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Raymond James recently looked at Roxgold’s feasibility study, which confirms strong project economics for the 55 Zone in Burkina Faso.
The study looks at an underground mining scenario with an initial mine life of seven years for the small operation. Assuming a gold price of $1,300, Roxgold is looking at an a pre-tax internal rate of return (IRR) of 53.7 percent with a 1.5-year payback on the initial capital cost and a pre-tax net present value (NPV) of $300 million at a 5-percent discount. After tax, those figures look more like an IRR of 48.4 percent with payback in 1.6 years, along with a $250-million NPV with a 5-percent discount.
Roxgold has tagged its average total costs at $467 per ounce, including royalties. Beyond that, Roxgold sees an average all-in sustaining cost of $590 per ounce.
As far as pre-production CAPEX goes, Roxgold is looking at a pre-production cost of $106.5 million. Big-ticket items included in this estimate are: $30.7 million for the underground mine, $28.4 million for the processing plant and $13.9 million for infrastructure and vehicles. The company has also added an $8.7-million contingency cost in its pre-production phase. Over the life of mine, however, Roxgold anticipates a capital cost of $69.8 million, the bulk of which will be focused on the underground mine ($62.4 million), tailings and water storage ($3.3 million) and a $2.7-million contingency.
Over the course of the mine’s life, the study calls for production of 99,500 ounces of gold per year from a reserve of 759,000 ounces grading of 11.8 grams per tonne (g/t).
Raymond James notes that Roxgold’s feasibility study “slightly beat [its] previously forecasted capital, operating and all-in costs, albeit, as expected, continues to envision a smaller mine plan than [the firm’s] model.” Basing its overall view of the project on: a 276,000-ounce inferred resource at an undisclosed depth (due to a lack of drill density); untested extension potential down-dip and to the west of the 55 Zone’s existing resources; and strong exploration success at Bagassi South, Raymond James sees the company’s bankable feasibility study as a “starter kit: to getting the 55 Zone financed and into development, prior to the inclusion of further ounces and higher production rates.” The firm sees the the BFS’ larger motor SAG mill able to run in excess of 900 tonnes per day.
In the research note, Sadowski looks at the 55 Zone’s global resources, including a measured and indicated gold resource of 810,000 ounces grading 15.8 g/t and 277,000 ounces gold grading 10.26 g/t in the inferred category; those were not considered in the study. Furthermore, Sadowski sees “significant exploration potential at
depth and to the west, which is expected to be the target for future exploration.”
As a result, Sadowski states, “[w]e are … leaving recoverable reserves at 1.0 Moz, but are adjusting our grade profile to match the BFS’ granularity and increasing throughputs slightly.”
The firm has a “Buy” recommendation on Roxgold despite the small operation outlined in the feasibility study. Banking on extra ounces added to the mine plan, Sadowski views the company as likely to be “re-rated by the market as first production approaches in 1H16E.”
Sadowski also views the “elimination of deeper, lower grade inferred resources and incorporation of higher grade pillars into the mine” as having a notable impact on the cost and valuation metrics. Overall, the firm sees several changes that could result in a slightly higher CAPEX, but a lower operating cost and improved productivity in the underground mine with a higher NPV.
Securities Disclosure: I, Vivien Dinz, hold no investment interest in any of the companies mentioned.