Mr. Mark O'Dea reports
TRUE GOLD ANNOUNCES POSITIVE FEASIBILITY STUDY FOR KARMA PROJECT
True Gold Mining Inc. has released results from an independent feasibility study for the Karma gold project in Burkina Faso, West Africa. The study supports a technically simple open-pit heap leach project that offers low capital and operating costs, rapid payback and strong financial performance at $1,250 (U.S.) per ounce gold.
"The Karma project is an ideal foundation upon which to build a mining company. It is straightforward, financeable, resilient and has tremendous room to grow. We are delighted to have achieved this important milestone, and feel strongly that our development approach is ideally suited to the attributes of our project," said Mark O'Dea, executive chairman, True Gold. "I am very proud of our team for designing a mine plan that honours the characteristics of our deposits. It maximizes profitability, minimizes technical risk, and manages both capital and operating costs."
Base case operating highlights and project performance:
- Gold price: base case economic evaluation: $1,250 (U.S.) per ounce gold;
- Probable mineral reserves: 33.2 million tonnes at 0.89 gram per tonne containing 949,000 ounces gold;
- Production: 97,000 ounces gold per year (average) over an 8.5-year
mine life;
- Initial capex: $131.5-million (U.S.) (includes working capital
and contingency);
- Net present value at 5 per cent (after tax): $178.2-million
(U.S.);
- Internal rate of return (after tax): 43.1 per cent;
- Payback (after tax): 1.4 years;
- Resilience: 21.3-per-cent IRR at $1,000 (U.S.) per ounce gold.
(The economic highlights throughout this release represent True Gold's effective 90-per-cent interest in the Karma project, after allowing for Burkina Faso's 10-per-cent carried interest and all government and contractual royalties. Karma's 100-per-cent after-tax project value at $1,250 (U.S.) per ounce gold is $200.7-million (U.S.) NPV (5 per cent) and an IRR of 46.0 per cent. All results are reflected on an owner-operator basis.)
"The Karma project stands out in the world of heap-leach gold development projects. With strong gold grades, excellent infrastructure, low power and water requirements, strong recoveries from simple metallurgy, and soft, free-digging material, our operating and capital requirements are modest and our margins are high," said Dwayne Melrose, president and chief executive officer, True Gold. "In addition, by design, the Karma project has been engineered to provide flexibility to scale up and take advantage of the potential to deliver additional ounces as demonstrated by our exploration team's efforts this year. The building blocks for a growth oriented gold producer are in place today, with a proven management team to lead us forward."
The feasibility study supports a heap leach mine scenario from currently defined open-pit deposits containing 949,000 ounces of probable mineral reserves. The heap leach pad is designed to process oxide and transition ore from the five shallow pits, with a small amount of leachable sulphide ore extracted from two pits. The two pits with the highest-grade mineral reserves would be mined first, providing True Gold with the potential for rapid payback and strong cash flow from the outset of commercial production.
The proposed Karma project implementation schedule is over a period of 18 months with prestripping beginning 12 months prior to the first gold pour, which is anticipated at the end of 2015. The project requires initial capital of $131.5-million (U.S.) (including on-site working capital and contingency) to support the construction of a mine and associated facilities with a process capacity of four million tonnes per year. The mine would produce an average of 97,000 ounces of gold per year over 8.5 years, with direct cash operating costs of approximately $591 (U.S.) per ounce.
It is anticipated that the Karma project would employ approximately 500 people during construction, and create approximately 300 permanent local jobs during operations along with significant economic benefits in an area of Burkina Faso that has seen little foreign investment.
Senet Pty. Ltd. led the Karma project feasibility study, which included input from leading consultants such as P&E Mining Consultants Inc., SRK Consulting, Knight-Piesold Pty. Ltd., Roche Ltd. Consulting Group, McClelland Laboratories Inc. and MacCormick International Mining Consultancy.
