Hummingbird Resources (LON:HUM) shares were higher today on news it has signed a letter of intent for a potential earn-in to a 50% interest in the Kobada Gold Project in Mali owned by African Gold Group Inc (AGG) and plans an initial investment of C$3.6mln for a near 10% initial stake in the group.
Dan Betts, Hummingbird’s CEO, commented: "Based on the due diligence we have completed to date we believe we will be able to truck a high-grade concentrate to the Yanfolila processing plant from Kobada. This high-grade concentrate would have a material increase to our annual production rates and could add up to an additional 50,000oz per annum to our existing average life of mine production of 107,000oz.”
READ: Hummingbird Resources Mali mine is on time and on budget for first gold pour later this year
In a statement, published after the London market close yesterday, Hummingbird noted that Kobada has 2.2mln oz of measured, indicated and inferred gold resource, including 511,000 oz of reserves.
Hummingbird said its investment in AGG for an approximate 9.9% stake will see it buy 40,000,000 units at C$0.09 each - each unit consisting of a share and a warrant at C$0.12 per share.
Possibility of increasing shareholding
The firm added that, during an exclusivity period, it has the right to increase its shareholding in AGG to 19.2% for a further consideration of C$4.4mln also at CAD$0.09 per share paid in Hummingbird shares.
It will also have the right to manage the definitive feasibility study (DFS) on the Kobaba project, funded by AGG, and on completion of the DFS Hummingbird has the right to acquire a 50% interest in Kobada through funding the project’s capital expenditure.
Hummingbird said it will receive 70% of cashflows from the project until its capex is recovered.
CEO Betts added: “This deal with AGG gives us a path to 150,000oz production per year within three years from now combined with the organic extension of mine life from existing resources extending it well beyond 10 years. This could significantly improve the production profile of Yanfolila and materially improve the mine's NPV.”
Hummingbird shares higher
In afternoon trading, Hummingbird shares were 3.7%, or 1.25p higher at 35.00p.
In a note to clients, analysts at Shore Capital said: “We understand that due to operational synergies, Hummingbird expects gold produced from Kobada material to enjoy a similar AISC to Yanfolila-sourced production (just under US$700/oz). There would also be capex synergies – in particular, there would be no need to construct a CIL circuit at Kobada.”
They added: “Kobada notwithstanding, it should be noted that Yanfolila has additional resources that could potentially enable mine life to be organically extended beyond 10 years.”
-- Adds share price, broker comment --