Roxgold (TSXV: ROG; US-OTC: ROGFF) has kicked off construction at its high-grade Yaramoko gold project in southwestern Burkina Faso, with an aim of starting production in the second quarter of 2016.
The junior broke ground at Yaramoko in early April, within three years of publishing an initial resource estimate on the 55 Zone. Since then, it has delivered a preliminary economic assessment, completed a feasibility study and finished permitting, and secured project financing.
“We’re fortunate in that we have got a really, really nice project. It’s high-grade, basically free gold in a quartz vein that is reasonably wide,” Roxgold’s president and CEO John Dorward says. “So it doesn’t have any particular metallurgical challenges or have the ordinary mining challenges, or anything like that. And that has enabled us to really move through the various milestones quite quickly.”
The April 2014 feasibility study envisions Yaramoko’s 55 Zone as a 750-tonne-per-day underground operation with a 7.4-year mine life. Annual production should average nearly 100,000 oz. gold at all-in sustaining costs of US$590 per oz. Those metrics are based on contained gold reserves of 759,000 oz. from 1.99 million tonnes grading 11.8 grams gold per tonne. The reserves sit between zero and 430 metres below surface. Considering the zone plunges quite steeply, it lends itself to an underground operation, Dorward says.
Before starting construction, the firm closed a land compensation agreement for affected landholders in the village of Bagassi, 3 km from the project site. While the firm didn’t have to relocate any households, Dorward explains it paid US$1.6 million for using the land and offered employment opportunities and community enrichment programs.
After that, it started building the 190-person permanent camp, and initiated bulk earthworks to prepare for the plant and the water and tailings storage facilities. To date, Roxgold has spent US$10.8 million of the project’s startup costs, which it recently revised due to scope changes.
The preproduction capital costs are now US$110.8 million, up 4% over the feasibility study’s estimate. Design changes include adding a plastic liner to the tailings storage facility, upsizing the semi-autogenous grinding mill for expansion and installing extra diesel generators to back up the grid.
To keep development on track and on budget, the junior has fixed some of the capital costs. It has a fixed-price, lump-sum contract totalling US$34.9 million with its engineering, procurement and construction contractor, DRA/Group Five Joint Venture, for building and commissioning a 270,000-tonne-per-year processing plant and associated infrastructure, with work expected to start later this quarter. Underground contractors AUMS should begin portal development to access the deposit shortly. (Roxgold has the option to pay AUMS for its services in shares totalling up to US$15 million.)
“We also have other fixed cost components, including the permanent camp, which is under construction. With what we’ve spent to date and what is fixed in nature, we have over 50% of the project capital budget locked in,” Dorward says.
To finance the project, Roxgold raised $60 million in two equity placements in 2014, and secured a US$75-million debt facility with mandated banks BNP Paribas and Société Générale in February 2015, after picking up the last mining permit at the end of January. Roxgold has put aside US$15 million in a cost overrun account, as required by the project lenders, Dorward says. The debt facility should close in the second quarter.
Despite Yaramoko’s modest size, analysts have praised the project for its high-grade, low costs and strong economics. Using a US$1,300 per oz. gold price, the 55 Zone has an after-tax net present value (NPV) at a 5% discount rate of US$250 million, and a 48.4% internal rate of return (IRR). Payback should occur in 1.6 years. Even at a lower gold price of US$1,100 per oz., the after-tax NPV and IRR are US$168 million and 35.2%.
“Reaching the construction milestone just three years from the maiden resource is testament to the quality of the asset and the management team,” Cormark Securities analyst Tyron Breytenbach says. He rates the stock as a “top pick,” with a $1.20-per-share target.
“We recommend buying Roxgold for its quality asset, near-term production, and expected project economics,” Macquarie analyst Ron Stewart writes. He rates Roxgold as a “top pick” among developers, with a 12-month target of $1.35.
Both analysts note Yaramoko could grow. Roxgold intends to drill the 55 Zone to expand the indicated resource sitting between zero and 430 metres by 20% this year, and upgrade the resource that sits below the current mine plan.
“We’ve tracked [gold mineralization] down to as deep as 900 metres, although we have a mine plan that goes to 430. So that additional 500 metres, plus whatever we may find below that is really open for us to drill and convert,” Dorward says, adding the firm will conduct regional exploration on the nearby Bagassi South and 109 zones.
Resources at the 55 Zone, inclusive of reserves, include 1.6 million indicated tonnes grading 15.80 grams gold for 810,000 oz., plus 840,000 inferred tonnes at 10.26 grams for 278,000 oz.
Dorward estimates if the gold mineralization that sits below the current mine plan is like the top 430 metres, it could extend the zone’s mine life by up to 10 years. He notes the Bagassi South and 109 zones have also returned good drill intercepts, and down the road may become satellite deposits. “It is very much an open question to how long you could extend the mine life here,” he adds.
While Yaramoko will become Roxgold’s first producing asset, Dorward and his team have been involved in other mines in West Africa, including financing and building the Sabodala gold project in Senegal, operating the Edikan gold mine in Ghana and advancing the Tengrela gold project in Côte D’Ivoire.
The 196 sq. km Yaramoko property sits 200 km southwest of the capital Ouagadougou in the province of Balé. The company owns a 90% interest in the project, while the Burkina Faso government has a 10% carried interest. Yaramoko sits south of Semafo’s (TSX: SMF; US-OTC: SEMFF) flagship Mana gold mine and within the Houndé greenstone belt.
Burkina Faso is one of the poorest nations in the world, although it is Africa’s fourth-largest gold producer. Over the past six years, miners have commissioned eight new mines in the country, including the Mana mine.
Roxgold recently closed at 60¢, within a 52-week trading range of 39¢ to 93¢. It has a $173-million market capitalization.
I know Roxgold is gonna do well in their new exploration at Yaramoko. They really gonna bring massive development into the area.
I hope to get employment in such luxurious company to contribute my quota to achieve it’s goals and purpose.
And it’s my utmost prayer that Roxgold will continue to do great explore in its investment.
Francis Asare, Ghana.
Pipe Fitter/Poly Welder.