A feasibility study on the 55 Zone of Roxgold’s (TSXV: ROG; US-OTC: ROGFF) Yaramoko gold project located 200 km southwest of Ouagadougou in Burkina Faso improves on the results of a preliminary economic assessment delivered late last year and outlines robust economics — even at gold prices below current levels.
“It’s a resilient project over a variety of gold prices,” John Dorward, Roxgold’s president and CEO, commented in a telephone interview. “We’re very happy.”
At US$1,100 per oz. gold, the project yields an after-tax net present value of US$168 million at a 5% discount rate, a 35.2% after-tax internal rate of return (IRR) and a 2.4-year payback period. These numbers jump to US$250 million and 48.4% at US$1,300 per oz. gold, with the payback period dropping to 1.6 years.
“Yaramoko still returns 35.2% after-tax IRR at US$1,100 per oz. — this exceeds our expectations of base-case economics that majors such as Barrick and Randgold are requiring for projects now,” Tara Hassan of Haywood Securities said in a research note. “With the project ranking amongst the highest-grade [top undeveloped gold projects globally] and lowest-cost projects [bottom 20% globally and bottom 5% in West Africa], a compelling feasibility study in hand and cash flow beginning in 2016, we expect Roxgold’s share-price appreciation to continue.”
Results of the feasibility study sent Roxgold shares up a cent to close at 63¢ apiece. Over the last year the junior has traded within a range of 36¢ to 76¢ per share.
The planned underground operation is expected to run at 750 tonnes per day and produce an average 99,500 oz. gold a year at all-in sustaining costs of US$590 per oz., at a 17% decrease from the PEA. Average total cash costs including royalties are pegged at US$467 per oz., which is a 12% reduction from the PEA.
Pre-production capex is estimated at US$106.5 million, up 14% over the PEA. The increase comes from including the US$8.7 million it will cost to build a power line and transformers that would tie into a 90-kilovolt power line that runs 3 km from the project. Accessing that power would slash Roxgold’s costs down from 45¢ per kilowatt hour (the high-speed diesel assumption used in the PEA) to 17¢ per kilowatt hour in the feasibility study. “It gives us a unique cost advantage,” Dorward says. “It saves us US$5 million a year in operating costs.”
The processing facility would include a single-stage, jaw-crushing, semi-autogenous grinding (SAG) mill, gravity recovery, leaching and adsorption circuits, gold recovery and thickening. Recoveries, based on three rounds of metallurgical test work, average 96.9%.
The study is based only on the 55 Zone’s indicated resource, which, at a cut-off grade of 5 grams gold per tonne, stands at 1.6 million tonnes grading 15.80 grams gold per tonne for 810,000 contained oz. gold.
Roxgold aims to begin underground development work in this year’s fourth quarter, and believes 2016 will be a full production year. “We’re looking at breaking ground in the fourth quarter, so we would begin the box cut and portal, and start the underground ramp at the same time as we’re starting on civil engineering for the processing plant,” Dorward says. “A fourth-quarter start and then a fourth-quarter 2015 start-up — so we’re looking at a 12-month construction time frame. Given the size of the project and its relatively compact nature, I think 12 months or so is ample time to get it built.”
Roxgold believes that the 55 Zone offers exploration upside that could extend the 7.4-year mine life outlined in the feasibility study (versus the 10 outlined in the PEA). The feasibility study envisions that the mine will be more productive in its early stages and excludes the project’s inferred resource below the 430-metre level, which stands at 840,000 tonnes grading 10.26 grams gold for 278,000 contained oz. gold. Converting these inferred resources into the indicated category through infill drilling is a priority, management says.
The company thinks it can expand the entire resource with step-out drilling laterally and at depth. The deposit is open to expansion along strike below 500 metres as well as down-plunge, where the deepest hole intersecting the deposit to date was drilled at 900 vertical metres.
The feasibility study improved on the PEA after a number of optimization studies. A geotechnical study resulted in a large reduction of footwall and lateral development throughout the mine plan, for instance. (Lateral development in the feasibility study was reduced to 20,000 metres from the 42,000 metres outlined in the PEA.) And including a secondary ramp allowed for a more productive and flexible mine plan, Roxgold says.
The revised mine plan also included more cement-rock backfill into open stopes. This allows for remaining gold extraction in rib and sill pillars in the PEA, which amounts to a US$49-million reduction in sustaining capital in the feasibility study, which has a 430-vertical-metre economic cut-off, as opposed to the 720 metres considered in the PEA.
Roxgold also finished detailed metallurgical work to optimize recoveries and flow sheets. The study included optimizing the flow sheet to include a SAG mill as opposed to a ball mill, which would allow for potential expansion of up to 900 tonnes per day by incorporating a larger motor.
The deposit will be accessed from a single decline to the 5,270 level, where a cross-cut will be driven to the deposit’s western side. At that point, two spiral declines will be driven and connected through sub-level development at 17-metre spacing along strike. At the 5,270 level, the double decline access ends and a single decline progresses to the 4,884 level, at a 430-vertical metre depth from surface. The mine plan incorporates 24 levels of lateral development to open multiple working faces and allow operating flexibility.
Dorward notes that Roxgold has designed the project with expandability in mind so that it can incorporate more feed from the 55 Zone, as necessary, or from new sources of feed elsewhere on the Yaramoko property. The company’s geologists discovered the 55 Zone as a greenfield in 2010 and have identified several other targets on the 167 sq. km Yaramoko permit in the Houndé greenstone belt.
Roxgold has budgeted US$5 million for exploration this year. Drilling at its Bagassi South target — 1.8 km from the 55 Zone — returned high-grade results in February, including 19.94 grams gold over 3.7 metres and an intercept of 41.7 grams gold over 4.4 metres in July 2013. The Haho target is 4.5 km from the 55 Zone and 10 km south of Semafo’s (TSX: SMF; US-OTC: SEMFF) Siou deposit. A third target, the 117 zone, is just a few hundred metres from the Yaramoko mill site at the 55 Zone.
On a conference call, Dorward described Yaramoko as a “superior asset” and said the project ranks “as the highest-grade undeveloped project in the world.”
He commented that Yaramoko’s capex is “modest” compared to other West African developers, as well as globally, which makes it “eminently financeable”.
“We’ve had discussions now for some months and with the feasibility study tabled . . . there’s enough due diligence for those guys to sink their teeth into,” he said, adding that the company is looking to raise US$60 million through debt financing.
“In terms of timing, we feel comfortable that the debt financing won’t hold up our development,” he said. “We think we’ll have a chance to select our preferred contractor and move toward financial close comfortably within the time frame.”
Under Burkina Faso’s mining code, the government is entitled to 10% of the project, and royalty rates depend on the gold price. When the gold price is US$1,300 per oz. or greater, the royalty rate is 5%, whereas when the gold price is between US$1,100 and US$1,300 per oz., the royalty drops to 4%, and hits 3% when the gold price falls below US$1,100 per oz.
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