Mr. Mark O'Dea reports
TRUE GOLD'S NORTH KAO DEPOSIT TO GENERATE OVER US$118 MILLION IN FREE CASH FLOW TO KARMA
True Gold Mining Inc.'s North Kao deposit will generate an additional $118-million (U.S.) in after-tax free cash flow to the Karma gold project. As a result of its high gold grades, low capital costs and synergies to be realized by sharing future infrastructure, North Kao yields an after-tax internal rate of return of over 200 per cent.
True Gold has advanced North Kao from blind discovery to an independent preliminary economic assessment in a little over a year. This demonstrates the tremendous prospective upside, and potential economic viability of the Karma mining district, and how True Gold could potentially phase new discoveries into a future mine plan. North Kao adds approximately $70-million (U.S.) to Karma's after-tax net present value.
"The North Kao PEA provides us with a blueprint on how to expand our mine life and production profile at Karma as we look to the future of our district," stated Mark O'Dea, True Gold's executive chairman. "We have deployed a modest amount of capital in discovering and delineating these ounces and the return on our investment is exceptional. This PEA, together with the recent long-term cement contract, represents a significant increase in project value since September, 2014."
PEA highlights and project performance:
- Gold price: $1,250 (U.S.) per ounce;
- Inferred resources: 9.9 million tonnes at 0.98 gram per tonne containing 312,000 ounces gold;
- Production rate: 118,000 ounces gold per year on average over 2.5-year mine life;
- Initial capex: $17.7-million (U.S.) (including contingency);
- Cumulative after-tax cash flows: $118.6-million (U.S.);
- Net present value at 5 per cent (after tax): $69.6-million (U.S.) (discounted from 2022-2026);
- IRR (after tax): 213 per cent;
- Payback (after tax): approximately five months;
- All-in sustaining cash costs: $652 per ounce
(includes operating costs, refining and royalties, plus sustaining
capital).
The economic highlights throughout this release represent True Gold's effective interest in the North Kao deposit, after allowing for the Burkina Faso government's carried interest and all government and third party royalties. It is presented on an unlevered basis. The PEA is preliminary in nature and is based on inferred resources which are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mined reserves. There is no certainty the results of the PEA will be realized.
True Gold undertook a number of trade-off studies to ultimately arrive at the potential economic results reported in the PEA. True Gold considered alternatives such as ramping up throughput, supported by a stand-alone heap leach pad adjacent to the Kao/North Kao deposits, conveying mineralization from Kao/North Kao to the central processing facility at Goulagou, and an optimized mine plan that would see the higher-grade North Kao mined as an extension of the Kao reserve pit. However, until the inferred resources from North Kao have been upgraded to reserves, for which there is no certainty they will be converted, the only scenario the PEA could contemplate today is to conceptually mine North Kao at the end of the feasibility mine plan, starting in year 9. The NPV results are thus discounted cash flows from the end of year 11 to September, 2014. True Gold plans to carry out infill drilling to upgrade the inferred resources at North Kao, which is the northern extension of the existing Kao deposit. Upon upgrading of the resource category, True Gold will be able to advance further mine schedule optimizations.
"Our feasibility study published in December, 2013, did not include the leachable ounces from the recently discovered North Kao deposit," said Dwayne Melrose, president and chief executive officer, True Gold. "The North Kao PEA is our conceptual phase II. It demonstrates the potential to build on the 8.5-year mine life outlined in the feasibility study to develop West Africa's next high-margin gold district. North Kao represents just one of the six new discoveries made by our exploration team in 2013, and moving forward we see the potential for additional discoveries and resource growth."
The PEA supports a heap leach mine scenario from the defined North Kao open-pit deposit containing 312,000 ounces of inferred mineral resources. The centralized heap leach pad remaining from the feasibility mine plan has the capacity to process oxide and transition mineralization from the North Kao deposit, which would be delivered overland by haulage truck.
The proposed North Kao implementation schedule is over a period of six months and consists mostly of prestripping, the addition of an interlift heap leach pad liner, and community relocation. The project requires capital of $17.7-million (U.S.) (including contingency) to support the preparation of the mine and associated facilities with a process capacity of four million tonnes per year. The future North Kao mine would produce an average of 118,000 ounces of gold per year over 2.5 years, with direct cash operating costs of approximately $577 (U.S.) per ounce.
