Aurum Resources (AUE.AX) has released the results of its pre-feasibility study on the flagship Boundiali gold project in Ivory Coast in June.
This study includes approximately 1.7 million ounces of gold, of the 3.2 million ounces across all the resource categories at Boundiali. As such, we consider this to be a first step towards further expanding the production profile a Boundiali, considering the PFS is based on 1.2 million ounces gold in the reserves and 1.7 million ounces in total. Ongoing drill programs should be helpful to improve the resource category of the ounces that are currently classified as inferred.
But for a first economic study with ‘just’ 1.7 million ounces of gold in the mine plan, Boundiali’s numbers are very robust. The initial capex is estimated at US$342M, which includes an 11% contingency, but at a consensus gold price of $4076/oz, the Internal Rate of Return exceeds 100% thanks to the low-cost nature of the ounces. While 1.5 million ounces of gold will be recovered over an 11 year mine plan, 60% of those ounces (923,000 ounces) will be recovered in the first five years, with an initial production year of 201,000 ounces of gold. And with an anticipated All-In Sustaining Cost of $1951 over the average mine life (and thus substantially lower in the first few years due to the higher production rate), the numbers look pretty robust.
At $2900 gold, for instance, the after-tax NPV5% still comes in at US$553M, and at $3500 gold we see the after-tax NPV increase to in excess of US$1B, with an after-tax IRR of 78%. Based on the current exchange rate, this represents an after-tax NPV5% of approximately A$1.5B, which compares well to the current market capitalization of just over A$200M.
As mentioned, we would expect the ongoing drill program to have a positive impact on the amount of ounces that actually ends up in the mine plan. Additionally, we expect the definitive feasibility study to focus on an owner-operator model versus the contractor model used in the pre-feasibility study. The Aurum team has proven with Tietto Minerals that it knows how to build and operate a gold mine.
Disclosure: The author has a long position in Aurum Resources. This post is for educational purposes only; be mindful investing in junior mining stocks is risky and you may lose your entire investment if things go wrong. Please read the disclaimer.
