Nevsun to sell Kubi to Ashanti Goldfields

African producer Ashanti Goldfields (AHD-T) will pay Nevsun Resources (NSU-T) US$1.8 million, in addition to a production royalty, for surface rights to the Kubi gold project in Ghana.

Nevsun owns 100% of the project, subject to an allowance for a government shareholding of 10%. The agreement calls for Ashanti to make the initial US$1.8 million payment for the first 60,000 oz. produced, and royalty payments thereafter of US$15 per oz. for any ounces produced in excess of 60,000.

Furthermore, should the price of gold exceed US$325 per oz., Ashanti will be required to pay a further 20% of the amount by which the realized price exceeds US$325 per oz. This translates into an additional US$5 per oz. for every US$25-per-oz. price increase over US$325 per oz.

The transfer of the surface rights remains subject to government approval.

An updated resource estimate was prepared in November 1998 by Pearson, Hofman & Associates. Using a cutoff of 3 grams gold per tonne for sulphides and 0.5 gram for oxides, the consultants estimated an indicated sulphide resource of 2 million tonnes grading 6.15 grams, equivalent to 401,000 contained ounces, and an indicated oxide resource of 900,000 tonnes grading 2.95 grams, equivalent to 84,000 oz. — for a total 485,000 ounces. The inferred sulphide resource stands at 1.5 million tonnes grading 6.01 grams for an additional 282,000 oz.

The agreement calls for a minimum annual production rate of 30,000 oz. by year five, or the property may revert back to Nevsun. Ashanti will have the option to mine the underground resources at Kubi. If, after four years, Ashanti has not exercised that option, the company can request an extension and pay an additional US$450,000.

The Kubi concession is south of, and adjacent to, Ashanti’s Obuasi operation, which produced 222,007 oz. at a cash cost of US$219 per oz. in the fourth quarter of 1998 and 885,342 oz. at US$235 for the year.