African Aura Mining’s (LON:AAAM, TSX-V:AUR) proposed New Liberty gold mine should provide a good platform for other projects within a potential new gold province, according to Fairfax Securities analyst John Meyer.
The senior mining analyst reflected on the findings of a preliminary economic assessment for the gold project in Liberia.
This morning’s statement highlighted New Liberty’s potential for a robust open pit gold mining operation, with strong economics. The proposed mine could have an 8.5 year life, with production at 100,000 ounces per year in the first five years.
The study put New Liberty’s pre-tax net present value (NPV) at US$234 million, or £148 million. It would have initial capex of US$92 million, with an average cash cost of US$484 per ounce and a head grade of 3.6 grams per tonne.
New Liberty’s internal rate of return (IRR) would be 73 percent and the capital payback pay-back period would be less than two years.
A definitive feasibility study is currently underway, and it is on track to be completed by Q4 2011.
“This is a positive step forward for the company demonstrating the potential economic viability for New Liberty which appears relatively low cost from both a capital and operating perspective,” Meyer said in a note to clients.
“New Liberty should provide a good platform for other developments within this potential new gold province with numerous other gold targets within the company’s tenement package.”
He adds: “New resources could be identified along strike, as well as being open at depth that could extend the mine life.”
The analyst believes that African Aura’s gold and iron ore portfolios appear undervalued.
Indeed this can be gleaned from the company's assessment of the New Liberty project alone.
African Aura’s chief executive Luis da Silva highlighted that New Liberty’s pre-tax net present value (NPV) equates to 162 per share. Meanwhile on AIM the entire group’s shares are currently trading just below 170 pence.
Similarly Evolution Securities analyst Charles Kernot also emphasised this point.
“While the final NPV will be dependent on financing routes and associated tax structuring the pre-tax figure is equivalent to last night’s share price – and this is only the open pittable portion of the deposit,” Kernot said.
Kernot rates African Aura as a ‘strong buy’ with a 210 pence target.
There is much more to African Aura than New Liberty, notably its iron ore business comprises two projects with significant potential.
In Liberia the 38.5 percent owned Putu project is at the pre-feasibility stage with a major 40,000 metre drilling programme set to run into 2011. An inferred resource estimate is due at the wholly-owned Nkout project in the Cameroon, during the first quarter of 2011. Later an upgrade into the indicated category is expected by the end of 2011.
The gold portfolio also includes a number of earlier stage projects, like the Ndablama gold prospect which is just 40 kilometres away from New Liberty.
African Aura has already taken steps to address the disparity between the asset value held within its diversified portfolio and the value implied by its AIM-listed shares.
It plans to separate the iron ore and gold assets into two listed companies. African Aura will focus on developing the iron ore assets while a newly created company, Aureus Mining, will advance the gold assets.
New Liberty will be the flagship asset of Aureus Mining, once African Aura splits. Aureus is expected to be created by March 2011.
“New Liberty is on the cusp of becoming a very significant gold operation in West Africa and we will update shareholders in due course,” Luis da Silva added.