Date: October 19, 2008
From: The Office of the President
To: Franklin Mining, Inc. Shareholders
Last week’s Memo (headline State of Affairs, Part II) has generated
so many questions concerning financing, I think it is important that
I depart from my original schedule and address those questions
directly … our oil project in Texas will be still be discussed
in State of Affairs, Part III..
“How does Franklin intend to
obtain necessary funding?”
As you know, Franklin currently has three major projects underway,
1. The Escala Mine in Bolivia
2. A gas-to-liquid opportunity in Argentina
3. An equity investment in an operating oil field in Texas
Background on each project’s capital requirement and potential sources,
The Escala Mine:
Our September 2007 COMIBOL joint-venture agreement was partially based on a minimum first year’s capital investment. Franklin exceeded the contractually required investment by 50% and recently announced an ambitious commitment of another $1.6 million capital for Escala.
We’ve spent the past thirteen months readying the Escala to resume full-scale operations. A major part of the process has been multiple sample studies including laboratory analysis. To date, each report we’ve received has indicated Escala’s potential value is greater – possibly, much greater – than indicated by the COMIBOL studies reviewed in 2007. Our final laboratory analysis evaluating the Escala’s precious metal content is expected to be completed by Canada’s SGS Lakefield Research Limited in about a month.
The importance of the multiple earlier studies was preparatory to the analysis we are currently awaiting. This final analysis will guide Howard Dunn, Vice-President of
Operations for International Mining, as he works with the Escala’s Engineer and Geologist and with Franklin’s mine consultant, Paul Baker, in configuring each of the five to six processing plants we will be erecting at the Escala as part of our expanded capital plan.
Earlier studies assisted in determining which plant we intend to purchase. Those same studies confirmed locations and estimated quantities of silver, lead, zinc, gold and copper. With the final precious metal evaluation in hand, Mr. Dunn and his team will make their final decisions for configuring each processing plant for maximum recovery from individual areas of our 500 hectare concession.
The smaller plant we’ve selected provides several advantages over the more traditional approach of erecting a massive (static) processing plant:
ü First-plant’s first-day capital cost is much more manageable … the manufacturers cost of each “new” plant is $200,000; transportation to the Escala is estimated at $50,000; and on-site erection cost has been quoted at $50,000. Total capital expense, each plant: $300,000 USD ±
ü With an estimated 700 tons of product on the ground and seven tunnels ready for further Silver, Lead and Zinc exploitation and recovery … cash-flow begins the day the first plant is erected and operating.
ü With an additional ten tunnels available to be made ready, multiple plants will be required for full recovery of known Silver, Lead and Zinc.
ü With gold having been identified in multiple locations, each of the same advantages continue to be realized when we move in that direction.
ü The smaller copper quantities can be added to our processing capability when economically advantageous to do so.
At present, I have proposals for single-plant purchases before two separate capital sources who’ve tentatively offered a lease-to-own agreement where Franklin shares net revenue from precious metal sales on an 80/20 basis until each plant’s full cost has been recovered at which time, the sharing ratio will revert to 20/80.
As you can see, the advantage of this lease-to-own agreement is that Franklin would rather quickly recover the full cost of each plant and then own the equipment without having had to negotiate outside capital or incur debt. A third option under consideration is traditional long-term debt financing from an international financial institution with a stated interest in South America, specifically in the mining industry.
In all three instances, the final report from SGS Lakefield Research will determine final terms and conditions of the two options.
My decision and recommended board action for financing the Escala’s capital expansion should be announced within about six weeks.
The gas-to-liquid opportunity in Argentina’s Tierra del Fuego Province:
Like I said in my State of Affairs, Part II Memo, what we have here is a
Massive Challenge, Great Opportunity
Securing the financing for a GTL plant in Tierra del Fuego is becoming a much easier task than what we’ve been facing with the Escala. And for multiple reasons,
ü There’s no requirement for multiple studies or laboratory analysis.
ü Both the quality and quantity of the natural gas that will be converted to liquid fuel is known.
ü Availability of the natural gas is guaranteed by the Provincial government.
ü Because of the size and scope of the project, we have the option of offering equity positions in exchange for all or part of the required capital.
ü There is an established financial market for syndicating the balance of the necessary funding without further equity dilution.
ü There is an established local market for delivery of the processed petroleum fuel products Franklin’s plant will produce.
At this time, my search for financing the GTL plant includes
An initial presentation before a financial institution experienced in the sale of bonds for programs of this magnitude. The presentation was favorably received and our discussions are ongoing,
A preliminary presentation before a potential equity partner capable of delivering an investment of this scale and experienced in the industry. This presentation was also favorably received and our discussions are continuing.
Ongoing discussions with a European bank expressing an interest in funding 100% of the project’s total cost at five points over five years with a four year holiday on repayment at 8.5% interest.
Preliminary meetings with two financial institutions experienced in syndicating the financing of projects of the scope and scale of our planned facility.
Finally, last week I completed negotiations with one of the world’s most respected specialists in GTL plant design, specifically the Fischer-Tropsch-based technology intended for use in Tierra del Fuego. Further details concerning our relationship with the newest member of Franklin’s team of consultants will be made available with a few days.
Once again, please allow me to sign-off with a reminder that I will discuss our Texas oilfield investments in similar detail in my next Memo, State of Affairs, Part III.
Sincerely,
William A. Petty, CEO
P.S. To follow-up on another housekeeping note, please be sure to go to www.FranklinMining.com and use the “contact info” screen under the Investor Info Center pull-down tab and provide a current e-mail and/or street mail address. Our new web-site will soon be available and I plan to make a greater use of e-mail in communicating with Franklin shareholders.
AI
