Investors say Tanzania a safe bet on gold

After South Africa and Ghana, Tanzania is Africa’s third-largest gold producer. That’s not a bad ranking for a country about the size of Texas.

It’s also one of Africa’s most peaceful countries, says Richard Corbo, an adviser to MDN(MDN-T, MDNNF-O), a Montreal-based company that holds gold assets in the East African nation.

Tanzania has come a long way, fast.

“Ten years ago, Tanzania was a virgin country as far as gold is concerned, but over the last decade it has just been booming,” says Corbo, an Africa veteran who has spent many years on the continent and who now advises MDN chairman and CEO, Paul Girard.

Despite sharing borders with a number of often-troubled nations, such as Kenya and Uganda in the north, Rwanda, Burundi and the Democratic Republic of the Congo on the west and Zambia, Malawi and Mozambique on the south, it has remained relatively stable.

“We don’t see a risk factor,” Corbo says. “There are a number of gold producers there because it’s safe and it’s quite stable and it’s very well organized. It has a strong army and it has negotiated solutions with neighbouring countries.”

Other advantages Corbo says are a strong legal system, governmentled efforts to stamp out corruption, and a fairly efficient business environment.

“Their business practices are quite good compared with other countries,” he says. “There is still pretty heavy bureaucracy — it’s a long process — but it’s efficient and it’s better than average.”

And with a royalty rate of 3% on gold and a corporate income tax rate of 30%, Tanzania’s tax policies are in line with the international average, he says.

At MDN’s 30%-owned Tulawaka gold mine, which poured its first gold in March 2005, production continues to rise. The mine churned out 54,251 oz. gold in the fourth quarter ended Dec. 31 — a new record for the company.

Last year, gold production jumped 28% year-on-year, rising to 178,618 oz., up from 139,655 oz. in 2006. The mill processed 433,921 tonnes of ore at an average grade of 13.66 grams gold per tonne, with a gold recovery rate of 93.6%.

The Tulawaka property lies 160 km southwest of the city of Mwanza, in the western Lake Victoria goldfields district and about 1,000 km northwest of Dar es Salaam, Tanzania’s largest commercial city on the edge of the Indian Ocean.

As of Dec. 31, the mine’s total cash balances were US$28.7 million. Net cash flow from operating activities for the fiscal year came in at US$65.2 million and the mine’s operating profits jumped year-onyear by 75% to US$60.5 million.

Says Corbo: “It’s a highly profitable mine with a high-grade open pit.”

Total cash costs in 2007 averaged US$271 to produce an ounce of gold, compared with US$268 in 2006.

Intotal, MDN sold 176,508 oz. gold — all of it on the spot market — at an average price of US$709 per oz. last year. That price was up significantly over the average price in 2006 of US$606 per oz.

Higher gold prices translated into higher annual revenues of US$125.1 million, up 41% from the 2006 tally of US$88.7 million.

Tulawaka’s operator, Pangea Goldfields a subsidiary of Barrick Gold (ABX-T, ABX-N), holds 70% of the project.

MDN used its share of revenues (US$17.1 million) to whittle down debt.

A paved highway from the railhead at Isaka to Burundi passes about 20 km south of the property, while the old road linking Dar es Salaam on the Indian Ocean to Burundi crossed the property 3 km south of the Tulawaka camp.

Gold was first discovered on the property in September 1998 by drilling soil geochemical anomalies. The main gold deposit at Tulawaka, the Eastern zone, is currently being mined.

According to a bankable feasibility study completed in 2003, the East zone has an indicated gold resource of 1.9 million tonnes grading 11.3 grams gold per tonne for 691,600 oz. gold. The zone also has an inferred resource of 89,000 tonnes grading 7.02 grams gold for 20,100 oz. gold.

But those are old numbers, Corbo explains, and he hopes MDN and Barrick will work towards updating and confirming a new resource calculation as soon as possible.

Under the initial bankable feasibility study, for example, the life of the open pit was estimated at five years, but Corbo says that it will probably be extended beyond that when a new resource calculation is completed.

The East zone ore is free milling with coarse gold and recoveries of up to 98%. The processing system includes run-of-mine stockpiling, primary crushing, single-stage semi-autogenous grinding, and gravity recovery followed by intensive leaching and carbon-inleach gold extraction. A cyanide detoxification process is being used to recycle water to the processing plant before tailings slurry is discharged to the tailings storage facility.

Mineralization is found in metasedimentary rocks, which consist of fine-grained laminated to coarse-grained bedded units and include silicate iron formations. Several generations of mafic to felsic dykes cut the metamorphosed host rocks.

Apart from the Tulawaka mine, MDN holds 20 prospecting licences stretching across 700 sq. km, all of them within 50 km– or trucking distance — of the Tulawaka mill. Those distances make developing the properties economic.

Of those licences, MDN’s primary gold targets are Isambra and Viyonz, where the company spent US$4 million on exploration last year.

Isambara, a 40-sq.-km property about 28 km north of the Tulawaka mine, has shown some encouraging drill results. They include 10.42 grams gold per tonne over 11 metres; 11.98 grams gold over 6 metres; 14.93 grams gold over 5 metres and 15.53 grams gold over 8 metres.

Viyonza, meanwhile, a 103-sq.-km property just 15 km north of the Tulawaka mine, posted drill results including 35.95 grams gold over 2 metres; 17.15 grams gold over 3 metres; 7.27 grams gold over 9 metres; and 13.34 grams gold over 4 metres.

MDN’s primary goal this year is to finalize resource calculations on the two licensed properties.

“It is viable with the price of gold being what it is now that you don’t need too much gold per tonne to be profitable, especially when you are talking about an open-pit resource and Isambara is looking quite promising,” Corbo says.

The company is planning to spend about US$5 million on exploration drilling this year, mainly at Isambara and Vivonza.