West African Resources On The Watch-List
Advanced West African gold explorer that’s pursuing aggressive appraisal and development of its Mankarga 5 gold deposit in Burkina Faso, where maiden gold production is targeted during 2016.
|Status: Emerging Producer|
|Size: Small Cap|
|Commodity Exposure: Gold|
|Share Price: $0.08|
|12-month Range: $0.05 - $0.12|
|Shares: 270m, Options: 52m|
|Top 20: 70%|
|Net Cash: $3.5m|
|Market Value: $22m|
|Key Parameters||Rating (✓out of 5)||Quarterly Statistics|
|Management Quality||✓✓✓✓✓||Q2 2015 Exploration Spend: $1.391m|
|Financial Security||✓✓✓✓✓||Q2 2015 Administration Spend: $0.193m|
|Project Quality||✓✓✓✓✓||Exploration Spend 88%, Admin Spend 12%|
|Exploration / Resource Potential||✓✓✓✓✓||Q3 2015 Forecast Exploration Spend: $1.1m|
|Project Risk||✓✓✓✓✓||Q3 2015 Forecast Admin Spend: $0.2m|
West African Resources is a highly-credentialed, advanced gold play that has operated within Burkina Faso since 2007, allowing it to assemble a portfolio of high-quality, large-scale gold prospects that rank it as the largest ASX-listed acreage holder within the country. The company’s Boulsa gold project encompasses a massive 6,370 sq km landholding, which hosts a whopping 200km strike length of prospective early-Proterozoic Birimian greenstone belts, with geology very similar to Western Australia’s gold districts.
One of the company’s biggest assets is its dedicated and highly-experienced exploration team, which boasts a long-established operational association with Africa. Over the past decade a plethora of junior companies jumped aboard (and subsequently off) the West African bandwagon, driven by broker and speculative hype. West African Resources is a different kettle of fish – its Managing Director Richard Hyde has a strong operational track record in West Africa and fundamental appreciation of its enduring appeal.
Through recent aggressive and astute corporate activity the company has taken significant steps to accelerate its push towards near-term gold production status. This has involved a move away from more exploration-focused activity on its large Boulsa project, towards aggressive appraisal activity with respect to its recently-acquired and advanced Mankarga 5 gold deposit. The company is set to shortly complete a Definitive Feasibility Study (DFS) on the project, where it is targeting first gold production during 2016.
Further Encouraging Regional Drilling Results
Over the past couple of months, WAF has announced high-grade drilling results in separate releases with respect to its Tanlouka gold project in Burkina Faso, less than 2km northwest from its proposed M5 oxide starter pit.
In recent coverage we’ve highlighted auger drilling from within a new zone that had generated results of up to 13g/t Au within an anomalous trend - the M3 prospect - over a 1.3km strike length, 500 metres west of and parallel to the M1 prospect.
Separately, infill auger drilling at the M2 prospect also returned high-grade auger results of up to 5g/t Au within a 1km long east-west trend. M2 is located 800 metres west of the southern end of the proposed M5 starter pit.
More recently WAF reported high-grade results from shallow oxide RC drilling along strike from historic high-grade gold mineralisation at the M1 prospect, with intercepts such as 9 metres at 7.8g/t Au from just 8 metres depth highlighting the potential for the addition of ounces and grade to the company’s heap-leach starter project.
Now let’s fast forward to this week, where WAF has announced a first-pass result of 32 metres at 5.02g/t Au in near-surface oxide material. RC drilling at the M3 prospect has discovered high-grade shallow oxide gold mineralisation in first-pass wide spaced RC drilling. Discovery holes TAC0995 and TAC0996 were drilled directly beneath the 13g/t Au auger result referred to above.
TAC0995 returned 6 metres at 1.88g/t Au from 40 metres (ending in mineralisation), while TAC0996 returned 32 metres at 5.02g/t Au (including 13 metres) at 7.14g/t Au from 2 metres. Gold mineralization is associated with an array of quartz veinlets along a sheared contact between the metasediments and diorite and is open along strike and at depth. It is expected that oxide mineralisation from M3 will exhibit similar metallurgical characteristics to M5 oxides, and will be amenable to heap leach processing.