BASE CASE OPERATING HIGHLIGHTS AND PROJECT PERFORMANCE
($1,250 (U.S.) per ounce gold; dollar amounts in millions of U.S.
dollars, unless indicated)
Financial analysis
Pretax IRR 47.8%
NPV at 5% $226.3
After-tax IRR 43.1%
NPV at 5% $178.2
Payback 1.4 years
Capital costs
Preproduction (including working capital and $8.6M
contingency) $131.5
Sustaining $ 40.0
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Total (LOM) $171.5
Operating costs (average LOM) U.S.$
Mining ($/t mined) $ 1.77
Processing ($/t processed) $ 7.51
General and admin ($/t processed) $ 1.66
Unit costs (average LOM) U.S.$
Direct cash operating costs(1) ($/oz) $ 591
Total cash costs(2) ($/oz) $ 672
All-in sustaining cash costs(3) ($/oz) $ 720
(1) Includes all mining costs, processing costs, on-site general and
administrative
(2) Includes all direct cash operating costs plus refining cost and
royalties
(3) Includes all total cash costs plus sustaining capex
PRODUCTION, MINING AND PROCESS
Operating plan
Prestrip period (yrs) 1.0
Operating life (yrs) 8.5
Mining (days/yr) 350
Process (days/yr) 365
Average mining rate (tpd) 36,000
Average annual mine production (Mt) 12.7
Total material mined (LOM Mt) 113.8
Overall average strip ratio (W:O) 2.43:1
Process rate (Mtpa) 4.0
Average annual gold production (oz) 97,000
Total gold production (koz) 828
Metallurgical recovery (av LOM) 87.2
ECONOMIC SENSITIVITIES
Gold price (U.S.$/oz)
1,000 1,150 1,200 1,250(1) 1,300 1,350 1,500
Gold price
sensitivity (after-tax
U.S.$M)
NPV 66.0 128.9 153.5 178.2 195.7 219.7 281.1
IRR (%) 21.3 34.0 38.6 43.1 46.2 50.4 59.8
Payback (years) 2.7 1.8 1.6 1.4 1.3 1.1 0.9
-20% -10% 0%(1) 10% 20%
NPV after-tax (U.S.$M)
Capex (U.S.$) 197.9 192.3 178.2 163.9 149.7
Opex (U.S.$) 235.8 207.0 178.2 148.6 118.3
-20% -10% 0%(1) 10% 20%
IRR after-tax (%)
Capex 56.4 50.2 43.1 37.2 32.2
Opex 51.5 47.4 43.1 38.5 33.4
(1) Base case
Study results show that the Karma project has the potential to remain strongly profitable at lower gold prices as well as at increased prices for key consumables. For example, an increase of 10 per cent in the price of fuel would reduce project NPV by only 7 per cent. Similar increases in the price or consumption of cement or cyanide would result in decreases in project NPV of only 4 per cent or 2 per cent, respectively.
Mining
Approximately 113.8 million tonnes of material would be mined from five open pits over the course of the estimated project life. This will deliver approximately 33.2 million tonnes of ore to the process facility and 80.6 million tonnes of waste to storage facilities located near each pit. The overall strip ratio for the project is 2.43:1 with mining being conducted 350 days per year by an owner-operated fleet at total material movement rates ranging from 35,000 to 45,000 tonnes per day.
The mining operation is planned to employ conventional truck and shovel methods. Two 200-tonne hydraulic excavators configured in backhoe mode will load a fleet of 10 90-tonne trucks for the transport of ore 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 ore directly from the pits to the process facilities without the need for ore rehandling.
The soft nature of the open-pit ore and waste material will allow the majority to be free digging (excavated without blasting). Twenty-five per cent of the transition ore and all of the sulphide ore material will be drilled and blasted at low powder factors. This makes up only about 10 per cent of the total material to be excavated over the mine life.
Metallurgy
A comprehensive program of metallurgical testing was executed to support the feasibility study. Testwork included ore characterization, determination of physical and mechanical properties, bottle roll testing to establish the size-recovery relationship, column leach testing to relate bottle roll results and cyanide solubilities to heap leach performance, and load permeability testing to accurately project cement consumption. A total of 832 metallurgical variability samples and 24 columns were tested as part of the feasibility metallurgical testwork program.
The program was undertaken for each material type in each of the five deposits. Overall metallurgical recovery was calculated at 87.2 per cent with recovery by material type for oxide 93.3 per cent, transition 75.7 per cent and sulphide 83.4 per cent. Average consumption for cement of 14.7 kilograms per tonne for all material processed was found to be consistent with a design heap height of 20 metres.