It is anticipated that the North Kao deposit would extend the employment duration of approximately 300 employees at Karma, and represents significant additional economic benefits in an area of Burkina Faso that has seen little foreign investment.
Senet Pty. Ltd. led the North Kao PEA, which included input from leading consultants P&E Mining Consultants Inc.
NORTH KAO OPERATING HIGHLIGHTS AND PROJECT PERFORMANCE
($1,250 (U.S.) per ounce gold)
Financial analysis
IRR 213%
NPV at 5% $69.6M
Payback 4.7 months
Initial capital costs
Preproduction (including contingency) $17.7M
Operating costs (average LOM)
Mining ($/t mined) $1.81
Processing ($/t processed) $8.09
General and admin ($/t processed) $2.27
Unit costs (average LOM)
Direct cash operating costs ($/oz) $577
All-in sustaining cash costs ($/oz) $652
Production
Operating plan
Prestrip period (yrs) 0.5
Operating life (yrs) 2.5
Mining (days/yr) 350
Process (days/yr) 365
Mining
Average mining rate (tpd) 41,000
Average annual mine production (Mt) 14.4
Total material mined (LOM Mt) 43.2
Overall average strip ratio (W:O) 3.4:1
Process
Process rate (Mtpa) 4.0
Average annual gold production (oz) 118,000
Total gold production (oz) 295,000
Metallurgical recovery (av LOM) 94.6
ECONOMIC SENSITIVITIES
Gold price sensitivity (after tax) U.S.$/oz
1,050 1,125 1,250 1,375 1,450
NPV (5%; U.S.$M) 45.1 54.3 69.6 83.2 92.3
IRR (%) 152.3 175.6 212.5 243.5 260.3
Recovery sensitivity (after tax) %
86.6 88.6 90.6 92.6 94.6
NPV (5%; U.S.$M) 56.7 59.9 63.2 66.4 69.6
IRR (%) 181.6 187.3 196.1 204.6 212.5
NPV after-tax (U.S.$M) %
-15 -10 0 +10 +15
Capex 72.3 71.5 69.6 67.6 66.5
Opex 80.9 77.2 69.6 62.1 58.4
IRR after tax (%) %
-15 -10 0 +10 +15
Capex 276.9 252.9 212.5 180.1 166.2
Opex 239.3 230.4 212.5 194.4 185.1
Highlighted indicate base case
Mining
Approximately 43.2 million tonnes of total material would be mined from the North Kao open pit over the course of the estimated project life. This will deliver approximately 9.9 million tonnes of feed to the process facility and 33.3 million tonnes of waste to the nearby storage facility. The overall strip ratio for the project is 3.4:1 with mining being conducted 350 days per year by an owner-operated fleet at total average material movement of 41,000 tonnes per day.
The mining operation is planned to employ conventional truck and shovel methods. Two 300-tonne hydraulic excavators configured in backhoe mode will load a fleet of 10 90-tonne trucks for the transport of mineralization and waste to the primary crusher and respective near-pit waste dumps. Four additional 90-tonne trucks will be employed for overland haulage to deliver mineralization directly from the pit to the process facilities without the need for mineralization rehandling.
The material to be excavated has a bulk density of 1.77 tonnes per cubic metre for oxide and 1.95 tonnes per cubic metre for transition, with respective work indexes of six to eight kilowatt-hours per tonne and 10 kilowatt-hours per tonne, attesting to the soft, porous nature of this saprolitic material. As a result, the soft nature of the open-pit mineralization and waste material allows 98 per cent of the total material to be excavated to be free digging (excavated without blasting). A small portion of the transition material will be drilled and blasted at low powder factors.
