African Gold Group (TSX-V: AGG and OTC Other: AGGFF) announced this morning the results of a positive NI 43-101 compliant Preliminary Economic Assessment that evaluates the potential of an open pit, bulk mining model, utilizing a gravity recovery process plant, at the Company’s Kobada (Mali) gold project. The consulting group Bumigeme Inc., located in Montreal, Quebec, was commissioned by AGG to complete the study. (note: the “base base” numbers quoted above are at $1,100/oz gold – at today’s gold prices, they are even more compelling: at $1,450 gold the payback shrinks to 8 months and NPV and IRR jump to $415.8 million and 160% respectively).
The Study incorporates and includes drill data up to the end of December, 2010. There is no drill data from the 2011 campaign included in the Study. More specifically, the Study does not incorporate drill data for the northern extension holes that extend Zone 1 up to 2 kilometers north of the Zone 1 deposit, it does not incorporate the 2011 southern holes or the newly discovered Foroko North deposit, nor the newly discovered Termite Zone, the latter two are separate and distinct structures from Zone 1.
The PEA estimates an after-tax Net Present Value (NPV) of US$216.9 million from commencement of construction and an after-tax Internal Rate Of Return (IRR) of 90.57% using a base case of US$1,100 per ounce of gold and a discount rate of 5%.
The Kobada project base case is for processing 20,000 tonnes per day for a total of 7,000,000 tonnes per year in a gravity process plant that is projected to recover 87.9% of the gold contained in 41,750,000 tonnes of lateritic material assaying 0.64 g/t Au, for average annual production of 126,600 ounces of gold for the first five years of operation. The average annual operating cost is calculated to be US$8.27/t of ore for the first five years of operation with a CAPEX of US$122,500,000. The project produces gold at the direct cost of US$470.90 per ounce. During years 4 and 5 of operations the CAPEX will be increased by US$2.9 million for the addition of a ball mill that will be required to process the sulphide resource. The average operating cost at year 6 will increase to US$8.73/t of ore. Gold recovery and production in year 6 is projected to be 80.80% and 112,200 ozs Au, respectively.
Key highlights from the Study are as follows:
— The Study demonstrates that the Kobada gold project is economically optimized by adopting bulk mining versus selective mining. The direct implications of bulk mining are demonstrated in a substantial increase in ore tonnage and recoverable gold but with an associated decrease in the average gold grade.
— AGG Director and Qualified Persons, Mr. Pierre Lalande, P.Geo., has recommended that 100% of all material excavated between the hanging wall and footwall of the mineralized zone be processed in the gravimetric plant as lateritic deposits containing coarse free gold result in a strong “nugget effect”. It is this characteristic, due to weathering, that makes Kobada amenable to utilizing gravity for gold recovery. Mr. Lalande contends that the increase in sampling density of drilling during grade control of mined deposits in West Africa often turns much “in ore waste” of feasibility study estimates into incremental ore.
— The geological and in-pit resources that are detailed in this study are only projected to a vertical depth of 160 meters versus the projected depth of 260 meters in AGG’s 43-101 compliant Initial Resources Estimate that was published in May of 2008. This amendment reflects AGG’s primary focus on the oxidized horizon of the deposit. Therefore, most of the volume of the sulphide resource that was included in the May, 2008 Initial Resources Estimate is not included in this Study.
This really is significant news for African Gold Group with very solid economics for mine development at their Kobada project in Mali, West Africa. The fact that so much completed drilling has yet to be incorporated into this programs 43-101 engineering study (with more drilling ongoing at Kobada) gives us high confidence that this project will continue to grow in both gold ounces and value as they incorporate more drill data. In fact, AGG is presently conducting additional drilling at Kobada to determine the ultimate extent of both strike and depth of the known deposit (the 740,000 oz 43-101 compliant resource is from just 10% of the known strike which is open both laterally and to depth).
The really compelling aspect of African Gold Group is that in addition to their Kobada property, which certainly has multi-million ounce potential and now an extremely economic PEA, the Company’s sleeping giant is their Asankrangwa project in Ghana, which is on strike and shares a major border with Keegan’s Esaase property, a world class gold deposit with just under 5 million ounces gold (M&I). We have included Keegan’s chart below to give you a sense of what happened to their stock price as they built up their Esaase property to its present size:
Keegan Resources Inc. Chart – August 2009 thru present
When you start adding up the potential for additional ounces at Kobada and Asankrangwa (not to even mention their Mankranho project – also in Ghana) which caps the north-east end of Newmont’s massive Ahafo project (10.6 million ounces) it gets pretty clear that African Gold Group will soon be a force to be reckoned with in West Africa – and we just have to go back about one year to get a sense of the range of value that can be created in West Africa by looking at Kinross’ buyout of Redback Mining, which they purchased for a staggering $7 billion.
Here is a link to the Company’s current presentation:
Here is a link to today’s news: http://finance.yahoo.com/news/African-Gold-Group-Inc-ccn-3209121364.html?x=0&.v=1
Additional information on African Gold Group’s website at: www.africangoldgroup.com