To date, the company has done very little work outside of the M5 resource area and the new gold discovery at M3 (along with other near-mine resource discoveries described above) will boost the already-robust economics of the heap leach starter project.
The new gold discovery at M3 is located less than 2km from the proposed starter pit. Completion of the Feasibility Study will now be extended to Q4 2015 in order to allow the new oxide mineralisation from the M1 and M3 zones to be incorporated into the resource inventory and mine plan. Follow-up drilling will commence during October, following completion of the current wet season.
West African Resources acquired the Tanlouka Permit (which contains the Mankarga 5 deposit) during January 2014, following its successful acquisition of TSXV-listed Channel Resources Ltd. It entered into a scrip takeover agreement with Channel Resources on the basis of one share (trading at $0.16 prior to offer announcement) for every four Channel shares held (trading at $0.02 prior to offer announcement), valuing Channel Resources at $4.8 million. Channel shareholders now maintain a stake of around 14% in WAF.
Pre-Feasibility Study (PFS) Key Points
- Pre-production capital of $46.6 million, including $8.7 million working capital and contingency
- Annual gold production of 69,000 ounces for the first three years, 49,000 ounces life-of-mine
- Mine life of 7 years
- Low cash operating costs of US$428/oz for the first 3 years, US$635/oz life-of-mine
- All-in site costs of US$538/oz for the first 3 years, US$749/oz life-of-mine
- Strong IRR of 63% with a 14-month payback of capital due to strong early project cash flow
- Pre-Tax cash flow after initial and sustaining capital costs of $146 million
- Pre-Tax NPV5% of $117 million, Post-Tax NPV5% of $86 million
- 59% increase to in-pit inventory now 440,000oz, life of mine strip ratio just 2:1
- Indicated resources increased 57% from scoping study to 8.4Mt at 1.8g/t Au (495koz)
- Inferred resources increased 39% to 15.2Mt at 1.6g/t Au (791koz) at a 1g/t Au cut-off
- More than 1 million ounces of resources remaining, open at depth beneath oxide starter pit
WAF has in place a two-year US$5 million convertible loan facility with the Metals & Energy Capital Division of Macquarie Bank Limited, which provides all of the necessary funding to complete the Mankarga 5 BFS.
Bankable Feasibility Study (BFS) Update
- The BFS is now set for completion during Q4 2015 in parallel with project financing.
- Experienced Perth-based consulting firm Mintrex Pty Ltd is lead consultant to manage the BFS.
- Resource upgrade drilling is underway to convert 0.7Mt of Inferred material grading 1.0g/t Au for 21,000 oz Au currently treated as waste in the PFS pit design into the Indicated category.
- Metallurgical test-work is in progress at ALS Ammtec in Perth.
WAF is continuing to maintain strong development activity at a time when most West African resource plays have gone off the boil, or simply given up. Nevertheless, WAF’s share price performance over recent years directly reflects the unfortunate loss of faith by many investors in West African gold plays. Despite this, WAF has maintained strong operational momentum by taking significant steps towards production status – completing the takeover of Canadian-listed Channel Resources, the procurement of a second-hand heap-leach plant to treat Mankarga 5 ore, encouraging PFS results and a US$5m convertible note that will fund BFS completion during Q4 2015. West African Resources remains strongly placed to achieve commercial gold production during 2016, so the stock will remain firmly on our Portfolio Watch-List.
After a decade as a broking resources analyst with Intersuisse, Gavin helped establish the Fat Prophets Mining Report during 2005, writing and producing the report until he established MineLife during late 2010. He writes about mining and energy companies via his MineLife reports.
Disclaimer: Gavin Wendt, who is a director of Mine Life Pty Ltd ACN 140 028 799, compiled this document. It does not constitute investment advice. In preparing this report, no account was taken of the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this report, investors and prospective investors need to consider, with or without the assistance of a securities adviser, whether the information is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error or omission in that information.