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North Kao was a blind discovery a little over a year ago, but True Gold has already advanced the property to a preliminary economic assessment. The company released the report on Tuesday, and it indicates an excellent after-tax internal rate of return of 213 percent.
The PEA also points to initial CAPEX of US$17.7 million, including contingency, for a $69.6-million net present value (NPV) at a 5-percent discount. All-in sustaining cash costs are set at just $652 per ounce of gold. That’s based on a base-case gold price of $1,250 per ounce, but at $1,050 per ounce, the IRR is still going strong at 152.3 percent, while the project’s NPV dips to $45.1 million.
Investors can look forward to a payback period of just five months.
Growing potential
Granted, there is a catch — the mine life for North Kao is set at a short 2.5 years. However, as Tara Hassan states in a research note for Haywood Securities, that’s only because according to NI 43-101 guidelines, True Gold has to present North Kao as a stand-alone project — the deposit doesn’t have a measured and indicated resource yet, so it couldn’t be included in the Karma feasibility study.
The analyst points out that the conceptual mine plan for North Kao will be tacked on to the end of an existing 8.5-year mine life for the Karma project, which is currently under construction.
True Gold’s president and CEO, Dwayne Melrose, explained, “[t]he North Kao PEA is our conceptual Phase II. It demonstrates the potential to build on the 8.5 year mine life outlined in the Feasibility Study to develop West Africa’s next high margin gold district. North Kao represents just one of the six new discoveries made by our exploration team in 2013, and moving forward we see the potential for additional discoveries and resource growth.”
And for North Kao alone, Seeking Alpha notes that Tuesday’s report is based on less than a year of drilling, and that there are “more hot spots” to be tested. The author states that True Gold is “getting close to ‘slam dunk’ territory if the gold price doesn’t collapse.”
Rapidly advancing
A special point of interest for Hassan is “the speed at which True Gold has been able to advance North Kao from discovery to economic study,” which she notes has been less than 18 months. Furthermore, most of True Gold’s capital costs for the construction of its Karma project have been almost entirely funded through a US$120-million financing deal with Sandstorm Gold (TSX:SSL) and Franco-Nevada (TSX:FNV).
However, as the analyst points out, True Gold still requires a few environmental and exploitation permits, and may still need to go to the market for financing as it currently has no cash flow. In terms of jurisdiction, she sees the possibility for “further changes to the royalty or taxation regime,” in Burkina Faso, and alludes to mild geopolitical risk in the northern part of the country, where Karma is located.
Burkina Faso’s next gold mine?
Still, with one funding package already in hand, Hassan seems confident that True Gold is “on track to build Burkina Faso’s next gold mine.” Production is slated for Q1 2016, and interested investors will be keeping an eye out for drill results and the arrangement of the remainder of the company’s financing.
The analyst has assigned True Gold a “buy” rating, setting a target price for the company at $0.75. At close of day Tuesday, shares of True Gold were up 1.56 percent, trading at $0.325 on the TSXV.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