Average cyanide consumption for all material types was determined to be 0.58 kilogram per tonne. Of particular note are the oxide material's rapid leach kinetics, which indicates gold extraction being substantially complete in a period of 10 days during lab column leach tests with final heap leach recoveries ranging from 90.4 per cent to 95.5 per cent. Approximately 94 per cent of the mineral reserves at Karma consist of oxide and transition material and exhibit similar leach kinetics.
Process
The Karma project process design is based on the use of conventional heap leach technology with a production capacity of four million tonnes per year. Mined ore will be crushed, agglomerated and conveyed to the leach pad where it will be stacked in two 10-metre lifts and irrigated with dilute cyanide solution. Gold dissolved by the cyanide will then be adsorbed 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 $131.5-million (U.S.), inclusive of on-site working capital and an $8.6-million (U.S.) contingency. The total life of mine capex is $171.4-million (U.S.). Initial capital costs include the design and development of plant and mine infrastructure, such as mobile mining equipment, haul roads, transport, leach pad, ADR plant, ponds and power plant.
Based on the feasibility study results, True Gold is confident of the Karma project's long-term success and plans to invest in an owner-operator development model. An owner-operator scenario that includes purchased equipment imposes slightly higher upfront capital expenditures compared with contract mining but offers lower long-term operating costs, greater operational flexibility and healthier LOM cash flow.
CAPITAL COSTS
(in millions of dollars)
Prestrip $ 12.2
Mining 25.0
Processing plant 29.7
Leach pad 6.4
Infrastructure 19.8
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Direct costs 93.1
Owner's costs 20.6
EPCM 9.2
------
Indirect costs 29.8
Contingencies 8.6
------
Total capital costs $131.5
Operating costs
Unit and total operating costs were estimated for the Karma project over the life of the project. Operating costs were developed from first principles for mining, processing, and administration using operating plans as the bases and considering labour, materials, consumables, and certain contract services.
Primary operating cost drivers are diesel fuel ($1.37 per litre), cement ($240 per tonne) and sodium cyanide ($3,300 per tonne). Labour costs were modelled on existing operations in Burkina Faso employing industry-standard work schedules while taking into account local labour legislation. Power costs are all based on diesel-generation despite the potential to have grid power in two to three years.
Camp costs are reduced for the Karma project relative to other projects because most administrative facilities will be in the city of Ouahigouya, which is 23 kilometres from the project, and employees will travel to and from home every day rather than living in a remote camp on site.
OPERATING COSTS
Area Unit cost Units LOM ($M)
Mining 1.77 $/t mined 185.5
Process 7.51 $/t processed 248.6
Administration 1.66 $/t processed 55.0
Mineral resources
As part of the feasibility study the previous mineral resource estimates on the Karma project, detailed in the independent technical report titled, "Technical Report and Updated Resource Estimate on the Karma Project, Burkina Faso, West Africa," dated effective Oct. 1, 2012, and filed on SEDAR Nov. 7, 2012, was updated to reflect new engineering data and an updated geological model. The new resource model contains 2,621,000 ounces of indicated mineral resources and 700,000 ounces of inferred mineral resources within optimized pit shells.
MINERAL RESOURCES
Category Indicated Inferred
Mt Au g/t Au koz Mt Au g/t Au koz
In pit (shell-constrained) 75.2 1.08 2,621 17.5 1.25 700
Global mineral inventory 82.6 1.04 2,776 28.5 1.05 956
(1) Mineral resource estimates were based on a gold price of $1,557
(U.S.) per ounce, with 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; and 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.
(2) Au grades were estimated in a five-by-five-by-five-metre block
model (except Rambo at 2.5-metre-by-2.5-metre-by-2.5-metre blocks) 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.
(3) 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.
(4) The quantity and grade of reported inferred mineral resources in
this estimation are uncertain in nature and there has been insufficient
exploration to define these inferred mineral 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.
(5) The mineral resources in this press release were estimated using
the Canadian Institute of Mining, Metallurgy and Petroleum, CIM
Standards on Mineral Resources and Reserves, Definitions and Guidelines
prepared by the CIM standing committee on reserve definitions and
adopted by CIM council.
