The first results are in from a 5,000-metre drill program launched in February at Roxgold’s (TSXV: ROG; US-OTC: ROGFF) Bagassi South target in Burkina Faso, and president and CEO John Dorward says he’s pleased with both the grades and widths of many of the intercepts, including 3.7 metres of 19.9 grams gold per tonne in one hole and 3.8 metres of 16.2 grams gold in another.
“We got pretty nice holes of around half an ounce of gold per tonne over decent widths,” he says. “We had good high-grade results last year, but we had a bit of a challenge stringing them together or replicating them. But since we did some induced-polarization work there and quite a bit of structural modelling, our ability to hit the structure has increased quite remarkably, and we got proof in the pudding with some of these latest results. We now have a decent handle on the structure.”
At the end of October 2013, the company reported intercepts from Bagassi South that included 10.97 grams gold per tonne over 2.6 metres within a wider intercept of 2.53 grams gold per tonne over 13.9 metres, and 14.4 grams gold over 0.5 metre.
Bagassi South is part of the company’s 100%-owned Yaramoko permit in Burkina Faso’s Houndé greenstone belt, and is just 1.8 km from the project’s flagship 55 zone and its proposed processing facility.
With 2014’s first 5,000-metre drill program completed, Dorward says the company is planning a second 5,000-metre program and already booked a rig. A good part of the upcoming program will be at Bagassi South, its priority target, but will also include some drilling at Haho, a second major target at the project. Haho 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 planned Yaramoko mill site next to the 55 zone.
Roxgold has no debt and $18 million in its treasury, which Dorward says means that the company is well capitalized for its exploration program this year. He also expects the 2014 drill program will exceed the 10,000-metre program already on the books.
The company expects to complete its feasibility study on Yaramoko in early April after finishing a preliminary economic assessment last September. The PEA estimated pre-production capital of US$93.8 million, consisting of US$37.7 million for the underground mine, US$24.2 million for the processing plant, US$14.4 million for infrastructure, US$7.1 million for owner’s costs and US$10.4 million to cover contingencies.
Dorward — who was vice-president of business development at Fronteer Gold when it sold its Michelin deposit to Paladin Energy (TSX: PDN), acquired AuEX Ventures and was sold to Newmont Mining in 2011 for $2.3 billion — is confident Roxgold can raise the money it needs to put Yaramoko into production, and expects it to come from project and equity financing.
“We are working with a number of banks on a potential project financing facility, so I would anticipate that the majority of funds will come from a project-financing facility and the balance will come from equity, and we’ve had a reasonable track record of raising financing in the last twelve months in a difficult market, and there is appetite from investors for quality stories,” he says.
Yaramoko has an estimated 10-year mine life, according to the PEA. Average annual production during the first five years is expected to reach 98,300 oz. gold, with average total costs including royalties of US$455 per oz. and all-in sustaining costs of US$681 per oz. Over the 10-year mine life, average total cash costs, including royalties, are forecast to be US$530 per oz.
The economics of the project outlined in the PEA include a 47.7% after-tax internal rate of return, with a payback of initial capital in just under a year and a half. The after-tax net present value at a 5% discount rate is estimated to hit US$192 million, based on a US$1,300 per oz. gold price.
In terms of permitting, Roxgold expects to finalize its environmental and social-impact assessment before the end of March, which will start the ball rolling to have it approved in the third quarter, Dorward says, noting that permitting in Burkina Faso is a three- to six-month process.
The company plans to hire contract miners and has already received tenders from some of the leading contractors in the region. That means Burkina Faso’s shortage of skilled workers with experience in underground mining (the country only has one underground operation) shouldn’t pose a problem, Dorward explains. “These contractors can draw from their pool of skilled workers in neighbouring countries such as Mali and Ghana,” he says.
Tara Hassan of Haywood Securities likes what she sees at Roxgold. “In a period marked by gold commodity and equity volatility, many companies were making headlines for the wrong reasons, after undergoing notable corporate or operational stumbles,” she writes in a research note after news of the latest drill results. “Although Roxgold’s stock chart for 2013 doesn’t look much different from many of these companies, its corporate and project developments tell a different story.”
In just over a year, she says, the company has grown indicated resources in two separate resource updates by 135%, completed preliminary metallurgical test work demonstrating recoveries of more than 94% and finished a PEA.
“As a result of these advances we believe that Roxgold has demonstrated over the past year that its Yaramoko project is one of substance, and that it is a company capable of capitalizing on this substance through what we consider to be a conservative development and construction process,” she concludes.
Raymond James mining analyst David Sadowski is bullish on the junior’s prospects as well, and is recommending his clients to add to their positions, calling recent share price levels “compelling” and emphasizing that the company “is on the verge of achieving several critical milestones in the coming months.”
Over the last year Roxgold has traded in a range of 36¢ to 76¢ per share, and at press time traded at 64¢ per share. Roxgold has 186 million shares outstanding.
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