Exploration and development company Hummingbird Resources (LSE-AIM: HUM) is banking on becoming a near-term producer with the all-share acquisition of Gold Fields' (JSE: GFI) Yanfolila project in southwestern Mali, an advanced-stage project that the junior believes it can put into production in late 2015.
Hummingbird will pick up the asset for US$20 million by issuing 21.29 million shares at 56 pence per share, making Gold Field a 26.3% shareholder in the company. The consideration equates to an enterprise value per oz. acquisition cost of US$11 per managed oz.
Yanfolila is fully permitted with a 30-year mining lease and has a resource of 7.59 million tonnes grading 3.1 grams gold per tonne for 757,000 oz. of contained gold in the indicated category and 9.82 million tonnes averaging 2.2 grams gold for 706,000 oz. contained gold in the inferred category. The resource estimate completed by Gold Fields in December 2012 was calculated at a gold price of US$1,650 per oz. and a cut-off grade of 0.6 gram gold per tonne.
Hummingbird's board believes the resource estimate can be enhanced by adjusting the modeling variables and incorporating more recent data and also points to significant exploration upside at the project. The project has more than 3,200 km of exploration ground and Hummingbird will have access to Gold Fields' database from 420,000 metres of drilling. The junior also estimates that historically, about US$100 million has been spent on the project.
Gold Fields' chief executive officer Nicholas Holland explained in a news release that while the scale of the known resource at Yanfolila did not support an operation of Gold Fields' scale and was "better suited" to development by a junior, the major still wanted to retain exposure to the advanced-stage "robust" and "high-grade" asset through a significant shareholding in Hummingbird.
The project — 285 km from Bamako — lies in the Yanfolila greenstone belt along the eastern margin of the Siguiri Basin, which is part of the Birimian volcano-sedimentary series of the West African craton.
Hummingbird plans to develop the oxide resource first with a carbon-in-leach operation over a mine life of six years. In the first year the junior expects to produce 81,000 oz. gold at a cash cost of US$503 per oz. and all-in sustaining costs of US$700 per oz. Management forecasts initial capex will run to about US$52 million and life-of-mine capex to US$71 million.
Dan Betts, Hummingbird's managing director and chief executive officer, explained in a news release that the project not only offers the company a "fast, simple and low-cost route to production" but that cash flow from Yanfolila will enable it to optimise the development of its flagship Dugbe 1 project in Liberia and "open up a number of further funding opportunities."
The company says it is on track to complete a definitive feasibility study on Dugbe 1 in the third quarter of this year. The Dugbe 1 project is about 64 km from Liberia's deep-water port of Greenville.
Analysts at Investec Securities in London noted in a research note that the addition of Yanfolila to Hummingbird's portfolio is an "encouraging development" and "will hopefully provide a low cost rapid route for the company to evolve from explorer to producer."
They cautioned, however, that Hummingbird has only provided details on production in year one and did not provide an indication of "how grades at the project evolve." They said they will wait to see further news on the project "as management get to grips with it."
"In time this will hopefully better position the company to develop other assets in its portfolio," they commented.
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