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Project summary

Project concept

The purpose of this project is investment attraction for financing of prospecting works on confirmation of reserves and construction of a gold-extracting complex. The summary of the project is shown in the following table.

Parameters Discription
Site Trans-Baikal Territory, in the territory of the Mogochinsky region, to Entre Rios the Shilka river and the river Amazar
Product Ingot gold
Field License area with a total area of 185,8 sq.km
Resourses Cumulative forecast resourses of categories P1 and P2 - 177,53 tons of gold
Project stages The project is being implemented in 4 stages:
  • Confirmation of inventories 2017-2018
  • Geological exploration and design of a gold extracting complex - 2017-2019, passing production from prospecting developments - since 2018
  • Construction of a gold-extracting complex - 2018-2021
  • Exploration of gold field - since 2018
Plan sales volume 8,5 tons of gold a year

Table 1. Main characteristics of the project.

Subject of the Project

The project includes an investment attraction for establishing a gold mining company with the initial resource base of 177 tons (5.7 million troy ounces) of gold and annual extraction of gold-bearing ore totaling to 3.5 million tons per year. The company’s primary activity shall be gold mining on the gold field of Kadara in the Trans-Baikal Territory.

The company has a license for geological survey and extraction of ore gold and associated components in the Kadara river basin. The expected annual extraction is 8.5 tons of gold (273.3 thousand troy ounces).

The project envisages financing of prospecting works for confirmation of the gold reserves and construction of a gold-processing complex. All investment shall be completed within four years after the project is commenced.

Direction of investments Total At the expence of investments Due to refinancing Years
Conducting exploration works 15 256,65 9 214,36 6 042,29 2017-2020
Quarrying and mountain machinery 16 756,60 9 238,38 7 518,22 2017-2020
Objects of industrial construction of a gold-processing complex 59 600,00 24 064,46 35 535,54 2017-2021
Housing and civil facilities 6 700,34 2 630,34 4 070,00 2017-2020
Small hydroelectric power station 18 205,11 11 624,18 6 508,93 2017-2020
External transport 3 155,71 2 548,28 607,43 2017-2019
Research and development 1090,00 680,00 410,00 2017-2019
SUM TOTAL 120 764,41 60 000,00 60 764,41

Table 2. Investment plan, in ths US dollars.

Financing Sources

The project involves financing from the following two sources: funds from investors and own funds of the gold mining company (based on refinancing).

Investment attraction conditions are as follows:

  • The share of investors’ funds in the financing – 49.68% (60 million USD),
  • Financing Period - 6 years,
  • Dividend interest rate – 5%.
  • The financing return schedule is developed according to the seasonal nature of sales; according to the provisional evaluation, the return is scheduled for late 2022.
  • Under the aforementioned conditions, the dividends for the estimated period will amount to 12 million USD which will be paid, since 2020.

Chart 1. Schedule of calculations for financing, in ths US dollars.

Project Expediency

Implementation of the project is estimated as feasible for both the parties to the project participants and the economy, as well as the society in whole. The project takes on even more importance in the current social and economic situation - instability of the national currency and demand for gold from banks, mostly from the Central Bank of the Russian Federation, as well as private investors.

  • Benefits of the recipient:
    • Activity diversification, development in a stable industry of the economy
    • Extra profit (157.7 million USD a year, on average, after reaching the project capacity)
  • Benefits of the investor:
    • Economic attractiveness for the investor - the income gained as dividends will total to USD 12 mln for the scheduled period
    • Low risk level (development a successful and operating enterprise, which will be provided with property, plant and equipment), as well as reputation of the project promoter ensures strict compliance with the
    • target financing principle and timely payment of the declared dividend amounts
  • Social and economic expediency :
    • The region development assistance due to the social and economic significance of the project
    • Providing more than 200 permanent jobs, the salary fund will exceed 4.6 million USD a year
    • Budget efficiency - tax contributions to budgets of all levels will exceed 59.2 million USD a year

Information on the Project Promoter

The project promoter is SStarTrade SA, a Swiss consulting company, which has been engaged in financial and legal consulting since 2005, and also acts as managing company for a number of international projects.

Information on the Company Implementing the Project

The company implementing the project is the Russian gold mining company Favorit-Centre LLC (further referred to as "Company") which has been engaged in prospecting and surveying works for ore gold in Eastern Siberia since 2004. The headquarters of the Company responsible for corporate planning and financial activities is located in Moscow.

Commercial Efficiency

The scheduled period of the project is 6 years.

The commercial efficiency of the project was calculated based on the discount rate of 15%.

The aggregates of the project efficiency, after the gold mining complex reaches the project capacity, are shown in Table 3.

The financial forecast analysis confirms high investment attractiveness of the project:

  • High annual sales level – USD 113,962,166.
  • High return level resulting in high average annual net profit – USD 51,129,466.
  • High level of the internal return rate - 29% per year.
  • Rapid time to value - 5 years.
Project performance indicators
Net present value (NPV), ths USD 64 174,49
Discount rate, % 15
Profitability rating (PI) 1,53
Internal value of return (IRR), % 29
Sales volume, ths USD 330 123,62
EBITDA, ths USD 202 729,22
Net income, ths USD 157 492,52
Net discounted income, ths USD 120 400,60
Total amount of financing, ths USD 120 764,41
Volume of investment, ths USD 60 000,00
Volume of refinancing, ths USD 60 764,41
Breakeven point, ths USD 60 909,44
Investment period, years 5
Payback period, years 5

Table 3. Summary performance indicators of the project.

Benefits of the Project

The benefits of the project are based on its primary feature, i.e. establishment of a gold mining company engaged in the sphere of gold mining with a long-term perspective of extracting at least 8.5 tons of gold a year for 20 years:

  • The expected provision with all required resources – a field, a gold-processing complex with modern equipment, workforce, established vendors, contractors and customers
  • Steady demand for gold, investment appeal of the industry
  • Competitive advantages – development of a gold field with a commercial content of gold per ore ton at a reasonably low cost of production and processing

The drawbacks of the project include its high investment cost and the need for a long-term financing. Moreover, a permanent monitoring of production costs and gold quotations is required to maintain the production profitability.

Overall, the project is estimated as a perspective one, featuring considerable financial and business advantages.