The Financing of New Auriferous Projects

Sources of Financing

• Personal Resources
• Commercial Banks
• Foreign Investment
• External Financing (Credit in Gold)

Credit in Gold
This form of financing is relatively new, due to the fact that it has been in operation since about the past two decades approximately. It consists in the small producer can open a mine with a loan, which will start returning once the mine is already in production, that is, that with the results of its production, one must pay the amoritzation of the loan plus the interests like any common credit.

The particularity of this loan is that gold is loaned and it must be payed back in gold.

Function of the Credit in Gold
The financing entity lends an amount of gold which is equivalent to one year of production (general law).

The credit system in gold, consists in the fact that the small producer, beneficiary of the credit, must pay no more than 20% of the old that it produces per year.

The periods of grace are similar to those of a common credit, normally, the producer begins to pay when his mine is already in production, nevertheless, this period of grace must not exceed a three year lapse.

For the giving of this loan, the finance entity fixes a range of price for the gold between 320 $/Ounce and 400 $/Ounce and conditions the loan in the following manner:

When the international price of gold is found in the established range, the finance entity deducts a prime of 15% of physical gold and gives 85% so that the beneficiary of the credit disposes of it.

When the international price of gold is fixed in more than 400 $/Ounce to the finance entity a part to deduce the 15% of physical gold, it also deduces the 40% of excess of price above the 400 $/Ounce.

When the international price of gold is found below the 320 $/Ounce, the finance entity compromises itself to pay the 320 $/Ounce, and always, logically, deduces the 15% of physical gold corresponding to the prime.

There are many variables in a mining country, but one of the most well known is the impossibility of knowing the price to which its product will be sold.

One of the advantages of this system is that it eliminates the risk of the price, due to the fact that it pays in gold, this assures us a minimum price and gives us a limit in the form that the utilities which are on top of this limit are shared by us.

Another of the characteristics of this credit in gold is that it is payed with a very low interest rate, between 1 and 2% per year vs. A credit in dollars which the Mining Bank administers, which is above the preferential rate of the prime rate of the United States which nowadays is in an 11.5% more, 1 to 4 points above this rate (in other words, up to 15%).

In other words, that while in the case of a credit you must pay 2% of the yearly interest, in other cases you would be paying up to 15% yearly. For example, if we were to obtain a credit of 1 million dollars, in the case of a credit in gold, we would be paying the amount of 20,000 US$ in interest per year and in the other financing system we would be paying up to 150,000 US$ of interest per year, the difference results to be quite significant.

There is an important aspect and that is that the rules of the game must be clear and should serve the base for the legislation as it happens in the industrialized countries and not reversed as it happens in the countries of Latin America to which the laws are given without establishing the rules of the game clearly, demanding that one should follow them whether it be possible or impossible, convenient or inconvenient; when what is reasonable is to primarily fix the conveniences for the parts and for the country, and after that, to legislate. This way the rules of the game for the credit in gold are clear and done will have to legislate in a way that this form of financing will be viable.