Vengold Pressed On Lihir Loans
Sydney Morning Herald
Tuesday March 9, 1999
Canadian gold company Vengold, the largest individual stakeholder in Lihir Gold, has confirmed its lenders have requested increased security over debts related to its Lihir shares.
However, temporary arrangements have been put in place so that it does not breach the terms of its loans, while it tries to renegotiate them on a longer-term basis. Two of the loans fall due on August 4.
The loans were used last year to finance two purchases of Lihir Gold shares - a $US44 million private placement and the $US85.5 million purchase of Orogen Minerals's stake - taking Vengold's total debt to $US178.1 million ($283.8m).
A drop in the value of Lihir Gold shares, from a six-month high of $2.43 to a record low of $1.18, has seen it breach the loan to asset coverage ratio. Generally a margin call kicks in once the value of the investment falls below half that of the loan.
The stock collapsed last week following a worse-than-expected full year result, where it took the opportunity to drop the value of the gold price it employs to calculate its reserves and resources, crimping its reserves. That and talk that Vengold was being margin-called on its bank loans, raising speculation that it would be forced to sell some of its Lihir Gold shares, helped to push the shares lower.
The loans are secured by Vengold's shares in the PNG goldminer.
"As these loans are secured by the corporation's investment in Lihir Gold the lenders have the right to dispose of sufficient shares to maintain certain loan to asset coverage ratios," Vengold said in a statement.
As part of the temporary arrangements, Vengold has put on deposit additional cash collateral of $US3 million with the ANZ Investment Bank in order to cover a non- interest bearing note payable to Orogen Minerals.
Of the $US117.2 million relating to its Lihir investments, $US20 million is secured debt with ING Bank, $US52.8 million in bank loan with ANZ Investment Bank and the non-interest bearing note payable of $US44.4 million.
Nevertheless, the news has not fazed investors, with Vengold seen to be secure in its investment given its effective backing by Placer Dome. Lihir shares were up slightly from the record lows of last week and unchanged at $1.34 yesterday.
© 1999 Sydney Morning Herald