On the 6th of September Angel Mining announced the much anticipated financing arrangement for the company’s medium term future with an initial $25 million committed finance facility providing the funds to repay its short term debts ($21.9 million) to FBC and Cyrus, establish full scale production at Nalunaq and continue development at Black Angel. While the option of a $100 million facility, capable of funding Black Angel into production, was available, the company decided against committing itself to the facility offered as it did not want to incur the excessive facility fee, it was unsure if the facility is the appropriate type of financing for Black Angel and the facility is believed to be available in the future anyway.

The $25 million facility agreed with the Socius Capital Group comprises identical notes that may be issued in any appropriate series, each with a 10 year maturity, 10% per annum interest rate (deferred for the first 2 years) and repayable in cash or, at Angel’s option, deferred and paid on maturity. A 5% commitment fee is payable to Socius in cash or ordinary shares, penalty interest is payable if redeemed within 4 years, while Socius can require Angel to redeem the notes after 4 years. Conversely, Angel can issue a notice to Socius requiring it to purchase a series of notes through the exercise of an option or receipt of warrants. This method would obviously lead to Angel’s issued share dilution; something it has been explicitly trying to avoid. Shareholders will vote on the facility and its associated arrangements on the 27th of September, but with the majority of voting rights held by FBC, we expect the vote to be positive.

Final results for the 12 months to 28th February 2010 were released on the 31st of August with Chairman Frank Chapman identifying the year as one of transformation as Angel Mining moved from exploration to the brink of production. Development of the Nalunaq gold mine has allowed this with a unique underground (in mine) processing plant the facilitator. Gold, zinc and lead price trends have remained in Angel’s favour, while the change of functional currency from GBP to USD is a reflection of the company’s primary reliance on its adopted currency. Financially, the company reported a $4.7 million loss, up 76% from the $2.7 million loss in 2009, while its cash balance rose 90% from $0.96 million to $1.82 million as at 28th February 2010. Going forward, Angel is focused on getting Nalunaq up to full scale production (70 ounces of gold per day), repaying the Cyrus short term loan, completing an updated bankable feasibility study on Black Angel and developing new projects.

Angel Mining, even since its recent change of name, has had a turbulent history, but with medium term finance apparently secured and the option of long term funding also available, the company’s long held goal of returning the Black Angel mine to production is finally within reach. Shareholder dilution is an understandable worry, and while the company hopes to raise Black Angel finance predominantly with debt, we believe further share issues are inevitable. However, the $25 million financing package is a very welcome development and one that alleviates the recent financial distractions. On the basis that Nalunaq will produce 6,000 ounces of gold in the remainder of the year before ramping up to full production of 25,000 ounces during the next 18 months we reinstate our stance on Angel Mining with a Speculative Buy recommendation and 7.5p target price. But we add the caveat that if there is progress on developing Black Angel there is scope for a significant increase in our valuation.

*Angel Mining is a corporate client of Bishopsgate Communications which is owned by RSH, the ultimate owner of GE&CR. The SF t1ps Smaller Companies Growth Fund which is managed by another RSH subsidiary owns Angel shares.