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Hummingbird working towards next Liberia gold mine

Published: 10:14 05 Jun 2015 BST

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Hummingbird is fast-tracking its newest acquisition, Yanfolila, into production by the first half of next year.

It was interesting to note recently the Hummingbird (LON:HUM) public relations machine swinging into action on news that Aureus Mining (LON:AUE) had produced its first gold from the New Liberty project in Liberia.

The significance for Hummingbird is straightforward.

For several years it’s been working up the multi-million ounce Dugbe project, also in Liberia, but until the news from New Liberty, no company had actually successfully brought a gold mine into production in Liberia.

David Reading’s men and women at Aureus have shown it can be done; now it’s up to Dan Betts’s team at Hummingbird to show that it wasn’t a one-off.

But first to Mali, where Hummingbird is fast-tracking its newest acquisition, Yanfolila, into production by the first half of next year.

Old hands in the mining game might remember Yanfolila from the last decade, when it spent several years in the hands of Aim-traded Glencar, before being acquired for the development portfolio of South African gold stalwart Gold Fields. Gold Fields liked Yanfolila well enough, but it just wasn’t quite big enough for them, hence the project went up for sale.

A few companies chased the deal, and Hummingbird emerged as the winner, in part, one suspects, because former chief executive of Gold Fields, Ian Cockerill, sits on Hummingbird’s Technical Advisory Committee.

But be that as it may, Yanfolila has had a reinvigorating effect on Hummingbird. Investors who looked questioningly at the size, scale and remoteness of Dugbe, now have the reassurance of the significant cash flow due from Yanfolila early next year.

After all, that’s always been the way London’s liked its junior miners to be run – supporting larger upside with cash flow from smaller scale production, thereby minimising dilution and making the miner less vulnerable to the short-term vagaries of the equity markets.

Not that Yanfolila is actually that small. With an overall resource of 1.8 million ounces of gold the plan is to run production at a respectable rate of 79,000 ounces per year over an initial six and a half year mine life.

According to research by Cantor Fitzgerald, those ounces would each be produced at an all-in sustaining cost of US$733, putting the project firmly in the second quartile in the global cost curve.

So, not the cheapest mine going, but nonetheless with gold trading firmly at around US$1,200 per ounce, still plenty of margin on offer. Cantors expects revenues of US$108 million in the first financial year of production, the year to May 2017, which equates to profits before tax of US$28.6 million and earnings of US$20 million.

That ought to provide enough headroom to pay down the US$72 million capital outlay that’s been required to get Yanfolila built and leave some over. But even allowing for that, Cantor is quick to draw attention back to the size of the overall resource.

The current mining plan by no means accounts for all of the gold in the ground at Yanfolila, and the thinking is that once the company gets established it should be able to work up more mineable ounces.

All of which leads Cantor to set a target of 99p, based on a combination of net present values from both Dugbe and Yanfolila, in-ground resources, and comparisons with the company’s West African peer group.

Indeed, such a comparison is highly informative, since the West African companies that are closing in on or have just hit production, Asanko, True Gold and Aureus, clearly demonstrate a narrowing of the discount to NPV.

As at April average valuation across those three was 0.7 times net present value and that average has been dragged down, argues Cantor, by political uncertainty in Burkina Faso.

Such a trend is likely to become evident in the case of Hummingbird too, as the build at Yanfolila continues. Hummingbird’s current implied valuation for Yanfolila is 0.5 times net present value, implying the potential for real value uplift, but always assuming Mali doesn’t slip back into the political uncertainty that it endured a couple of years ago.

But on that score it’s worth noting that the troubles in Mali were focused in the north of the country, while Yanfolila is located firmly in the south west, right on the border with Guinea.

Political uncertainty may now and again come back to unsettle markets, but it’s unlikely under current conditions actually to have a material impact on Yanfolila itself.

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