(6) Material within optimized pit shells have engineering mining
aspects applied to the global mineral inventory.
Mineral reserves
Project mineral reserves were derived exclusively from the leachable portion (above the cut-offs listed) of the indicated mineral resource as this represents the lowest-cost mineralized material in the Karma project deposits and has the highest value available for extraction. Mineral reserves were developed using a Lerchs-Grossman pit optimization process; appropriate operating costs, recoveries and pit slopes; and a gold price of $1,300 (U.S.) per ounce. Reserves were defined by minable pit designs and incorporate mining losses and dilution.
The probable mineral reserves were based exclusively on indicated mineral resources. Inferred mineral resources falling within the pits were treated as waste regardless of grade. A $1,300 (U.S.) per ounce gold price was selected because it represented a forward-looking, long-term projection of metal price shared by many financial institutions while providing a resource that performed well even if prices remained low.
PROBABLE MINERAL RESERVES
Deposit Oxide Transition Sulphide Total
Au Au Au Au Au Au Au Au
Mt g/t koz Mt g/t koz Mt g/t koz Mt g/t koz
GG1 6.5 0.59 123 4.3 0.64 86 - - - 10.8 0.61 209
GG2 6.1 1.03 200 1.5 1.47 72 - - - 7.6 1.12 272
Kao 9.0 0.89 260 1.9 1.32 80 - - - 10.9 0.96 340
Rambo 0.3 1.85 16 0.3 1.97 22 0.3 2.10 20 0.9 1.98 58
Nami 0.5 0.87 16 1.0 0.62 21 1.5 0.70 33 3.0 0.71 70
---- ---- --- --- ---- --- --- ---- -- ---- ---- ---
Total 22.4 0.85 615 9.0 0.97 280 1.8 0.95 53 33.2 0.89 949
The probable mineral reserves are 67 per cent oxide, 27 per cent transition and 6 per cent sulphide on the basis of ore tonnage. Cut-off grades varied by pit and material type.
KARMA PROJECT CUT-OFF GRADES BY DEPOSIT AND MATERIAL TYPE
GG1 GG2 Kao Rambo Nami
Oxide Au g/t 0.19 0.23 0.32 0.20 0.20
Transition Au g/t 0.21 0.26 0.36 0.21 0.21
Sulphide Au g/t - - - 0.22 0.23
Environment
The Karma project mining operation plans to conduct progressive reclamation. A bond will be posted with the Burkina Faso government before the development of each pit. When the waste dump from each pit is fully resloped and revegetated the bond could be recovered. In this way, the bulk of reclamation will be completed by the time operations conclude.
At closure the heap leach pad will be rinsed, resloped and vegetated; all mobile equipment and facilities removed; and fixed infrastructure such as the barrage, pipeline, water ponds with pumps, and haul roads turned over to the local community. A comprehensive monitoring program, including surface water quality, noise, as well as climate and air quality, is in place and will remain operational throughout the mine life.
Due to the high proportion of oxide and transition ore in the project mineral reserves, there is little potential for acid rock drainage.
The project has been designed to meet International Cyanide Management Code standards. The leach pad was sited to take advantage of highly impermeable, naturally occurring laterite which would limit the effects of a leak if the multiple-layer liner design were damaged during operation.
Social management
The project area hosts a number of scattered villages and two well-established towns are situated at the east end of the project area. The primary occupation in the project area is subsistence farming. Water is an important commodity to the region and True Gold has already constructed phase 1 of the water barrage, which will be accessible by the communities for agricultural use.
The project has been designed to minimize impact on the local population with a 250-metre buffer zone established between project infrastructure and nearby communities. The proposed project development plan entails two separate relocations: 1) 35 people at Tang-Zugu in the leach pad area will need to be relocated prior to the start of construction; and 2) 400 people in the village of Boulonga will need to be relocated in the second year of operations to permit the development of the Kao pit.
In addition to the resettlement of these communities, compensation is to be paid for disturbance of 520 hectares of farm land in the areas of the barrage, GG2 and Kao. Agreements are in place with the community to govern both resettlement and land compensation.
