African Gold Group (AGG.V) released an updated PEA on the Kobada gold project in Mali, West Africa this morning. The project is a small mine that will produce 44,000 ounces per year for a mine life of 15 years. The economics are robust with a 62% IRR (before tax) using a gold price of $1250 per ounce.
Management plans to build a small processing plant that will process 1.6 million tonnes per year. The cost of the modular processing plant is only $21.7 million and will be designed and fabricated in Australia. With everything included the total initial CAPEX is only $46.6 million which leads to payback period of 18 months.
First production at Kobada is expected in the first quarter of 2016.
The project has a resource of over 2 million ounces at a grade of ~1 gram per tonne. Excellent exploration and brownfield expansion remains on the 215 square kilometre property with plans to fund using cash-flow from the mine when in operation.
Kobada Gold Project Mineral Resource Estimate above 0.3g/t Au | |||
Resource Category | Mt | Au g/t | Au koz |
Measured Mineral Resource | 10.8 | 1.06 | 367 |
Indicated Mineral Resource | 25.2 | 1.04 | 843 |
Total M&I Resource | 36.0 | 1.05 | 1,210 |
Inferred Mineral Resource | 39.0 | 1.0 | 1,205 |
Next steps for African Gold Group:
- Complete the Environmental and Social Impact Assessment (ESIA) (in progress)
- Apply for an exploitation license
- Finish off a Feasibility Study that has been delayed to early Q1 2015 (80% complete)
- Pending results of the the Feasibility study raise project financing (likely a debt financing)
President and CEO of African Gold Group Mr. Declan Franzmann, FAusIMM, commented:
"The MIK resource estimate has lowered the resource tonnage with a corresponding 20% improvement in gold grade to 1.05 g/t. This is a significant increase in resource grade and has an important impact on the Project's economics.
The free digging saprolite means mining is relatively cheap and simple. The outcropping mineralisation leads to high early cash flow and fast capital payback.
All these facets underlie an economic mine plan, but there is significant upside potential that can be demonstrated. It is my opinion that additional resources can be added to mine plan. The target depth is less than 25m below surface and covers a significant portion of AGG's 215km2 land holding. The pathfinder exploration tool utilises the artisanal miner's workings, which is pervasive throughout the concession, following up with shallow augur and RC drilling. Success in this strategy will allow a low strip ratio to be maintained for a greater duration, enhancing the Project's financial parameters further. This exploration can be funded from the Project cash flow."
Shares of African Gold Group have been punished in the market down from 50 cents to 5 cents in the last three years.
The main reason for this is the political risk in Mali. The company has been unable to proceed with developing the project as planned and even saw violence with artisanal miners on the project this summer.
The stock has traded fairly low volume but had a huge volume day on October 28th of over 20 million. The rumour on the street was that Sheldon Inwentash's Pinetree Capital was the seller, needing to raise funds for debt covenant issues.
African Gold Group's treasury is also not in great shape with a working capital deficiency of -$200,000 at the end of June. Further dilution can be expected as AGG will need to raise funds in the near future.
I bought shares in the open market this morning for two reasons:
1. The economics of the project are fantastic and the mine is profitable at $1000 gold
2. Home run potential - I can handle the extreme high risk of the stock. No question the stock is incredibly risky but I believe the reward outweighs the risk.
At press time the stock is up 44% to 6.5 cents on over 3 million shares traded.
Symbol: AGG.V
Share price:$0.065
Shares outstanding: 159.34M
Market cap: $10.4 M
Read: African Gold Group releases NI 43-101 Kobada PEA
The author bought a position in African Gold Group (AGG.V) this morning and therefore is biased. He reserves the right to buy or sell his stock at any time. This is not investment advice. As always please do your own due diligence.