Vancouver-based gold junior True Gold Mining (TSXV: TGM) likes to get things done quickly.
It has gone from a preliminary economic assessment (PEA) to construction at its Karma gold project in Burkina Faso in two years, and expects to transition from construction to production within 15 months, with first gold pour targeted for late 2015.
“There is a lot of action happening in Burkina,” Mark O’Dea, the junior’s executive chairman, said in a September presentation.
The project is located 185 km northwest of the capital Ouagadougou and consists of five gold pits: Goulagou I, Goulagou II, Rambo, Kao and Nami. The mine plan envisions developing the shallow pits, starting with the Rambo deposit, to feed the first phase of the heap-leach gold operation.
Annual production should average 97,000 oz. gold over an initial 8.5-year life. With production in 2016, the first full year of operation, estimated at 150,000 oz.
True Gold broke ground at the project in May and started construction of major mining infrastructure in September.
On Nov. 17, the junior said construction activities were progressing according to plan and on budget. To date, it has spent and committed about US$51.5 million, or 39% of the project’s start-up costs of US$131.5 million.
“We continue to make great progress and we are actually ahead of schedule,” Blaine Monaghan, the company’s director of investor relations, said in a November interview. “We have not been affected by the unrest in Burkina and it is business as usual.”
The West African nation recently experienced turmoil after former president Blaise Compaoré, who stepped down in late October, tried to change the country’s constitution to extend his 27-year rule, triggering mass protests. Since then, army officer, Lt. Col. Isaac Zida has been named interim prime minister.
True Gold notes procurement and civil works at Karma are ahead of plan. Work has begun on the foundations for the ADR (absorption, desorption and refining) plant, cement storage facility and maintenance shop.
Part of the mining fleet has arrived on site, with the remainder expected in January to allow work on major earthwork projects, haul roads, raw water storage pond and the base for the heap-leach pad to start.
True Gold will begin pre-stripping the Rambo deposit, Karma’s highest-grade pit, in December. The firm will stockpile the ore, before placing it on the heap-leach pad in the second half of next year, Monaghan notes.
Since 2013, the company has raised over US$200 million in funds for Karma.
“We are one of a very small handful of fully financed and permitted projects in the gold space today,” O’Dea says.
In August it closed a US$100 million streaming deal with Franco-Nevada (TSX: FNV; NYSE: FNV) and Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND).
Under the agreement, True Gold will deliver 20,000 gold oz. a year over five years, starting in March 2016. The lenders — split between Franco-Nevada with 75% and Sandstorm with 25% — would pay 20% of the spot price of gold per ounce delivered.
“Starting in year six, they get a 6.5% stream on any and all gold we produce in perpetuity. Again paying us a 20% spot price of gold on any ounce we deliver,” O’Dea explains.
The junior has the option to boost the financing by US$20 million by delivering another 30,000 oz. on a fixed payment schedule. While the company isn’t planning on using the additional funds, it has until Feb. 2016 to do so, Monaghan says.
In September, True Gold received all of Karma’s permits. It also entered into a long-term cement supply contract with a new cement plant in Ouagadougou. The renewable 3.5-year contract generates US$35 million in total operating costs savings over the December 2013 feasibility study.
With this, the base-case after-tax internal rate of return (IRR) and net present value (NPV) improved to 46.3% and US$198.8 million, from 43.1% and US$178.2 million, previously. The study used a gold price of US$1,250 per oz. and 5% discount rate.
All-in sustaining costs dropped to US$678 per oz. from US$720 per oz. earlier. Payback remained relatively the same at 1.3 years.
The junior wanting to build a mine that works in a lower gold price, stress-tested the Karma project using a US$1,000 per oz. gold price and found it generated a promising after-tax IRR of 26%, O’Dea says.
A detailed engineering study also indicated potential savings of up to US$9.7 million, reducing the initial capex of US$131.5 million by a possible 7%. True Gold will look into achieving these savings by using a construction methodology to reduce earthworks, civil construction and fuel storage costs, among other things.
True Gold believes Karma has the potential to grow from an initial 8.5-year operation into a 15- to 20-year mine life through a phased approach backed by exploration success.
The second phase of growth will include the North Kao deposit, which was not part of the 2013 feasibility study.
In late October, True Gold published a PEA for North Kao, showing the deposit could produce 118,000 oz. gold per year over 2.5 years for an initial investment of under US$18 million. It adds about US$70 million to Karma’s after tax NPV.
The firm is continuing exploration while it builds Karma. “It is a very, very large project, over 800 sq. km. We have more than 40 high-quality exploration targets. We will be spending more than [US]$5 million through to 2015, testing targets and looking to make discoveries and add to resources close to the existing deposits that could be fed into the existing mine plan. Much, much like the North Kao,” Monaghan says.
A mapping program on the Kao trend is currently underway. The trend, spanning more than 10 km, hosts the Kao and North Kao deposits, as well as the Nami deposit and several earlier stage targets.
The junior has about $49.1 million in its treasury, after drawing down US$37 million of its US$100 million streaming loan in September. It expects to draw the next tranche by December and the remainder over the next 10 months.
“Management has set a clear target of establishing production by the end of next year and has achieved a number of important milestones since delivery of a feasibility study less than a year ago,” writes BMO analyst Andrew Breichmanas. He has a 55¢ target and outperform-speculative rating on the stock.
True Gold closed Nov. 18 up 6% at 26¢.
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