sectors, Rusoro trades with a “cloud” of risk hanging over its valuation, he commented.

Two other Toronto-listed companies, Crystallex International and Gold Reserve, have had key permits denied for their respective gold projects.

From Rusoro's perspective, Salamis said the best way for the company to convince investors is by showing consistent and improving production and cost performances.

“But in addition it would also be nice to see the deadlock of the KM88 district – [where Crystallex's large Las Cristinas project is located] - resolved in some fashion to the benefit of everybody," he added..

“And I think, together, those two elements will go a long way to lifting the cloud,” he said.

Last year, Rusoro launched a hostile takeover bid for Gold Reserve and its Brisas project, but Gold Reserve was able to block the offer by taking Rusoro and its financial advisor to court.

LONDON CALLING?

Salamis also confirmed that Rusoro has considered listing shares in London, but said the company has no immediate plans in that regard.

The London investment community has a better acceptance of risk than is the case in North American markets, and a large number of the company's institutional shareholders are based in the city.

“So we have looked at it on and off and are not planning anything in the immediate term.”

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