Artisanal miners are widespread throughout Burkina Faso. Artisanal miners working on the Karma project sites have, however, been moved away without conflict through dialogue and consultation. One of the project objectives is to provide local residents an alternative to artisanal mining, which often employs practices that are typically unsafe and possibly harmful to the environment.
Development schedule
The proposed project development allows for 18 months for the project execution, which includes mining prestrip, procurement, transportation, construction and commissioning. Assuming the project execution starts in July of 2014, the first gold production would be expected in December of 2015.
Key project execution schedule milestones include the following:
- Start bulk earthworks month two;
- Start mine prestrip month seven;
- Complete process water storage ponds month 12;
- Start ore production month 13;
- Start phase 1 leach pad loading month 17;
- Complete process plant construction month 17;
- Complete process plant commissioning month 18;
- First gold production month 18.
Permitting
The five Karma deposits are to be held within three exploitation (mining) permits: Karma, containing GG1, GG2 and Rambo; Kao, containing the Kao deposit; and Nami, containing the Nami deposit.
An environmental permit was received for Karma in September, 2013. This included approval of the project ESIA (environmental and social impact assessment) and relocation action plan (RAP). A similar permit is pending for Kao. Meanwhile, the recently completed Nami ESIA is expected to be submitted for review in January, 2014.
The application for exploitation (mining) permits for Karma and Kao are well advanced. Permits for development of all deposits in the Karma project are expected to be in hand by the end of the first quarter of 2014. True Gold is already in possession of all permissions required to construct the barrage and water holding ponds.
Once exploitation permits are secured, the terms governing the project over the life of the mine will be set out in a mining convention to be signed with the government of Burkina Faso.
Financing
True Gold will use the feasibility study results to source financing for the construction of the Karma project. The Karma project's short payback period and strong early cash flow makes it economically attractive and appealing to lenders. Discussions are under way and advancing with project debt, equity, equipment and other finance providers to finance the Karma project through development to production.
Opportunities and next steps
The feasibility study confirms that the Karma project is scalable. While the feasibility study is based on slightly less than one million ounces of reserves, True Gold's 2013 exploration success in discoveries demonstrated the potential to add open-pit leachable material at the Karma project for potential mine life extensions or potential incremental throughput. The feasibility study does not take into account Karma project drilling and exploration in 2013 (Kao North, Rambo West and Watinoma). At Kao North, recent drilling extended gold mineralization 2,000 metres from the existing Kao deposit and more than doubled the potential resource footprint at Kao, the Karma project's largest deposit.
Conference call details
True Gold will host a conference call subsequent to the release of the feasibility study results. The call will be hosted by True Gold executives Mr. O'Dea, Mr. Melrose and Peter Carter, chief operating officer. Mr. O'Dea, Mr. Melrose and Mr. Carter will be available to respond to questions following a brief presentation. An operator will direct participants to the call.
Date: Dec. 17, 2013
Time: 7:30 a.m. (Pacific)/10:30 a.m. (Eastern)
Access to the conference call may be obtained by dialling the following numbers.
Toronto: 416-340-8527
Toll-free North America: 1-800-766-6630
Toll-free international: dial country code then 800-2787-2090
International (not toll-free): 416-340-8527
An audio replay of the call will be available after the call by dialling 905-694-9451 (Toronto), 1-800-408-3053 (toll-free North America) or 800-3366-3052 (international toll-free) and entering the passcode 7023829. The audio replay will be available until Dec. 31, 2013.
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 (feasibility lead);
- Eugene Puritch, PEng, P&E Mining Consultants (mining studies
and resource estimations);
- Peter Terbrugge and Ismail Mahomed, SRK Consulting;
- Duncan Grant Stewart, Knight-Piesold (heap leach pad and
hydrology design);
- Yves Thomassin, Roche, consulting group (environmental work);
- Bonnie Lyn deBartok, MacCormick International Mining Consultancy (CSR).
Peter C. Carter, PEng, chief operating officer and vice-president, engineering, of the company, 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.
Ian Cunningham-Dunlop, PEng, senior vice-president, exploration, of the company 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 feasibility study report will be filed on SEDAR within 45 days of the date of this news release.
We seek Safe Harbor.
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