The reason that Red Kite is the best non-dilutive financier option for Petaquilla is becuase they are primarily a metals trading firm so they will provide an offtake agreement with what appears to be only a $5 discount from spot for gold. As 3-month Libor is going to stay low rates will be 8.5% on first $90M and 9.5% on next $50M if the mandate closes. Even when you factor in the 3-4% arrangement/closing fees (~$4.2M to $5.8M, you multiply by the total $140M) which they are taking us to town on, it will still be a better deal than dealing with a regular commercial bank who would likely require hedging becuase PTQ does not have the financial strength to borrow off it's balance sheet = lending is basically non-recourse so hedging required for lender to able to get high level of certainty over mine cash flows during debt term.
The 8.5% and 9.5% are reasonable considering the lending risk, so I'm seeing the trade off as high closing fees but no hedging which will be a net positive for PTQ considering the lending options out there. BTW the closing fee is basically paid by the debt drawdown if you are not use to seeing these. Assuming it is $5M it is like PTQ borrowing $135M for capital + $5M to pay the closing fee for a total of $140M. PTQ pays over life of loan.
I'm ramping up my DD this weekend so am going through the latest FS and MD&A today. I must admit I have been lax to date but always assumed Red Kite would be best party becuase they would give us an offtake agreement at Spot but it is pretty explicity the will per PTQ's disclousre below - from the Q2-F13 FS Subsequent Event Note:
The Company has received and accepted an indicative term sheet for a loan facility from Red Kite Mine Finance Trust I (“Red Kite” or “the Lender”), whereby the Lender has offered to provide the Company with a loan facility for an aggregate $140 million (“the Loan”). An initial tranche of $90 million will be available to the Company upon closing, with the subsequent $50 million to be released based on technical milestones, namely updated National Instrument 43-101 resource estimates on either of the Company’s two projects in Panama or Spain.
The Loan will mature five years from closing with the option to extend for a further one year, subject to theCompany meeting certain milestones, and will permit early repayment without penalty. The Loan will bear interestat a base interest rate of the three month US$ LIBOR (“L”), subject to a minimum of 1% plus an interest ratemargin of L + 750 basis points on the first $90 million of principal and L + 850 basis points on the last $50 million of principal. Interest and principal shall be payable on a semi-annual basis with the first principal repayment due 18 months after closing of the Loan. The transaction will be subject to originating fees upon closing within a range of 3% to 4%.
The loan facility will be fully and unconditionally guaranteed, on a joint and several basis, by the Company’s existing and future subsidiaries and secured by all current and future assets of the Company. Pursuant to the terms of the indicative term sheet, the Loan will be complemented by a gold off-take agreement and a copper, zinc and lead off-take agreement, each valid for seven years, covering the production of the Company’s projects in Panama and Spain and based on a discount of $5 applicable to each troy ounce of gold sold by the Company.