MINING
Year 8 (pre-
North Kao Total strip) Year 9 Year 10 Year 11
Waste kt 33,275 5,980 11,674 11,622 3,999
Ore kt 9,925 96 4,003 4,001 1,825
Au head grade g/t 0.98 0.55 1.06 0.82 1.15
Au contained oz 312,000 2,000 137,000 105,000 68,000
Strip ratio W:O 3.35 62.6 2.9 2.9 2.2
Total material kt 43,200 6,076 15,677 15,623 5,824
Metallurgy
The results of the preliminary metallurgical testwork conducted on the North Kao deposit indicate strong metallurgical and recovery similarities with the Kao Main mineralization. These similarities in recovery and metallurgical properties permit the utilization of the Goulagou heap leach operation for the processing of the North Kao material after the Kao Main deposit is mined without any modifications required to the Goulagou process plant, however, more heap pad area is required. The North Kao PEA is based on utilizing a third lift on the already filled Goulagou heap leach pad. An interlift liner is utilized to mitigate possible percolation restrictions.
Bulk leach extractable gold tests were conducted on over 200 samples extracted from 18 reverse circulation drill holes. The BLEG tests are designed to subject the mineralized samples to conditions of excess cyanide, oxygen and optimal pH to allow maximum leach extractable gold to be leached out of the samples. The similarity of the material at North Kao to Kao Main permitted the same relationship between BLEG and column leach tests established in the Karma feasibility study to be applied to the North Kao deposit results.
Process
The North Kao process design is based on the use of conventional heap leach technology with a production capacity of four million tonnes per year. Mined mineralization will be crushed, agglomerated, and conveyed to the leach pad where it will be stacked in a 10-metre lift and irrigated with dilute cyanide solution. Gold dissolved by the cyanide will then be absorbed onto activated carbon in a carbon-in-column circuit. The loaded carbon is then stripped of the gold using Zadra-type elution and the resulting product will be subjected to electrowinning and smelting to produce dore on site.
Capital costs
The total preproduction capital cost (capex) is estimated at $17.7-million (U.S.), inclusive of a $400,000 (U.S.) contingency. Initial capital costs include mine prestripping, inter-lift heap leach pad liner installation, and relocation costs. The reclamation costs of $500,000 (U.S.) are recovered at the end of the mine life.
Based on the PEA results, True Gold plans to continue with the same owner-operator development model that is currently being implemented at the Karma gold project. The mining fleet has been ordered and is due to arrive on site by early 2015.
INITIAL CAPITAL COSTS
(in millions of dollars)
Prestrip $ 8.5
Leach pad 6.3
Relocation 2.0
Reclamation 0.5
-----
Direct costs 17.3
Contingencies 0.4
-----
Total capital costs $17.7
OPERATING COSTS
Area Unit cost Units LOM ($M)
Mining 1.81 $/t mined 67.2
Process 8.09 $/t processed 80.2
Administration 2.27 $/t processed 22.5
Resources
The North Kao inferred mineral resource, detailed in the independent technical report titled, "Technical Report and Updated Resource Estimate on the Karma Project, Burkina Faso, West Africa," dated effective March 13, 2014, and filed on SEDAR April 28, 2014, includes 423,000 ounces gold of in-pit leachable resources (oxide and transition).
IN-PIT CONSTRAINED INFERRED RESOURCES
Mt Au g/t Au koz
Oxide 14.2 0.79 360
Transition 2.2 0.89 63
Sulphide 31.4 1.23 1,239
---- ---- -----
Total 47.8 1.08 1,662
Notes:
- Resource estimates were based on a gold price of $1,557 (U.S.) per ounce, 90-per-cent, 80-per-cent and 85-per-cent, respective, process recoveries for oxide, transition and
sulphide; oxide mining costs of $1.61 (U.S.) per tonne, $1.94 (U.S.) per tonne for
transition and $2.05 (U.S.) for sulphide; process costs of $7.25 (U.S.) per tonne for
oxide and transition and $19 (U.S.) per tonne for sulphide.
- General and administrative costs of $1.35 (U.S.) per tonne were used to determine the
respective 0.20, 0.22 and 0.50 oxide, transition and sulphide open-pit
cut-off grades.
- Gold grades were estimated in a five-by-five-by-five-metre block model from capped two-metre composites utilizing inverse distance cubed interpolation. Composites
were capped up to 45 grams per tonne depending on the individual mineralized domain.
- Mineral resources which are not mineral reserves do not have
demonstrated economic viability. The estimate of mineral resources may
be materially affected by environmental, permitting, legal, title,
taxation, socio-political, marketing or other relevant issues.
