Mark O’Dea’s True Gold proves Karma’s potential

VANCOUVER — True Gold Mining (US-OTC: RVREF) can turn its Karma gold project in Burkina Faso into an open-pit heap leach mine generating strong returns for just US$131.5 million, according to a new feasibility study.

Karma offers all the characteristics needed for a straightforward, low-cost mine. The gold at Karma is close to surface. The rocks are highly weathered, which means gold leaches quickly and easily. Weathering also means the rocks at Karma are soft, and most of the resource can be free dug, eliminating the need for drilling and blasting.

The five deposits at Karma offer an average reserve grade of 0.89 gram gold per tonne, which would make a Karma mine one of the higher-grade heap leach operations in the world. The deposits can be developed sequentially, lowering initial costs. And there is enough power and water available locally to support a mine at the project, which sits 23 km from the third-largest city in the country.

All those attributes mean the planned mine at Karma should generate a 43.1% after-tax internal rate of return (IRR) at a US$1,250 per oz. gold price. A US$1,000 per oz. gold price still returns a laudable after-tax IRR of 21.3%.

“Our goal over the last fifteen months has been to design a project that meets four criteria,” said Mark O’Dea, True Gold’s chairman, in a conference call. “This feasibility study we believe shows a project that meets all four of those criteria: it’s straightforward, it’s financeable, it has tremendous room to grow and it could form the foundation upon which we could build a mining company. It’s exactly the kind of project we want to be building in this gold environment.”

The five planned pits at Karma contain 949,000 probable oz. gold reserves. The two pits with the highest grades — GC2 and Rambo — would be mined first, enabling capital payback in just 1.4 years.

An owner-operated mining fleet would move 36,000 tonnes of material daily, of which 11,000 tonnes per day would be sent through the crushing and agglomeration facility before being laid on the leach pad. Over its lifespan the mine would bear an average strip ratio of 2.43 tonnes of waste for each tonne of ore.

Karma’s ore responds well to heap leaching, giving an average 87.2% recovery. A carbon-in-column circuit would then extract the gold from the pregnant cyanide-leach solution. The loaded carbon would be stripped via elution and the resulting product subjected to electrowinning and smelting to produce doré on site.

The mine would produce an average of 97,000 oz. gold annually for 8.5 years. Direct operating costs for each ounce total US$591. The mine’s all-in sustaining cash cost per ounce should average US$720.

Total pre-production costs total US$131.5 million. That number would have been even smaller if True Gold planned to use a contract miner, but the company is confident Karma will be better off in the long term as an owner-operated mine.

“The owner-operated scenario offers lower operating costs, a lot more flexibility and a healthier cash flow,” O’Dea said. “If we thought we were just going to have a six- or seven-year mine life, we would likely go with contract mining. But we see a district building at Karma, with a much longer potential mine life.”

O’Dea and his team stressed the efforts that went into designing a project that takes advantage of Karma’s unique characteristics. For example, as a heap-leach operation Karma will only require 1.5 million cubic metres of water a year, which is considerably less than a similarly sized carbon-in-leach mine would require. In a country where water is scarce, lower water consumption is a benefit in itself, while also eliminating the need to build a large water reservoir.

The plan gives Karma a net present value (NPV) of US$178.2 million, using a 5% discount rate and a US$1,250 gold price. Analysts who follow True Gold were united in their enthusiasm around Karma’s economics, particularly its high IRR, low capital costs and continued strength at lower gold prices.

“In general, the feasibility study highlights the ‘top quartile’ nature of the Karma project, an asset that deserves to get financed and built, even in a lower gold price environment,” wrote Mike Kozak of Cormark Securities. Kozak later described the 43.1% IRR at US$1,250 per oz. gold as “incredibly robust” and concluded by calling Karma “the best development-stage gold project in West Africa controlled by a junior company,” and labeling True Gold’s management team as the “best in class.”

True Gold envisions building the mine at Karma over 18 months, starting in mid-2014. Many permits are already in hand, and True Gold expects to achieve the remaining development permits within the next three months. True Gold and the government of Burkina Faso will settle the Karma Mining Convention, which will set the terms governing the project, once exploitation permits are issued.

To build the mine the company will have to relocate a small settlement and a village. Before construction can begin, a settlement of 35 people in the proposed leach-pad area will be relocated. Then, in the second year of operations, the 400 people living in the town of Boulonga will be relocated to enable the development of the Kao pit.

In addition to the relocations, True Gold would pay compensation to local subsistence farmers for disturbing 520 hectares of farm land. The company and the communities around Karma have signed agreements governing the relocations and the land compensation. 

Overall in-pit resources at Karma come in at 75.2 million indicated tonnes grading 1.08 grams gold, plus 17.5 million inferred tonnes averaging 1.25 grams gold. Within that, leachable reserves stand at 33.2 million probable tonnes grading 0.89 gram gold.

However, True Gold is building a scalable mine at Karma because the company is convinced the project holds more mineable gold. In 2013 the company completed 30,000 metres of exploration drilling that showed potential to expand the planned pits at Kao and Rambo, while also outlining new mineralization at Watinoma.

The most obvious exploration success came at Kao. There True Gold tracked gold mineralization 2 km north from the planned pit, more than doubling the potential resource footprint of what was already the project’s largest deposit.

The company plans to spend $3 million on exploration in 2014. It will also complete a resource estimate for North Kao. If the results of that estimate warrant it, the company would then complete a scoping study around how to incorporate North Kao into the Karma mine plan, either by increasing throughput or extending the mine’s lifespan.

True Gold will use this feasibility study to secure the funds needed to build Karma. O’Dea says the company will consider all financing options, but he is certain the project’s strong economics mean the money will be available.

“While Karma has tremendous leverage to a rising gold price, what I really want to emphasize is that at US$1,000 per oz. gold it still has a 21% IRR,” he said. “The resilience of this project gives it broad appeal to both lenders and investors.”

O’Dea expects to have a project financing package combining debt and equity by mid-2014. The company has more than enough cash on hand to carry it until then: strategic investments with Teck Resources (TSX: TCK.B; NYSE: TCK) and Liberty Metals & Mining Holdings put $35.5 million into the company’s treas
ury over the last seven months. About $30 million is still there.

True Gold’s share price gained 1.5¢ on news of the Karma feasibility to close at 40¢. A year ago shares were worth 68¢. In mid-year they dipped as low as 21¢.

True Gold has 265 million shares outstanding.