Hummingbird Resources PLC (LON:HUM) has announced the results of a study that investigated the potential viability of building a hydroelectric plant to provide power to the company's 4.2 mln ounce Dugbe gold deposit in Liberia.
The study was carried out by an affiliate of the International Finance Corporation, the financial arm of the World Bank, and examined a range of scenarios. Under the parametres of the largest proposal, a 30MW hydroelectric power operation would be constructed at a distance of around 10 km from Dugbe at a cost of US$143 mln. Average mean energy output from this plant would be 141.2 gigawatts.
Four other scenarios then went through a range of sizes down to a 10MW operation to be built at a cost of just over US$50 mln. Significantly the operating costs for each of the proposed power stations would be the same, put at around US$400,000 per year by the IFC study.
However, the cost savings could be significant. The most recent economic study at Dugbe estimated that almost a third of the all-in sustaining costs for producing an ounce of gold were derived from the cost of renting deisel power.
If the hydroelectric plant could be built, the all-in costs of production would fall markedly, although Hummingbird does note that oil prices were higher when the previous study was done.
Even so, the numbers are striking. Under the parameters of the original Dugbe study, power costs were set at around US$0.28 per kWh. Using the hydro scheme power costs could drop to as low as between US$0.05 and US$0.06.
No wonder broker Shore Capital called the news "encouraging" and said that it demonstrated "good potential for cost savings." Broker SP Angel talked of the study "triggering development" at Dugbe.
Yanfolila due to start producing next year
Yanfolila, in Mali, is the company’s flagship project and will start producing next year with the aim of churning out 107,000 ounces of the yellow metal a year.
The Kola deal will allow Hummingbird to channel its efforts in this project and the 4.2mln-ounce Dugbe asset in Liberia.
Meanwhile, Yanfolila in Mali remains one of the best projects among the UK-listed junior mining sector, according to resource-focused broker RFC Ambrian.
In a definitive study in February, total resources at Yanfolila were defined at 1.8mln ounces of gold with an additional 390,700 ounces of exploration potential.
The plan is to mine five open pits in succession, starting with Komana East and Komana West and then progressing to Guirin West, Sanioumale East and Sanioumale West.
The high grade Gonka resource is in addition to this and would be worked initially as an open pit, then underground.
The processing plant will have a throughput capacity of 1.24 mln tonnes a year, producing up to 121,000oz of the yellow metal each year.
Last month, shareholders approved a placing and subscription to raise funds for the construction of the mine.
Added to an over-allotment option in respect of 16.8mln shares, the amount raised in total was £49.5mln (US$70mln).
Bringing the mine on stream will cost US$88mln, estimated Ambrian, comprising US$79mln of capex and US$9mln of working capital.
If you add in the US$15mln required to repay the Taurus bridge loan and the total funding requirement is in the region of US$110mln, the balance of which Ambrian expects to be secured as debt finance.
Yanfolila receives a DFS upgrade
Hummingbird's update in February improved upon the DFS (definitive feasibility study) numbers published in January for Yanfolila.
Upgraded designs for the open pit mine and new metallurgy and technical data added 7% or 44,000 ounces of gold to reserves to take the total to 709,800oz.
Net present value rose to US$109mln from US$88mln based on a gold price of US$1,100.
Using a gold price of around US$1,250 per ounce, the NPV jumps 84% to US$162mln.
The design changes also lowered the cost of production to US$686 per ounce, a US$34 cut.
In the DFS, total resources were 1.8 mln ounces of gold with an additional 390,700 ounces of exploration potential.
Exploration upside still on the table
Following a deal struck with privately-owned Kola Gold, Hummingbird will spin out a number of non-core gold exploration permits in Mali plus some of Kola’s in Mali and Senegal into a new vehicle called Cora Gold. In all there will be ten properties covering 1,600 sq km.
City broker Shore Capital said the deal allowed the group to develop its flagship Yanfolila project without sacrificing exploration upside.
"This transaction doubles our exploration exposure in Mali and provides us with an introduction to Senegal and exciting new mineralised ground in Mali where we are currently focused on bringing Yanfolila, one of Africa's highest margin undeveloped gold projects, to production next year,” chief executive Dan Betts told investors.
Hummingbird will own 43% of Cora Gold, which must raise US$4mln.
The AIM group will have buy-back and royalty rights over the four permits closest to Yanfolila that could add “significant upside” to the operation there.