Sunridge brightens Asmara’s economics

Sunridge Gold (SGC-V) has outlined stronger economics for its prized Asmara copper-zinc-gold project in Eritrea in a feasibility study that outshines last year’s prefeasibility study. 

The latest study envisions mining Asmara’s four deposits — Emba Derho, Debarwa, Gupo Gold and Adi Nefas — as an integrated operation with a central processing facility near Emba Derho.

At that facility, the company would process gold and silver from Emba Derho, Debarwa and Gupo via heap-leaching, as well as copper and zinc from Emba Derho, Debarwa and Adi Nefas by milling and flotation. All the deposits, except for the underground Adi Nefas, would be mined from open pits.

The feasibility study proposes a three-phase start-up for Asmara, with first production in mid-2015, almost a year ahead of what was estimated in the earlier study.

Commenting on the benefits of phasing into production, Sunridge’s CEO Michael Hopley said on a conference call that it “minimizes our capital exposure — the amount of money that Sunridge would need to raise — and it starts cash flow a year earlier.”

This is largely why capital requirements at Asmara have dropped by US$135 million to US$354 million since the prefeasibility study, Hopley says, noting that the Eritrean National Mining Corp. — which is acquiring a 30% paid participating interest in the project — will be responsible for covering a third of all the capital and operating costs.

Asmara would take a year to build and operate for 15.3 years. 

In the first phase, from years one to five, Sunridge would produce high-grade copper direct-shipping ore (DSO) as well as gold. 

It would mine 116,000 tonnes of DSO grading 15.6% copper, 2.96 grams gold per tonne and 76.8 grams silver from Debarwa. The ore would be crushed at the facility near Emba Derho before being transported 120 km to the port facility at Massawa and shipped to a smelter.

Scott Ansell, the junior’s vice-president of project development, says it should take 30 weeks to mine, crush and ship the DSO product to market.

During this phase, it will also start heap leaching gold and silver from the Debarwa, Emba Derho and Grupo deposits.

“We have identified a location within the tailings facility that allows us to host a heap-leach facility for the first six years of the mine’s life,” Ansell says.

For its gold production, Sunridge anticipates churning through 1.4 million tonnes averaging 1.48 grams gold and 8.2 grams silver a year, with recoveries estimated at 67% gold and 38% silver. 

During the second phase, set to start in the second year, Sunridge would mine 2.4 million tonnes of high-grade supergene copper ore from Debarwa and Emba Derho and process it at a central flotation plant near Emba Derho at a rate of 2 million tonnes per year for 1.25 years.

The average grades are estimated at 2.25% copper, 0.76 gram gold and 21.6 grams silver.

Copper concentrate containing gold-silver by-product would be sent to smelters from the same port. 

During phase three, slated for years 3.25 to 16.3, Asmara would enter full production. According to the mine plan, Sunridge would extract and process 51 million tonnes primary copper and zinc ore via flotation from the Emba Derho, Debarwa and Adi Nefas deposits at a rate of 4 million tonnes per year for 13 years.

The average grades for phase three are pegged at 0.73% copper, 1.91% zinc, 0.36 gram gold and 12.6 grams silver.

Copper concentrate with gold and silver by-product, along with zinc concentrate, would be shipped to smelters from the Massawa port.

During the first eight years, annual metal production at Asmara, which shares the same name as Eritrea’s capital city, should average 65 million lb. copper, 184 million lb. zinc, 42,000 oz. gold and 1 million oz. silver.

Average operating costs are estimated at US$29.42 per tonne.

Initial capital costs to build phase one are pegged at US$46 million, while another US$357 million would be needed to build phases two and three. 

Compared to the prefeasibility study, Asmara’s pre-tax net preset value (NPV) has climbed from US$555 million to US$837 million. Its pre-tax internal rate of return (IRR) has gone from 27% to 34%, using a 10% discount.

At the same discount rate, the after-tax NPV is US$443 million compared to US$350 million previously, Hopley notes. The current after-tax IRR is 27%. 

Sunridge could recoup its initial capital in 4.6 years after taxes.

Ansell says the company was able to boost the economics because “we brought the gold forward thirteen years, which had a big impact on discounting. We included the DSO in the first year, which wasn’t in the prefeasibility — it was part of the copper concentrate. And we’ve improved our mine plan. We’ve improved our head grade for copper reporting by about 15%.”

Sunridge is wrapping up its environmental studies at Asmara before it applies for a mining licence. It expects to get this permit in late 2014, after which it would build the mine’s first phase.

Meanwhile, Sunridge plans to start detailed engineering work and explore avenues for financing.  It has a cash balance of US$3.5 million. 

On the feasibility news, Sunridge gained 3% to close May 16 at 18¢. It has a 52-week trading range of 13.5¢ to 35¢, and 175 million shares outstanding.