- The quantity and grade of reported inferred resources in this estimation
are uncertain in nature and there has been insufficient exploration to
define these inferred resources as an indicated or measured mineral
resource and it is uncertain if further exploration will result in
upgrading them to an indicated or measured mineral resource category.
- The mineral resources in this press release were estimated using the
Canadian Institute of Mining, Metallurgy and Petroleum Standards
on Mineral Resources and Reserves, Definitions and Guidelines prepared
by the CIM standing committee on reserve definitions and adopted by CIM
council.
- Material within optimized pit shells have engineering mining aspects
applied.
Inferred resources captured in PEA
North Kao inferred resources captured in the PEA were derived from the leachable portion (above the listed cut-offs) of the inferred mineral resource as this represents the lowest-cost mineralized material in the Karma deposits, and has the highest value available for extraction. Inferred resources in the PEA were developed using a Lerches-Grossman pit optimization process, which includes appropriate operating costs, recoveries, pit slopes, mining losses, dilution and a gold price of $1,300 (U.S.) per ounce.
INFERRED RESOURCES CAPTURED IN THE PEA
Oxide Transition Total
Au Au Au Au Au
Mt Au g/t koz Mt g/t koz Mt g/t koz
9.2 0.95 281 0.7 1.28 31 9.9 0.98 312
Note: Cut-off grades varied by material type (0.27 g/t Au for oxide and 0.30
g/t au for transition).
Social management and permitting
The development of North Kao will require the completion of an environmental and social impact assessment, as was the case for other Karma project deposits. The ESIA and relocation action plan for 400 people from Boulonga, a village comprising three settlements located between the Kao Main and North Kao pits, has been approved. The ESIA and relocation action plan for Kao Main provides True Gold with a template for developing North Kao and relocating the remaining 400 people in the area.
Exploitation permits for the Karma gold project are in place. Upon approval of the North Kao ESIA, a separate exploitation permit application will be submitted to develop North Kao as an extension to the Karma gold project.
Development schedule
The proposed development schedule allows for 12 months of preproduction development which includes community relocation, mining prestrip, and interlift heap leach pad liner installation. Assuming the execution starts at the end of the Karma definitive feasibility study plan in 2022, the first full year of gold production from North Kao would be expected in 2024, year 9 of the DFS mine plan.
Key execution schedule milestones include the following:
- 12 months prior: start community relocation;
- Six months prior: start mining prestrip;
- Three months prior: install heap leach pad interliner at Goulagou;
- Start mine production.
Opportunities and next steps
The PEA confirms that North Kao has the potential to be economically viable. While the PEA is based on slightly more than 300,000 ounces of oxide and transition resources, True Gold's exploration successes in recent discoveries demonstrates the potential to add additional open-pit leachable material at the Karma project for potential mine life extensions or potential incremental throughput expansions. If the North Kao inferred resources are converted to a higher resource definition, the company will optimize the feasibility study mine plan so that North Kao may be mined concurrently with the Kao deposit, however there is no certainty the resources will be converted to reserves.
Qualified persons
The scientific and technical information contained in this news release pertaining to the Karma project has been reviewed and approved by the following independent qualified persons as defined under National Instrument 43-101 Standards for Disclosure for Mineral Projects. All have consented to the disclosure of such information, and of their names in this release:
- Neil Senior, Senet (PEA lead);
- Eugene Puritch, PEng, P&E Mining Consultants Inc. (mining studies and
resource estimation).
Peter C. Carter, PEng, chief operating officer and vice-president engineering of True Gold, is the company's designated qualified person, within the meaning of National Instrument 43-101, for the technical information (other than technical information related to resources) contained in this news release and has reviewed and verified that such information is accurate, and approves of the written disclosure of same.
Scott Heffernan, PGeo, vice-president, exploration, of True Gold and is the company's designated qualified person, within the meaning of National Instrument 43-101, for resource estimation information contained in this news release. He has reviewed and verified that such information is accurate and approves of the written disclosure of same.
An independent National Instrument 43-101 technical report for the PEA and updated feasibility study report will be filed on SEDAR within 45 days of the date of this news release.
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