In an interview in Toronto with The Northern Miner last year, Amara Mining (AMZ-T, AMA-L) chief executive Peter Spivey predicted the company would release an updated resource estimate defining a large mineralized sulphide deposit underlying previously mined oxide resources at its Yaoure gold project in the Ivory Coast during the first quarter of 2013.
Spivey kept that promise and on Mar. 25 unveiled that Amara’s 90%-owned gold project contains a 1.7 million oz. sulphide inferred mineral 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 at a US$1,500 per oz. gold price.
Indicated resources were also upgraded to 340,000 oz. gold from 8 million tonnes grading 1.31 grams gold. (Previously, measured and indicated resources tallied 200,000 oz. gold from 4.9 million tonnes grading 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. The London-based company has started a 14,000-16,000 metre in-fill drill program and expects to deliver a further resource update in the second half of the year and a preliminary economic assessment by year-end.
“We expect that the infill drilling will add another 2-3 million ounces in the footprint of what we’ve been drilling in the last year,” Spivey says 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 have hit mineralization and we haven’t found the ends of it yet.”
“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 proximity to 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 also close to a number of towns. The project also has an existing mining license and environmental permits that will enable the company to 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 increase in mineral resources represents an average discovery cost of about US$8 per oz.
Brock Salier and Filipe Martins of GMP Securities in London commented in a research note that the resource update demonstrates that Yaoure “is showing signs of being a real project which clearly strengthens the company’s development pipeline.”
“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 and availability of water and very attractive fiscal terms grandfathered by the previous heap leach operation. Overall, we expect this to bode well for a lower capex and opex operation and to 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 zone of shearing, which has resulted in multiple zones of alteration, quartz veining and gold mineralisation.
Metallurgical testing demonstrated a recovery rate of 94% through a traditional CIL circuit and has confirmed the mineralisation is non-refractory. The second phase of metallurgical test-work to identify the best processing route will be completed by the end of the second quarter of 2013.
Two days after unveiling the resource estimate for Yaoure, Amara reported its 2012 financial results. The company reported basic earnings per share of US$0.22 and adjusted earnings of US$0.03 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 purchase of the Sega deposit in Burkina Faso from Orezone Gold (ORE-T) in a cash and share deal worth US$26.5 million. Sega is about 20 km from Amara’s producing Kalsaka mine, which produced 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, complete a PEA for Yaoure.”
In 2013 Amara forecasts production will fall somewhere in the range of 50,000 oz. to 60,000 oz. gold. “With the move from Kalsaka to Sega ore 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 the fourth quarter of 2013 and hopes to 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 start really tackling the depth potential of it,” Spivey says. “The real potential is not an 8-10 year open pit, it’s likely to be a much larger mine coming from underground. Geologically it’s very analagous 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 in Canada was mined down to a depth of 1,600 metres and Hill 50 was mined down to a depth 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 may worry about Amara’s ability to finance the roughly US$200 million capital investment estimated for Baomahun, others say the company has many options available to it. “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 presstime in Toronto Amara shares were trading at 55¢ apiece. The company has about 168 million shares outstanding.
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