7th Mar 2016 09:50
LONDON (Alliance News) - Xtract Resources PLC on Monday released updated forecasts for the Manica gold project in Mozambique as it continues to progress the definitive feasibility study.
Xtract reported on economic metrics for the project last year using information from the preliminary economic assessment carried out by Auroch Minerals NL, but has now updated those metrics following further development work.
Xtract warned that the new figures released Monday are not official and will not be finalised until the definitive feasibility study has been completed, and said there is a "high probability" those figures will change once that study is published.
"We are completing a new resource calculation for the Manica project and expect to provide an update to the market as soon as possible. We will also report on the alluvial mining plan for the project within the second quarter of 2016," said Chief Executive Jan Nelson.
Xtract said it estimates the project will now be able to produce 477,000 ounces of gold by processing 6.3 million tonnes of ore at a grade of 2.93 grammes of gold per tonne. The previous estimate suggested only 316,000 ounces of gold would be produced from 3.4 million tonnes or ore at a grade of 3.49 grammes per tonne, meaning the grade is lower but there is more ore than previously estimated.
The life of the project has increased to 12 years from the previous eight year forecast, with production expected to begin in the last quarter of 2017.
The net present value of the project has risen to USD70.0 million from the previous USD50.0 million valuation, but the internal rate of return has dropped to 50% from 58%. That is based on a gold price of USD1,250 per ounce, with spot gold trading at USD1,266 an ounce on Monday.
Xtract will need to spend around USD35.0 million in start up capital, which is higher than the previous estimate of USD28.4 million. That will cover the costs for the processing plant an initial open pit at the project.
Xtract will then need to spend another USD14.0 million over the third and fourth year of the project to begin underground access development. Based on the company's timeline, that would occur between 2020 and 2022. Importantly, that additional expenditure will be funded from cashflow generated from the first phase of operations.
The previous estimate suggested the second phase of expenditure would only amount to USD8.7 million, but the underground mine is expected to run a lot longer than under the previous estimate.
Based on the 12-year mine life, the project will generate around USD245.0 million in earnings before interest, tax, depreciation and amortisation, suggesting an average yearly Ebitda of over USD20.0 million, but that will vary depending on what stage the project is at.
The previous estimate suggested the project would only generate USD130.0 million of Ebitda, but that was based on the eight year mine life.
Unfortunately, the cash cost of the project is expected to be considerably higher than before at around USD757 per ounce compared to the original USD650 estimate, but that still supplies a very healthy margin at current gold prices.
"The company is currently engaged in discussions with several banks and institutions regarding finance for the Manica project. Shareholders will be updated on the outcome and progress of these negotiations in due course," said Xtract.
Xtract shares were trading flat at 0.185 pence per share on Monday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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