Rusoro sees feasibility study by mid-2010 on Venezuela mine expansion
By: Liezel Hill
Published: 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.”