Australian-listed Adamus Resources is well on its way to production at its South Ashanti Gold Project in Ghana, but investors don’t seem to have appreciated that fact as yet. Maybe that is because at one time the company seemed to be intent on drilling forever, rather than getting into cash flow. But management changes last year, when exploration men gave way to developers, are indicative that this is no longer the case. In the last couple of weeks the company had its mining leases approved for the Salman deposit which means that it now has exclusive rights to work, develop, and produce within the Salman and the Anwia South mining lease areas for an initial, but renewable, 10 year period. Adamus can now get on with developing the Salman and Anwia deposits, as well as additional deposits discovered within these immediate districts.
In racing parlance the Adamus horse has cleared the last big jump in the back straight and is now well into its stride. The next jump is the Environmental Impact Assessment, and chief operating officer Mark Connelly is confident that this will be cleared by the end of July. At the same time the company is rejigging its bankable feasibility study, produced in the summer of last year when the price of gold was only US$660 per ounce. It’s now about US$$200 higher, and that’s bound to make quite a difference to the figures, though Mark does warn that the rise in power, material and labour costs will put a slight brake on the benefits. Once the study has been brought up to date Adamus will be taking the next jump, which is deciding on the amount of capital to raise from debt and equity, before then mandating a bank to raise the money.
Mark makes the point that it is vital to work closely with Mincom, the Minerals Commission of the Government of Ghana, as this is the agency which gives the go-ahead for projects. He says that its assessments are carried out very professionally. They should be, as Ghana has a long history of gold mining as reflected in its previous name, Gold Coast. Mark also emphasises is that exploration has not stopped while Adamus jumps these various fences towards production, and last month the ore reserve was increased to 815,000 ounces of gold, based on a gold price of US$800 per ounce, a significant increase on the previous 646,000 ounces. Most of the ounces are in the proven ore reserve category, and grade at 2.35 grammes per tonne, quite high for open pit mining. Just as important, about 95 per cent of the ore is judged to be free milling oxide material.
The reserve increase followed another announcement that detailed a 40 per cent increase in the company’s measured and indicated resource to 1.63 million ounces. There’s also an additional 340,000 ounces inferred. It comes as no great surprise, therefore, when Mark claims that reserves will be around the2 million ounce mark by the time production starts in 2010. He’s wary of being pinned down to an exact date for this milestone, but does go as far as suggesting early that year. After all, it will take at least 18 months to bring the project to production even after the money has been raised. To try to shorten the timescales, A$5 million was raised last month through a private placement, and tenders have been called for a new SAG mill. Mark Connelly points out, however, that if second hand equipment can be found nearby, then the development period could be reduced by the best part of a year.
His reasons for being optimistic about increasing the reserves are many. For a start, a lot of the resources can be upgraded to reserves through in-fill drilling. An exploration programme away from the proposed open pits is still in full swing. Positive results have been announced recently from Avrebo which showed high grade mineralization at shallow depths. Results from Bokrobo are expected shortly. The fact that the geology is markedly similar to that of the Bogoto Prestea project owned by Golden Star Resources is also a great help, as it appears that the refractory sulphide ores increase in grade at depth. They have not been included in the resource estimates as they require a different treatment process, but Golden Star is using BIOX® to good effect.
What is clear is that the oxide ore should be cheap and easy to mine, as it’s within 100 metres of surface. The feasibility study focused on this ore when predicting that the project could be developed for US$79.5 million and should produce 100,000 ounces of gold a year at a cash cost of US$345 per ounce. Balancing off higher costs against the current gold price, the project should still have a payback period of less than three years and a mine life of 10 years or more.
If Adamus is seeking funding for such a straightforward project, perhaps it should be making its presence felt rather more in London. Mark Bojanjac, the chief executive, took a dual listing in Canada about a year ago, hoping to boost the share price, but it doesn’t seem to have worked. He is respected in London for bringing the Boroo gold mine - now a central part of Centerra Gold - into production against the odds in Mongolia a few years ago. Now the two Marks have to drive Adamus along the final straight to the winning post of production and their chances have been improved by the appointment of mining engineering specialist Mintrex as engineering project manager as they face the last fences of final permitting, pre-development, and tendering, before construction actually starts.
Along with AZM these could be worth a punt. More consolidation in the Ghana seems likely.
Current share price at triple bottom support on the yearly chart.
ADU Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
