Loulo project shows potential of Senegal-Mali shear zone

Kniba, Mali — If West Africa has been the gold industry’s elephant country in the past decade, it is the Senegal-Mali shear zone where the biggest trophies have been bagged.

The biggest, certainly, was the Sadiola deposit, 120 km north of here. Operated by AngloGold (AU-N) and owned by AngloGold, Iamgold (IMG-T), the Malian government and the International Finance Corporation, Sadiola has made one mid-tier mining company and changed the face not only of the region but of the whole country in the seven years it has been in production.

But Sadiola has not been alone, because western Mali’s first brush with modern mineral exploration turned up a phalanx of discoveries, many of which promise to come into production thanks to improved gold prices. And make no mistake: improved gold prices are a major factor in that promise — witness the progress of the Loulo gold project, immediately northwest of Kniba.

Loulo, held by mid-tier producer Randgold Resources (GOLD-Q), is one of the oldest of the “modern” discoveries in Mali, dating to 1981. But time and chance happened to Loulo over and over, and only now is it emerging as a company-builder.

The 372-sq.-km property itself hugs the Falm River, which in this region marks the border between Mali and Senegal. The Senegal-Mali shear, Mali’s own Cadillac Break, runs fairly neatly down the Senegalese side of the Falm, and divides a package of metamorphosed sediments on the Malian side from a more typical Birimian volcanic and sedimentary terrane to the west. To the north are Sadiola and its satellite deposit, Yatela; to the south, the land rises into the mountainous country of eastern Guinea.

The Loulo property is home to a group of eight deposits, none exactly alike geologically. But it is on two of those deposits, Loulo 0 and Yalea, that the feasibility of the project hangs. At Loulo 0, in the west-central part of the property, stongly deformed tourmaline-bearing quartzite hosts stockwork and disseminated pyrite mineralization. Yalea, about 7 km to the southeast, is in an altered and sheared sedimentary sequence where gold mineralization occurs in disseminations and breccia zones.

The difference does not stop at host rocks, either. Loulo’s mineralization is heavily concentrated in the noses of folds — part of a complex and multi-phase deformation sequence where the host quartz-tourmaline rock has, because of its greater competence, developed open fractures that hold sulphides and gold.

Yalea is structurally simple by comparison: a 3-km-long, north-striking shear zone dips moderately to the east, with argillaceous quartzite on its footwall, greywacke on its hanging wall, and mylonite, breccia and highly altered sediments in between. But both deposits share one structurally controlled characteristic: the main mineralized zones occur as plunging shoots.

Like all the deposits of western Mali, Loulo 0, first drilled by the Syndicat Or in 1981, owes its discovery to reconnaissance-scale soil geochemistry, mainly undertaken by the Bureau de recherches gologiques et minires (BRGM) in the late 1970s. It was one of the first Malian properties acquired by BHP — now BHP Billiton (BHP-N) — in the Australian company’s foray into West Africa in the early 1990s. Chopping and changing corporate strategies pulled the major back out of West Africa in the middle of the decade, which put BHP’s property portfolio on the market; not coincidentally, many present-day projects are acquisitions out of that portfolio.

Randgold, then newly founded out of the unbundling of Rand Mines — a process that also created Randgold & Exploration (RANGY-Q) — bought BHP Mali in 1996, taking up a 50% interest in Loulo, and went to work. BHP’s work led Randgold to Yalea, and the first feasibility study, in 1997, coincided with both a drop in the gold price and the discovery of the Morila deposit in southern Mali, a project that dwarfed Loulo. Morila, now operated by AngloGold under a joint-venture agreement with Randgold and the government of Mali, was an easy choice for Randgold, which was already struggling with a difficult operation at Syama.

With production plans neatly shelved, the emphasis at Loulo and Yalea turned to finding enough mineralization to change the economic picture at the project. A second feasibility study, in 1998, concluded that the project needed another half-million ounces in reserve, or a gold price of US$325 per oz. to be economic. And the project settled into the gold industry’s long wait.

Fortunately, Randgold had struck a winner at Morila, and armed with cash flow from that project, the company found it easier to budget for exploration and development than some of its rivals. It also had the capital to take out the 29% interest that had been retained by La Source, the Normandy Mining-BRGM joint venture that held many BRGM exploration interests overseas. Randgold now owns an 80% interest, with the Malian government holding a 20% participating interest.

