Hummingbird Resources PLC (LON:HUM) said it expects to pour its first gold from the Yanfolila mine in Mali with the processing of ore well underway.
Supply from the pad stockpile is now going through the mill and carbon in leach process plant in order to extract the yellow metal.
Commercial ramp up will begin in the first quarter of next year and the aim is to produce 130,000 ounces of gold.
Impressive free cash flow
"Ore commissioning represents the final step ahead of first gold production at Yanfolila,” said chief executive Dan Betts.
READ: Hummingbird Resources ends talks with African Gold for potential earn-in to Kobada
“Everybody on site is totally focused on a smooth ramp-up of the plant as we look to move into the production phase.
“This is a key transitional moment for Hummingbird, transforming the company from a developer to a producer.”
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
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$162 mln to US$216 mln.
Conversely though, if the gold price should fall to US$1,100, the project will still enjoy a 42% internal rate of return.
Stand-out is the all-in sustaining cost of US$695 per ounce, making it one of the most efficient producers in the world.
Well-covered by brokers
In 2016, Beaufort Securities called Yanfolila “one of the best undeveloped gold projects in Africa”.
That analysis is only running out of date because Yanfolila is now producing.
In its latest note to clients the broker added: “We continue to be impressed with the progress being made at Yanfolila and now eagerly anticipate the first gold pour by year end. With the commencement of commissioning, the first gold pour is not far off.”
The shares, which have doubled in the year to date to value the business at £127mln, advanced 2.7% to 37p Friday (Dec 15).
One wonders whether that market capitalisation fully reflects the full value of a low-cost gold producer with the potential to generate £60mln of free cash next year at the current gold price.