HUMMINGBIRD Resources is considering a proposal which may boost gold production at its Yanfolila gold project in Mali by about 45% to some 150,000 ounces a year.
The London-listed gold development firm said in an announcement today that it had signed a letter of intent with African Gold Group to invest in both the company and its project in Mali. African Gold Group, which is listed on the Toronto Stock Exchange, was recently taken over by Forbes Manhattan Group.
African Gold owns the Kobada Gold Project which is located near Yanfolila. The basic premise of the proposal is that Hummingbird buy shares in African Gold in two stages up to a maximum 19.9% in shares for a total sum of C$8m.
It can then earn the right to manage Kobada and some 50% of its cash flows once it has funded the capital required to build the mine. It will receive 70% of Kobada’s cash flow until its capital expenditure is recouped. Access to cash flow and ownership with then revert to 50% with African Gold holding the other half.
The logic from Hummingbird’s perspective is that it will be able to lift production by trucking high grade ore from the Kobada mine to its processing facilities at Yanfolila. It also believes the proposal will enable it to extend the life of mine of Yanfolila to beyond 10 years from its current anticipated life of 7.5 years.
The agreement for the initial investment – which gives Hummingbird some 120 days to exclusively examine the project – must be signed in 45 days. “Based on the due diligence we have completed to date, we believe we will be able to truck a high-grade concentrate to the Yanfolila processing plant from Kobada,” said Dan Betts, CEO of Hummingbird Resources in a statement.
“This high-grade concentrate would have a material increase to our annual production rates and could add up to an additional 50,000 oz per annum to our existing average life of mine production of 107,000 oz,” he added. Yanfolila is on budget, at some $88m, and on schedule to produce its first gold later this year.
Stephan Theron, CEO of African Gold since about April, described the proposed transaction as “a win-win” for both companies. “This transaction with Hummingbird is significant for AGG [African Gold Group] as it validates the intrinsic value of the Kobada gold Project and fast tracks the planned development program,” he said.
“Hummingbird provides us the financial capacity to develop the Kobada Gold Project and we are also gaining a partner with operational presence in Mali,” he said.
Said Betts: “This could significantly improve the production profile of Yanfolila and materially improve the mine’s net present value”. Betts told Reuters earlier this year that he was “… looking for opportunities to offset depreciation of assets as Hummingbird brings online the Yanfolila project in Mali”.