Update: African Gold Group Releases Updated Scoping Study
Summary
- African Gold Group releases a pretty decent PEA on a smaller Kobada gold project.
- The downsizing was expected, but without much warning the company has only completed a study on the PEA-level and not on the Feasibility level as originally promised.
- The much lower capex should be easily financeable and the payback will occur within two weeks.
- The investment thesis will have to be updated to take the new lower production scenario into account.
African Gold Group (OTC:AGGFF) has released an updated scoping study on its Kobada gold project in Mali. For starters, I'm very disappointed to see the analysis was only conducted at a PEA/Scoping study level, as the company has been promising a full feasibility study for two years now, so the credibility of the management will need to be restored. As expected, the updated study was focusing on a production scenario with a lower throughput as this would substantially reduce the initial capital expenditures.
And indeed, the new study calls for a throughput of 1.6 million tonnes of ore per year which should result in an average production rate of 44,000 ounces of gold over a 15 year mine life (with roughly 50,000 ounces per year being produced in the first two years). The main reason for the lower capital expenditures is through a re-thought process of first concentrating the ore before effectively milling that specific concentrate. This greatly reduces the power requirement (to 75 kW from 3 MW) leading to a cash cost of less than $500/oz in the first 2 years of operation and an AISC of $792/oz over the entire mine life. The initial capex is just $46.6M and all inputs result in a pre-tax NPV5% of $172M at a gold price of $1250/oz.
A capital expenditure of $46.6M is definitely financeable, even in this market, so the updated PEA based on a lower throughput definitely was a good idea (although I would have preferred to see a study at the feasibility or at least pre-feasibility level). The currently proposed solution also seems to be some kind of 'first phase' for the project which could be expanded and optimized using the initial cash flows given the fact that the current mine plan is focused on the resources at less than 25 meters from surface.