TSX/AIM-listed West African gold producer Avesoro has through its subsidiaries, Burkina Mining Company SA and Netiana Mining Company SA, entered into an open pit mining contract with Orkun Group Sarl at its Youga gold mine in Burkina Faso.
Under the terms of the mining contract with Orkun, the contractor assumes responsibility for all future mining fleet overhaul costs. As a result, Avesoro has reduced its expected H2, 2019 capital expenditure requirement by c.US$4 million.
Should the gold price average $1 400/oz during H2, 2019, the company on its current production guidance, would generate $11 million more revenue from H2, 2019 gold sales than was originally anticipated.
Based on the assumptions above, the H2, 2019 funding gap would reduce to $10 - $15 million from the previous guidance of a shortfall of between $25 – $30 million later in 2019. The funding gap includes $12.9 million of debt provided by a related party lender falling due for repayment in 2019.A
Avesoro is holding constructive discussions with the related party about deferral of these debt repayments.
The Company continues to review other options to further reduce the H2, 2019 funding gap, including potential reductions in capital expenditure requirements that may also be realised at New Liberty if a similar agreement can be reached with the preferred mining contractor for that mine as has been achieved with Orkun at Youga.
A Special Committee is also exploring options to fill the H2, 2019 funding shortfall gap and address the current general working capital needs of the business following the reduction in the annual production guidance by 30 000 oz as arising from operational challenges experienced earlier in the year.
Youga mining contract
The mining programme under the contract is based on the excavation of between 800 000 and 900 000 bank cubic metres (BCM) of material per month, including a minimum of 120 000 t of ore delivered to the ROM pad, per month.
Over the life of mine, the contract is based on the excavation of a minimum of 42 million BCM (Minimum TMM) of material over the life of mine which can be increased, at the company’s option, to 60 million BCM on the same terms.
The contract price of excavation during the Minimum TMM period is $4.26 per BCM (approximately $1.60/t) reducing to $3.75 per BCM thereafter (approximately $1.41/t) for the remainder of the contract.
Orkun will pay an earn-in fee of $0.51 per BCM to acquire BMC’s existing heavy mining equipment fleet. The earn-in fee will be offset against the amounts invoiced by Orkun. Upon completion of the Minimum TMM, ownership of BMC’s HME fleet will transfer to Orkun. However, Orkun assumes full responsibility for the on-going upkeep and maintenance of the HME from commencement of the contract.
Orkun has also committed to supplement the existing HME fleet with $5 million of additional equipment at its own cost. This includes five excavators, 15 haul trucks and auxiliary equipment to ensure that the contracted material movement is achieved. The first batch of this additional HME is due to arrive at Youga in early Q3, 2019.
Burkina Mining Company SA and Netiana Mining Company SA will retain responsibility for mining geology, planning and certain other costs which are included in the total cost of mining reported by the company.
Serhan Umurhan, CEO of Avesoro, comments:
“This contract will enable Avesoro to significantly reduce its future mining costs at Youga. Outsourcing the mining activity will also enable us to reduce our direct employee headcount and overall business complexity thereby reducing G&A costs.