Sino sidestep

Getting equity capital injections from Chinese investors is the flavour of the month, but one gold miner has approached one of the country's banks for a good old-fashioned loan.

China Construction Bank has lent Sino Gold Mining $176 million in Chinese currency (RMB780 million) to repay a $US30 million US dollar-denominated debt and another $78 million loan that was denominated in Chinese Renminbi. Remaining funds will be used for general corporate activity, Sino said.

"This is a significant breakthrough for Sino Gold and further cements our long-standing relationship with one of China's leading banks," said chief executive Jake Klein. China Construction Bank was a participant in Sino's original loan for its Jinfeng gold mine in China's southern Guizhou Province. China Construction Bank also advanced Sino a RMB231 million facility in September for its White Mountain gold project in Jilin Province, which borders North Korea and Russia to the east in China's far north.

The new facility comprises a RMB680 million ($A154 million) long-term facility, repayable in five annual instalments ending in early 2015, and a 12 month RMB100 million ($A22 million) working capital facility. Interest rates for both components are floating in line with the People's Bank of China published rates, currently 5.94 per cent per annum for the long-term facility and 5.31 per cent p.a. for the working capital facility.

Sino, which is jointly liable for the loan with its subsidiary Sino Guizhou Jinfeng Mining, has no currency or interest rate hedging in place. A spokesman for the company told Business Spectator there was no gold hedging either, or indeed any derivative used by the company.

Due to its long-standing relationship with China Construction Bank's Guizhou office, the loan was procured without the assistance of corporate or legal advisors, the spokesman added. No matter what you may think of leverage, in many respects debt is surely a cheaper route than diluting shares in an equity raising and paying fees every step of the way.