Following receipt of a bankable feasibility study prepared by Metallurgical Design and Management (MDM) of South Africa for the Tabakoto project in Mali, Toronto-listed junior Nevsun Resources (NSU) is seeking bank financing for the project.
Nevsun has released details of the study which confirms double-digit rates of return even at US$300 an ounce.
Given consensus forecasts for a higher gold price over the next two years at least, Nevsun should secure financing quite easily and it said in a statement that it is in discussions with several banks for debt financing. The company has already raised several million dollars so far this year in a series of private placements and it is expected to place more paper to make up any debt shortfall. It is not clear whether Nevsun will agree to hedging, or whether it is even feasible in the current interest rate environment.
At a gold price of US$300, the first five years of open pit operations at Tabakoto, 80% owned by Nevsun, would offer an internal rate of return of 24%, rising to 45% at US$350 an ounce. Further development of underground mining would yield returns of 37% and 57% respectively, with incremental cash flow pegged between US$64mn and US$121mn. Earlier estimates called for a minimum 20% return at gold prices between US$270-280 per ounce.
Construction will commence next year with the first gold set to be poured in 2004.
The feasibility study modestly improved the outlook for the project from previous estimates. The study and drilling for it, was funded to the tune of US$2mn by South African bank Absa and that country’s Department of Trade & Industry in terms of an export development programme. The extensive South African flavour comes from MDM which did extensive work on Randgold Resources’s (RRUS) rich Morila project, in which AngloGold (AU) subsequently took a stake.
Nevsun’s deposits are close to Randgold’s Loulo project, which lie north west of Morila and its mothballed Syama mine.
Mali’s progressive mining code, which allows tax free operations for the first five years, has been a magnet for junior miners.
Nevsun’s plan is for a 650,000 tonne per year mine producing 105,000 ounces a year at an average cost of US$185 per ounce. Development capital is expected to total US$24mn. Open pit operations should last seven years before transitioning to more profitable underground operations that will add a further six years to mine life.
There is additional prospect in the nearby Segala Deposit which is presently being infill drilled in preparation for a separate feasibility study that will be conducted in the first half of 2003. The deposit was acquired in July this year from Semafo for a total consideration of US$9mn. Combined with Tabakoto, Nevsun has about 3.2mn ounces in gold resources under its control.
Nevsun’s only other project, the Kubi royalty venture with Ashanti (ASL) in Ghana, remains in abeyance for permitting reasons. Nevsun also has a land package in Eritrea.