COMPANIES
WEST AFRICAN RESOURCES
ASX:WAF | A$0.23 | US$76m
Drill Programme Completed, Resource Update and Feasibility Study due 1Q17
West African Resources announced this week that it has completed a drilling programme for the planned resource update on its Tanlouka Gold Project in Burkina Faso, which it plans to deliver in 1Q17. The updated resource will form the basis for a feasibility study into the development of an open-pit mining/CIL-based project focused on the M5 and the M1 South deposits that the company is also aiming to complete in 1Q17.
COMMENT: Since its acquisition in late 2013 until earlier this year, work at Tanlouka was focused on the potential development of the oxide resources at the M5 deposit as a ‘starter’ heap leach operation; it was on this that the company filed a pre-feasibility study in early 2015. However, in-pit oxide material was just 440,000oz of gold and heap leach recoveries of 80% limited life-of-mine gold production to 350,000oz. If there had been no capital constraints, the project would have been more suited to development as a CIL-based operation allowing the exploitation of the underlying primary sulphide material and boosting recoveries.
Excellent results from exploration at the nearby M1 South area during 2016 have led to a change of scope for the project. The forthcoming feasibility study considers the joint development of the M5 and M1 South deposits as a CIL-based processing operation, significantly increasing the mineable resource and recoveries compared with the previous pre-feasibility study. High-grade gold shoots were discovered at M1 South in March 2016. By the time of its maiden resource estimate in August, resources at M1 South were 179,000oz of gold at a grade of 8.0 g/t, a meaningful addition — and sweetener — to the 1.1Moz of gold grading 1.8 g/t at the M5 deposit. Metallurgical work has shown that mineralisation from the two deposits is compatible and suitable for processing in a gravity/CIL-based process, further supporting their joint development.
We are optimistic regarding the outcome of the feasibility study that is due to be published in 1Q17 and note that the company is in the final stages of permitting the project. The ESIA has been approved by the government, paving the way for the final grant of the mining permit by the Ministry of Mines (also expected by the end of 1Q17).
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We suggest the potential for a 20% increase in the overall resource in the update to be published early in 2017 — West African Resources plans to publish an updated resource on the Tanlouka Gold Project early in 2017. The previous resource estimate of August 2016 saw 1.4Moz grading 2.1 g/t (constrained within optimised pit shells, assuming a gold price of US$1,650/oz and a 1.0 g/t cut-off), including 179,000oz at 8.0 g/t at the key, high-grade M1 South zone, and 1.1Moz at the M5 deposit. Approximately half of the resource was in the Indicated category, with the remainder Inferred. The resource is relatively sensitive to changes in the gold price assumed for the optimisation of the pit designs constraining the resources; using a gold price of US$1,150/oz, the total resource would decrease to 1.0Moz at a grade of 2.2 g/t.
Since the publication of the resource statement in August, and having raised A$21m later that month, the company has been drilling flat out with four rigs — This programme has been designed primarily to infill the M5 and also to infill the M1 South deposit over 350m of strike length on 25m by 50m drill centres. Most of August’s resource at M1 South was included within 30m to 130m depth and the recent programme was planned to test mineralisation to depths of up to 300m. We suggest that this could have increased the total resource at Tanlouka by around 20%, to within a range of 1.6-1.8Moz, with much of the Inferred resource upgraded into the Indicated category.
Project scope for the development of a CIL-based operation focused on M5 and M1 South — Although the company has undertaken a scoping study and a pre-feasibility study on the project (in July 2014 and February 2015 respectively), these were both completed before company began to drill the M1 South Zone (early in 2016). Both of these studies were focused on the development of oxide resources at the M5 deposit as a heap leach-based starter operation, with the possibility of developing the underlying fresh rock with a CIL-based plant at some later date. Now, the success of the 2016 exploration programme has resulted in the addition of M1 South to the mining inventory and metallurgical test-work has confirmed that mineralisation from the deposits is compatible and responds well to the gravity and CIL-based processing route used in the feasibility study.
We suggest the potential for a 40% increase of in-pit Indicated resources — August’s in-pit, Indicated resources at M5 and M1 South totalled 636,000oz at a grade of 2.1 g/t. We anticipate that work undertaken in the interim could have increased resources by 40%, resulting in an increase to a range of 0.8-1.0Moz of gold. We also note the project-wide exploration potential remaining to be tested and further definition of the potential for underground mining to be evaluated, particularly at M1 South where recent drilling has intersected high-grade mineralisation at a depth of up to 200m.
Permitting — In October 2015 the company applied for a Mining Licence over the M1, M3 and M5 areas, and in early 2016 it applied for an Exploration Licence over the remainder of the Tanlouka Project area. In August 2016 the project ESIA and Resettlement Action Plan received a favourable opinion from the Ministry of the Environment, and on 8 December 2016 it was announced that the ESIA had been approved by the government. The company has now entered the final stages of permitting and anticipates receiving a Mining Permit from the Ministry of Mines before the end of 1Q17.
Targeting production by end of 2018 — The company aims to complete the Tanlouka feasibility study in 1Q17, financing by 3Q17 and to commence construction in 4Q17. Allowing 15 months for project construction would allow production to commence by the end of 2018.
West African Resources has a market cap of US$76m and A$18m/US$13m in cash — West African Resources is listed on the ASX and TSXV. It currently has A$18m in cash, having raised A$21m in August (70m shares at A$0.30/share). The company has no debt after clearing a US$5m debt to Macquarie Bank following the placement. Cash is sufficient to complete the feasibility study, continue with exploration and to commence early civil works on the project.