The persistent drilling rewarded Randgold with larger resources, partly from Loulo 0 and Yalea, but also from three satellite deposits — Loulo 3, P125, and P129 — in a neat triangle immediately north of Yalea. By late 2001, a revised resource calculation showed a total 4.3 million oz. on the property.

The largest deposit is Loulo 0, with measured and indicated resources of 15.6 million tonnes grading 4 grams gold per tonne. A further 2.4 million tonnes at 4.9 grams per tonne are inferred — a distinction made largely by sparser drilling below 250 metres vertical depth.

The Yalea deposit holds 9.7 million tonnes of measured and indicated resources grading 4 grams gold per tonne, mainly above 200 metres vertical depth. Its inferred resource is estimated to be 2.1 million tonnes grading 5.4 grams per tonne. Both Loulo 0 and Yalea are open at depth.

Resources at the satellite deposits are as yet only inferred. P129, the biggest, has a preliminary resource of 4.9 million tonnes at 1.4 grams gold per tonne. P125, just north of Yalea, holds 1.2 million tonnes running 3 grams per tonne, and Loulo 3 adds 300,000 tonnes of 2-gram material.

With the improvement in the gold market in 2002, Randgold management saw another chance for Loulo. US$325 gold was already in prospect, and the revised resource estimate might provide the extra reserve the project had needed.

An updated feasibility study came out in early 2003. It dissected the economics of two open pits, one at Loulo 0 exploiting a reserve of 5.7 million tonnes grading 3.5 grams gold per tonne and another at Yalea mining 6 million tonnes at 4 grams per tonne. Both pits have stripping ratios of just over 6-to-1. Oxide material can run as deep as 100 metres. “There’s a lot of easy-dig material in the pit,” says Randgold engineer John Steele.

Only 32% of the gold in resources converted to reserves in the feasibility study. But the operation offered to be economically robust based on that limited reserve, providing an internal rate of return of 20% using cash flows from a US$300-per-oz. gold price, and 46% assuming a price of US$400.

It’s a short-term project, with a mine life of only six years, but its potential for additional reserves at depth could extend the project life considerably. Randgold’s approach has been to lock in a feasibility study that it can use to finance production, then to build up mine life by drilling at depth. “We were happy that it was going to be a longer life than six years because of the deep drilling results,” says Mark Bristow, Randgold’s chief executive officer. “Now that we’ve banked it, we’re spending that extra round of exploration money to add to its life.”

The open pits at Loulo 0 and Yalea would be mined at the same time, at 180,000 tonnes per month. Randgold is set on contract-mining both pits, and has started its tender process. The design calls for a blend of soft and hard ore feeds, with roll and gyratory crushers feeding a conventional ball mill; the milled ore would be fed to a gravity circuit, with the gravity tails going to a conventional carbon-in-leach system.

Gravity recoveries are variable, depending on the ore type, and range from 4.7% in oxide ore from Yalea to 25% in sulphide ore from Loulo. Overall recoveries are best in oxide material, at 95-97%, dropping off in transitional and sulphide material from Yalea, where testing has shown recoveries of 84-89%.

Power

Power supply is the biggest infrastructural issue, and Randgold is in negotiation with nergie de Mali, the national electrical utility, over power rates. The utility has quoted hydroelectric power rates roughly in line with the estimates the feasibility study made for on-site generation with diesel power; for now, Randgold is proceeding on the assumption it will be generating its own power.

Water would be drawn from the Falm River, and Randgold will upgrade local roads to national standards (for which the government will reimburse the company).

The whole project is estimated to have a capital cost of US$75 million, and to have a cash operating cost of US$212 and a total cash cost of US$233 per oz. The capital expenditure is being financed largely through debt — Randgold has arranged US$60 million in project finance and has the cash to provide the rest. A project hedge locks in the gold price during the first years of the project.

Still, the longer-term future of Loulo lies in successful exploration, and particularly in finding the pay shoots — blind from surface — that have contributed to the deep resource up to now. Results have been encouraging: “the more we drill, the more we seem to find,” says Randgold geologist David Reading. Ultimately extending the deposit may mean an underground operation served by a ramp.

But the exploration challenge also represents an opportunity. “To grow Morila, you’ve got to find another one,” says Bristow, contrasting that with the persistence of mineralization at Loulo. “Loulo is extensional, classic Birimian geology.”