Amara delivers on a golden promise

During an interview in Toronto with The Northern Miner last year, Amara Mining (AMZ-T, AMA-L) chief executive Peter Spivey said the London-based company would release an updated resource estimate in the first quarter of 2013 defining a large, gold-mineralized sulphide deposit underlying previously mined oxide resources at its Yaoure gold project in the Ivory Coast.

Spivey has kept this promise, and on March 25 unveiled that Amara’s 90%-owned project contains a 1.7 million inferred oz. sulphide resource of 34.6 million tonnes grading 1.52 grams gold per tonne at a 0.8-gram-gold-per-tonne cut-off grade and a US$1,500 per oz. gold price.

Indicated resources were upgraded to 340,000 oz. gold in 8 million tonnes grading 1.31 grams gold. (Previously, measured-and-indicated resources tallied 4.9 million tonnes at 1.61 grams gold using a 0.5 gram cut-off.)

Particularly exciting for Spivey, however, is that the volume of the new resource is just 40% of the total volume drilled, and excludes much of the anticipated higher-grade CMA zone. Amara has started a 14,000- to 16,000-metre infill drilling program and expects to deliver a further resource update in the second half, and a preliminary economic assessment (PEA) by year-end.

“We expect that the infill drilling will add another 2 million to 3 million oz. in the footprint of what we’ve been drilling in the last year,” Spivey said in a telephone interview from London. “It’s a super project and it’s probably going to be one of the next great discoveries in West Africa, for sure . . . we’ve drilled 106 diamond holes, and every single one of them has hit mineralization — and we haven’t found the ends of it yet.”

He adds that “in January, we drilled a 300-metre extension to the north and it keeps going, and we’re drilling to the south and it keeps going, so we have no idea how big it is.”

Among Yaoure’s other selling points is its good infrastructure. The project is 5 km from a 150-megawatt power station near the Kossou dam on the third-largest body of water in Africa, and is close to a number of towns. The project also has a mining licence and environmental permits that should trim the time it takes between exploration and development.

Last year Amara invested US$14 million on exploration at the project, and Spivey calculates that the resource boost represents a discovery cost of US$8 per oz.

Brock Salier and Filipe Martins of GMP Securities in London comment in a research note that the resource update demonstrates Yaoure “is showing signs of being a real project, which clearly strengthens the company’s development pipeline.”

They say that “Yaoure, unlike the majority of peers that still face permitting risk and are stranded, is fully mine permitted and benefits from excellent infrastructure, including low-cost hydro, roads, available water and attractive fiscal terms, grandfathered by the previous heap-leach operation. Overall, we expect this to bode well for a lower capital expenditure and operating expenditure operation, and support a faster-than-usual development.”

Yaoure is an epithermal-mesothermal, quartz-carbonate vein-style gold deposit where the mineralization is controlled by a thick shearing zone, which has resulted in multiple zones of alteration, quartz veining and gold mineralization.

Metallurgical testing shows a 94% recovery rate through a traditional carbon-in-leach circuit and confirms the mineralization is non-refractory. The second phase of metallurgical test work identifying the best processing route should be complete by June.

Two days after unveiling the resource estimate for Yaoure, Amara reported its 2012 financial results. The company had basic earnings per share of US22¢ and adjusted earnings of US3¢ per share, excluding exceptional items relating to exploration in Mali and Burkina Faso. Earnings before interest, taxes, depreciation and amortization reached US$24 million and the company ended the year with cash and liquid assets of US$36.2 million.

Amara spent US$61 million in 2012 on capital items, exploration and development, and the Sega deposit purchase in Burkina Faso from Orezone Gold (ORE-T) in a cash-and-share deal worth US$26.5 million. Sega is 20 km from Amara’s producing Kalsaka mine, which yielded 53,544 oz. gold last year at cash costs of US$961 per oz., excluding royalties.

“The key points about 2012 are that it was a year of investment for us, and we do expect to reap the rewards of that investment in 2013,” Spivey says. “We won’t be repeating that this year, and it’s set us up now to get the benefits of that. Production from Sega and Kalsaka will allow us to move into the development stage of Baomahun and complete a PEA for Yaoure.”

This year Amara forecasts production will fall somewhere in the range of 50,000 to 60,000 oz. gold. “With the move from Kalsaka to Sega anticipated by management to occur in the third quarter of 2013, we expect cash costs to reduce from their current level, as the higher-grade Sega ore is processed,” write London-based mining analysts Rob Broke and Nick Hatch of Westhouse Securities.

Amara expects to deliver a feasibility study for its flagship Baomahun project in Sierra Leone by the end of June, start the build in this year’s fourth quarter and pour its first gold in the second half of 2015.

“Baomahun is 3 million oz. gold at the moment, but in time it’s likely to be much larger when we really tackle its depth potential,” Spivey says. “The real potential is not an eight- to ten-year open pit, it’s likely to be a much larger mine coming from underground. Geologically, it’s analogous to the Lupin mine in the Northwest Territories and to the Hill 50 mine in Western Australia.”

Spivey notes that the Lupin mine, 90 km south of the Arctic Circle, was mined to a depth of 1,600 metres while Hill 50 was mined to 2,000 metres. “The deepest hole we’ve drilled is 700 metres, and the grades seem to get better with depth,” he says.  

While some analysts worry about Amara’s ability to finance the US$200-million capital investment estimated for Baomahun, others say the company has a lot of options. “We believe the partnership with Samsung, with which the company already has a US$20-million debt facility, means a significant portion of this investment requirement could be raised via debt,” Westhouse Securities analysts Broke and Hatch note. “In addition, the fact that Baomahun is wholly owned raises the possibility of bringing in a joint-venture partner, or potentially selling a small portion to a third party. Either way we don’t expect a significant equity raise anytime this year.”

At press time in Toronto, Amara shares traded at 55¢ apiece. The company has 168 million shares outstanding.