Aureus Mining beats the odds in Liberia

Despite two nearly back-to-back civil wars in the 1990s that left Liberia in ruins and over a quarter of a million people dead, and now the Ebola outbreak that has killed 1,830 people in the country already this year, Aureus Mining (TSX: AUE; LSE: AUE) says it is on track to pour gold next March at what will be the West African nation’s first commercial gold mine.

Mining operations at the high-grade New Liberty open-pit gold project in northeastern Liberia are expected to start in January 2015, and the company forecasts that full commissioning and steady operations will be completed by June 30.

President and CEO David Reading says there is no Ebola in the project area or in the surrounding villages, but says the company is taking stringent precautions that range from temperature screening to using charter flights to transport employees and contractors in and out of the country.

The junior is also an active member of a group of 11 companies operating within West Africa and neighbouring states affected by the virus. The group is in regular dialogue with governments, non-governmental organizations and other task forces involved in combating the disease. In addition, the company is donating medical supplies and seconding senior personnel to help fight the epidemic.

“We’re doing our best to help the government and make people more aware, and we have educational programs to make sure people are washing their hands,” Reading says in an interview from his office in London. “We’re very on top of it.”

It was artisanal miners that found the Archean shear-hosted gold deposit, 100 km northwest of the capital of Monrovia. Mano River Resources — a predecessor of African Aura and subsequently Aureus Mining — followed up on the artisanal sites, starting early work there in 1998. Trenching returned 4.1 grams gold per tonne over 20 metres across an area of primary rock exposure, and the discovery hole in 1999 returned 12.8 grams gold over 16 metres.

But the outbreak of the first civil war (1989–1996), followed by the second civil war (1999–2003), disrupted exploration and development work. It wasn’t until 2006, with the election of President Ellen Johnson Sirleaf, that people trickled back to the country, with serious exploration resuming on the property in 2009.

Aureus Mining was formed in 2011 from a split of African Aura, and the company began a comprehensive drill program to determine grade and geological continuity over the 2 km, east- to west-striking orebody. Today the project’s proven and probable reserves stand at 8.5 million tonnes grading 3.4 grams gold per tonne for 924,000 contained oz. gold.

Initial capex for the fully funded project has been put at US$152 million (that sum includes a contingency, which has not yet been used) and an optimized definitive feasibility study completed in May 2013. Based on a US$1,400 per oz.  gold price, estimated life-of-mine operating cash costs will average US$668 per oz., with all-in-sustaining costs at US$850 per oz. 

The mine is expected to produce 859,000 oz. gold over its eight-year mine life. During the first six years it would produce 120,000 oz. at an average grade of 3.6 grams gold per tonne. Recoveries from the conventional gravity and carbon-in-leach processing plant is 93%.

New Liberty will be Aureus’ first gold mine on its 1,470 sq. km licence area in Liberia, but it likely won’t be its last. The company has already finished initial resource estimates on two satellite deposits on its 457 sq. km Bea Mountain mining licence: Ndablama, 40 km northeast of New Liberty, and Weaju, 10 km from Ndablama.

Weaju has inferred resources of 2,680 tonnes grading 2.1 grams gold per tonne for 178,000 oz. gold, and Ndablama has inferred resources of 6,829 tonnes grading 2.1 grams gold for 451,000 oz. gold.  

Ndablama was an in-house discovery and Aureus started trenching and drilling the target 18 months ago.

“We liked the area because it was on the edge of a granite and the ‘toe’ area of the granite is a ‘pressure shadow’ area, so the rocks tend to slide off each other like a pack of cards … they naturally just open up, there’s more dilation there,” Reading explains. “We knew there was gold there. We just didn’t know how much gold was there.”

Reading adds that he and his geological team liked the model at Ndablama. “It’s flat-dipping and quite open and that’s why it’s called a pressure shadow zone, because it’s in the shadow of the deformation area.” In addition to its dip, which ranges from 10 to 30 degrees, other favourable characteristics include its high-gravity recovery. Preliminary metallurgical tests reported in December 2013 indicated a 70% average gravity recovery. The high-gravity recovery allows Aureus to consider the possibility of an initially lower capex at Ndablama by producing only a gravity concentrate there, which could be flown to the New Liberty plant for processing into doré.

Reading also points out that the company can trace the flat-dipping shear structure over 5 km and that Aureus has only drilled one of the 5 km. “There are lots of opportunities to expand this,” he says.

The latest batch of drill results from 24 diamond drill holes and 25 reverse-circulation drill holes at Ndablama were released on Sept. 30. Highlights from the diamond drill holes included intercepts of 3 grams gold over 28 metres from 139 metres; 2 grams gold over 22 metres from 98 metres; 2.8 grams gold over 24 metres from 88 metres; and 3.3 grams gold over 18 metres from 123 metres.  

The company expects to update the Ndablama resource later this month or in early November. Since the first resource was completed, it says, drilling has doubled the extension’s downdip deposit. 

As for Liberia as a mining jurisdiction, Reading points out that the country lacks a history of commercial gold mining, but it has a long history of iron-ore mining by majors such as ArcelorMittal (NYSE: MTN) and BHP Billiton (NYSE: BHP). He says it has a good mining code based on the Tanzanian model, a proper government, a ministry of mines and a fiscal package featuring a 3% royalty, 25% corporate tax and 10% free-carried interest.

“Compared to some of the other countries in Africa, it’s competitive,” he says, adding that Liberia is not landlocked, so getting a lot of equipment to the project hasn’t been a challenge.

“We got a ball mill from the port in Monrovia to the site in one day, so as projects go in West Africa, this is about as good as they get in terms of infrastructure.”

Reading should know. The geologist has worked for decades in Africa including stints as CEO of European Goldfields and in senior management at Randgold Resources (NASDAQ: GOLD; LSE: RRS), where he helped discover and develop the Loulo, Morila and Tongon mines.

He also brings experience working with local communities. Aureus relocated 3,000 people to new villages 3.5 km from the New Liberty mine site, and instead of hiring a contracting company, it developed several local co-operatives to help with the task. “We started a brick-making co-operative, a roof-making co-operative, and a window and door-frame-making co-operative,” he explains. “It went well. We were kind of unique in a way in that we got these villages involved … no one has quite done it like that.”

At press time Aureus’ shares traded at 38.5¢, with
in a 52-week range of 36¢ to 69¢ per share.

Major institutional shareholders include BlackRock (9.7%), IFC (7.9%) and Blakeney (7.2%).