African Gold Group (CVE:AGG) announced Wednesday the results of a preliminary economic assessment for its Kobada gold project in Mali, indicating an after-tax internal rate of return of over 90%.
The study, completed by Bumigeme, considered the potential of an open pit, bulk mining model using a gravity recovery process plant, and included drill data up to the end of December 2010.
This means the assessment does not include drill holes that expand the property's Zone 1 up to 2 kilometres to the north, nor does it incorporate any southern holes from 2011 or the newly discovered Foroko North deposit and the Termite Zone.
In other words, project economics stand to improve even further.
According to the latest study, the after-tax net present value of the property, from the beginning of construction, was estimated at US$216.9 milion, using a base case gold price of US$1,100 per ounce, and a discount rate of 5%.
The base case for the report evaluated a 20,000 tonne per day processing rate for average annual production of 126,600 ounces of gold for the first five years of the expected six-year operation, at a direct cost of US$470.9 per ounce.
"The economics associated with our Kobada gold project are outstanding," said company director, Pierre Lalande.
"I have in excess of 30 years of working experience in West Africa and have participated in the development of numerous lateritic deposits, of which seven are now in production.
"Based on my experience, I state with confidence that Kobada will become a producing mine in the near future and I predict it will be a highly profitable, low cost, gravimetric operation."
Capex for the first five years of the project was calculated at US$122.5 million, which is set to increase by US$2.9 million during the fourth or fifth year, the company said, due to the addition of a ball mill.
African Gold Group also said that most of the volume of the sulphide resource that was included in the company's May 2008 initial resource estimate was not included in the latest study to reflect its focus on the oxidized horizon of the deposit.
Therefore, resources used in the report were only projected to a vertical depth of 160 metres, versus the depth of 260 metres in the 2008 resource estimate.
To date, the company controls a total of eleven gold concessions that are consolidated in four exploration projects, three of which are located in Ghana, and one of which is Kobada.