Lupaka Gold (LPK.V) is still moving forward to develop the Invicta poly-metallic project but the original targeted completion date of ‘the end of Q1 2015’ unfortunately enough hasn’t been met. In this short flash update we will review Lupaka’s situation.
Lupaka continues to advance the project
Lupaka has been able to achieve important developments at Invicta, with the most important achievement in the first quarter was the receipt of the Certificate of Mining for the Invicta project. This certificate was a ‘must have’ before Lupaka could even think about applying for a license to use explosives.
The application for the explosives license was submitted in February and received on March 19. A slower than expected regulatory process also is the main reason why Lupaka was unable to meet its guidance to bring Invicta in production by the end of the first quarter of this year. This is obviously very frustrating but shouldn’t have been entirely unexpected as timelines usually are a moving target in the mining sector.
Refreshing your memory
Even though the Invicta project contains approximately 1.2 million gold-equivalent ounces, Lupaka Gold is initially targeting several higher grade ore blocks close to the existing underground infrastructure. The company has access to approximately 660,000 tonnes of ore containing almost 5.5 g/t gold and 1.2 ounces of silver per tonne of rock as well as 0.95% copper and 0.4% zinc. Keep in mind this resource is just a first estimate and we wouldn’t be surprised to see an increase further down the road.
As the initial planned production rate is 300 tonnes per day (the small scale mine permit allows to increase the production rate to 350 tonnes per day) these high-grade ore zones should be sufficient for an initial 6-7 year mine life producing in excess of 16,000 ounces of gold per year (assuming a conservative recovery rate of 90% and 345 operating days per year). Lupaka is still negotiating with mill owners that have both the capacity and the capabilities to toll-treat the Invicta ore and we hope to see one or more agreements finalized soon.
This also emphasizes Lupaka’s low market capitalization which is now less than C$10M which is ridiculously low.
About Lupaka’s financial situation
Lupaka expects it will have to spend approximately US$2M to get the project up and running and with just over C$2M in cash on its December 31, 2014 balance sheet, Lupaka is able to continue to fund the start of the necessary pre-production activities to facilitate production at the Invicta mine. However, as the current working capital position of Lupaka is just C$1.2M, the company does need external help to be in a more comfortable position whereby Lupaka could also bridge the gap until it reaches the free cash flow positive stage. The capital expenditures seem to be under control which is an important factor and Lupaka is cutting costs where possible. The total employee count dropped by 50% in 2014, and the company also moved from the TSX to the TSX Venture Exchange and both measures will limit future cash outflows.
Management doesn’t believe that the company will have to issue new shares and dilute the current shareholders. In this regard, as Invicta is a poly-metallic project we’d be surprised if Lupaka would be unable to sell a stream on one of the metals it plans to produce and this would result in a less dilutive way to finance the construction. Available debt financing options also remain as realistic non-dilutive financing sources.
Things are taking a bit longer than expected but Lupaka’s senior management team remains extremely committed to bring Invicta in production in 2015 to secure a steady operating cash flow. We will continue to monitor the situation closely and will provide updates in due course.
Disclosure: Lupaka Gold is a sponsoring company. Please see our disclaimer for current positions.