True Gold takes another step at Karma

True Gold Mining(TSXV: TGM) is closer to making its Karma project in Burkina Faso into a mine.

On the heels of releasing a simplified feasibility study that emphasized lower cost through a heap leach operation, the company has announced that construction on phase two of the barrage fresh water reservoir is underway.

Phase one of barrage was finished last year and phase two, which is expected to cost $2.5 million, should be done by June.

The company says getting the reservoir done is a key element to developing and operating a heap leach mine at Karma as it will enable it to collect water during the 2014 rainy season, which will ensure the project has enough water during mine construction in 2015.

Its completion should also strengthen community relations, as water will be made available to local residents for agriculture and livestock.

Once built, the Karma mine is expected to produce 97,000 oz. of gold per year over an 8.5 year mine life at total cash cost of US$672 per oz.

The feasibility study released in December calculated net present value (NPV) of US$178.2 million using a 5% discount rate and a 21.3% internal rate of return (IRR) using a gold price of US$1,000 per oz.

Initial capex is expected to be US$131.5 million with additional sustaining capex of US$40 million.

Scotia Capital Markets analyst Ovais Habib says the financing, which will likely be made up of some combination of debt, vendor financing and equity, should be the next driver of the company’s stock price as it represents the last hurdle before construction gets underway.

Habib expects the financing to be in place before the end of the second quarter and  has True Gold rated as ‘sector outperform’ with a 55¢ price target.

In the meantime investors can consider the resource upside of the project, as the recent feasibility study did not include any of the roughly 29,000 metres of exploration drilling done last year.

The company plans to release an updated resource estimate some time in the first quarter and that resource will include the Kao-North exploration target. The target encompasses 2,000 metres of extension north of the Karma’s largest deposit Kao.

Highlight intercepts from the Kao-North extension include 46.5 metres grading 1.4 grams gold and 44 metres grading 1.23 grams gold.

Karma currently hosts probable reserves of 33.2 million tonnes grading 0.89 grams gold for 949,000 oz.

All the activity at Karma has also attracted the attention of Haywood Securities analyst Tara Hassan.

“With the project standing out against peers based on the recent feasibility study and room for upside with oxide resource growth expected at Karma, we continue to view True Gold to offer a compelling investment opportunity,” Hassan wrote in a research note.

Haywood has True Gold rated as a ‘buy’ with a 65¢ target price.

In Toronto on January 8 the company’s stock was off 1% to 40¢ on 161,442 shares traded.


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