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Wednesday, 10 July 2013
Sunridge Gold's path to production shines as potential partners circle
Sunridge Gold (CVE:SGC) is surging ahead with its Asmara project in Eritrea, getting close to securing a debt financing to put its flagship property into production, according to CEO Michael Hopley, who spoke to Proactive Investors in an interview last week.
In June, the company initiated a due diligence review -- the step in advance of signing the financing agreement, when potential investors examine the project in detail before deciding to fund work on the property – that is being conducted by Micon International.
The Vancouver-based exploration and development company, very much focused on its flagship copper-zinc-gold-silver Asmara project in the eastern-African nation of Eritrea, is planning to receive the due diligence review, which includes all environmental work, by the third quarter, after which it expects to ink a financing agreement.
"We have been talking to various people about various ways of debt financing for the project, including with European and South African banks, equipment suppliers, smelters, potential off-take or streaming partners - you name it," says Hopley.
"A lot of companies out there are looking at our project in detail since the feasibility study."
It makes good sense. The company's Asmara project in May was the subject of an independent feasibility study by lead engineer SENET that succeeded in bringing the schedule for commencement of initial production forward by almost a year. Quite a feat when miners are struggling to get their projects off the ground.
That study, in which SENET outlined a three-phase staged start-up mining plan that would initiate production in 2015 starting with a near-surface oxide gold cap and moving into high grade copper then zinc, resulted in the reduction of the planned initial capital requirements by more than $130 million in comparison with the prefeasibility study published in May 2012.
Indeed, the combination of earlier than expected production and cash flow, combined with capital cost reductions, lowered the project’s initial capex requirements from $489 million to $354 million - good news for investors in a challenging market.
The study also demonstrated that the mining of all four advanced deposits that make up the Asmara project - Emba Derho, Adi Nefas, Gupo Gold and Debarwa - and the processing of the ore near the large Emba Derho deposit is economically robust, with a net present value (NPV) of $443 million after tax at an 8 per cent discount rate.
"We achieved what we set out to achieve in the year since our prefeasibility study. We initiated production earlier by about a year and reduced capital costs using a staged, start-up scenario," boasts Hopley. "It's a good approach to a project given the market conditions when people are concerned about capital costs and the long time it takes to get properties into production."
The project, which has a mine life of more than 15 years, is pegged to produce a total of more than 841 million pounds of copper and 1.87 billion pounds of zinc, as well as gold and silver.
Average operating costs over the life of the mine are estimated at just under $30 a tonne -- "very good considering these costs include the expensive underground mining from Adi Nefas", says the CEO. In fact, excluding the underground mining, he notes that the operating costs move quite a bit lower, to around $25 a tonne for the open pit operations, which take up a larger part of the mine life.
"Sometimes, I think it's missed by the market that before we did the pre-feasibility study, we did not know that we could combine, both logistically and economically, these four deposits and that it would actually be the best economic scenario to combine them.
"The Debarwa deposit is almost twice as valuable as part of a larger operation than as a standalone," affirms Hopley.
The planned staged operation of the four combined deposits is even more reason to take a second look at the project in an environment when many miners can't seem to make ends meet, with rising costs outpacing cash flow. With Sunridge's plan, cash flow from phase 1 operations will be used to pay for some of phase 2, and so on, "reflecting a very appropriate approach, and one that gets a great response from investors", says the chief executive.
The Canadian-listed gold company also has two other deposits that are not yet "far enough along", and have not been included in the feasibility study, but with further drilling in the next few months, could increase the mine life substantially, according to Hopley.
As recently as late May, Sunridge announced a mineral resource estimate for the Kodadu target on the Asmara project, the sixth such mineral resource defined by the Vancouver-based junior at the asset. The freshly-defined resource included 990,000 inferred tonnes with an average grade of 1.24 grams per tonne (g/t) of gold and 1.6 g/t of silver, with 39,000 ounces of gold and 51,000 ounces of silver contained metal in the near surface oxide.
Although Hopley says that the Kodadu target, together with the fifth Adi Rassi resource that was defined late last year, will remain excluded from plans to bring the first established four deposits to production, he explains the Kodadu resource could potentially join in with initial phase 1 leaching operations. "Adi Rassi, however, will be much larger and needs to go through a lot more work. It won't be part of the operation anytime soon."
With $2 million of cash on hand, and the company now moving toward a low cash-burn environment in the wake of completing its feasibility study, it has fewer steps in its path to bringing its four established Asmara deposits to production.
Aside from the debt financing, it must submit its mining license application, which it will be free to do after it wraps up its environmental work and social engagement programs.
"Ninety-five per cent of the work is done. We have a good and competent international team as well as local consultants on the process, which will all be done to IFC standards. We expect it to be a stellar study," says Hopley of the final work required for the mining license application.
In another aspect of the project geared to reassure investors, once the mining license for the project is granted, the government of Eritrea will have a 10 per cent carried interest, and ENAMCO, the Eritrean National Mining Corporation, will be purchasing an additional 30 per cent of the project, thereby becoming responsible for one third of all capital and operating costs at the mine going forward.
"The amount ENAMCO will be paying for the 30 per cent interest is still being negotiated, but the important point to note is that the government of Eritrea will now be responsible for one third of all expenses on the project since last July," Hopley adds.
The mining license, which is expected to take between 6 to 12 months to receive from the point of application, is anticipated to be in hand by October of next year at the latest.
"A number of companies have taken a very active role in looking at the project since the feasibility study, particularly Chinese state-owned enterprises that are looking for large deposits of base metals in Africa," says the chief. "It's a jurisdiction they are comfortable with," he concludes.
The project is certainly well on its way to production, with the kick off date slated for the first quarter of 2015. Shares of the company are currently trading around 13 cents, giving it a market capitalization of $23 million.