Having promised investors a first gold pour before the end of the year, Hummingbird Resources PLC (LON:HUM) duly delivered on time and on budget at the Yanfolila Mine in southern Mali.
But of course the hard work doesn’t end there. The plan in 2018 is to deliver not one doré bar or a a handful of specially-minted Hummingbird coins, but a 130,000 ounces of the yellow metal.
That’s not a huge amount compared with giants of the industry – companies such AngloGold Ashanti, Randgold and Gold Fields. But it will count as a terrific achievement for a business valued at little over £130mln and praise should go to a motivated management that got it this far.
“Producing first gold from Yanfolila is Hummingbird's most significant achievement to date and we have delivered it on time and on budget,” chief executive Dan Betts told investors.
“All major elements of the plant are working to specification; including the crushing, milling and detox circuits, with early recoveries from the CIL circuit showing around 95%, which is excellent in terms of start-up performance.”
Hummingbird took over the Yanfolila in 2104 from Gold Fields (JSE:GFI), one of the largest producers of the precious metal in the world.
It had concluded that on the whole the project was too small for to fit its strict criteria on these sort of assets.
But that hadn’t precluded it doing a lot of detailed investigations on viability, following up on the initial resource work that had been done by Glencar.
This work was then handed onto Hummingbird, which proceeded rapidly on to completing final economic studies, raising money and moving on into development.
Economic in a variety of gold price scenarios
Economics stack up
According to the most up-to-date study conducted by Hummingbird, Yanfolila is capable of producing an after-tax internal rate of return of 60%, assuming a gold price of US$1,250, lower than where it is now.
That would be on the basis of life of a production scenario weighted towards the early years, but which over the life of the mine would produce at an average rate of 107,000 ounces per year.
However, if gold were to rise to US$1,400, the after-tax IRR rises to 77%. Similarly the NPV jumps from US$162mln to US$216mln.
Conversely though, if the gold price should fall to US$1,100, the project will still enjoy a 42% internal rate of return.
Low cost producer
Stand-out is the all-in sustaining cost of US$695 per ounce, making it one of the most efficient producers in the world.
The shares, which have doubled in the year to date, still don’t fully reflect the full potential of the business, according to the City broker Mirabaud.
It values the business at 52p a share, which around 45% above the current share price. “As Hummingbird moves into commercial production we expect its share price to reflect more of Yanfolila’s full value as it currently trades at around 70% of its net asset value,” said analyst Nikolas Toleris.
In other words there is plenty more to play for.