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BIG PICTURE - Hummingbird Resources will be transformed by Gold Fields deal

Hummingbird Resources has unveiled the “transformational” acquisition of gold assets in Mali that could catapult the group into production by the end of next year.
BIG PICTURE - Hummingbird Resources will be transformed by Gold Fields deal


Shares in Hummingbird Resources (LON:HUM) spiked 8% after it unveiled a “transformational” acquisition of gold assets in Mali that could catapult the group into production by the end of next year.

It is buying the 1.8mln-ounce Yanfolila project from Gold Fields in an all-paper deal that values the property at £20mln.

The economics of the mine look very attractive with sustaining costs put at US$700 an ounce, while the internal rate of return is 53% based on initial production of 80,000 ounces of the precious metal a year.

This would provide a payback on the initial capital investment of just US$52mln within two years.

The project itself appears to be a reasonably simple one to construct, with Hummingbird targeting the oxide ore contained in the deposit using only carbon-in-leach to liberate the gold.

Yanfolila has been permitted for 30 years and an estimated US$100mln has been spent on its development to date.

Gold Fields will become Hummingbird’s largest shareholder following the deal with 26.3%.

"While the project did not have the scale for Goldfields, its willingness to complete a paper deal shows enthusiasm to retain some exposure to this project in our view," said Asa Bridle, analyst at Cantor Fizgerald.

Gold Fields taking stock should be seen as a “ringing endorsement and shareholders should take heart”, agreed chief executive Dan Betts.

The group, which owns a hugely promising Dugbe 1 project in Liberia, will have an impressive portfolio once the acquisition is completed, including a 6mln-ounce gold inventory and a production pipeline of 200,000 ounces a year.

CEO Betts told Proactive: “We see it [Yanfolila] as a catalyst to developing a pipeline of production for Hummingbird.

“We see at as an amazing opportunity presented by this market whereby Gold Fields was selling a quality, high-grade asset that was too small for them in this gold price environment.

“We have the opportunity to downscale the asset and still produce a significant amount of gold for a company of our size.”

At 3pm shares in Hummingbird were up 4.25p at 57p each.

Charlie Long, of broker Sanlam, called said the acqusition was "excellent news", while Investec added: "This is an encouraging development for the company and will hopefully provide a low cost rapid route for the company to evolve from explorer to producer. 

"We note however, that the announcement does not provide details on the production profile of Yanfolila other than year-one, nor is there an indication of how grades evolve. 

"We wait to see further news flow on the project as management get to grips with it. In time this will hopefully better position the company to develop other assets in its portfolio."

Betts confirmed there are a number of lenders keen to provide the funds required to construct the project.

“The reason is that this is of a scale that meets many investment firms’ mandate and the returns are exceptional,” the chief executive added.

The plan now is to reconfigure Gold Fields’ initial plan, which was for a much more ambitious project.

In doing so it will focus on the easier-to-process oxide ore, something the mining major just couldn’t do.

“There are no question marks about this working politically or technically, it is just a question of re-engineering the scale as quickly to a plant we can afford and can deliver quickly,” said Betts.

“It turns us overnight into a relatively significant player in this space.”

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