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TSX/AIM-listed Avesoro Resources implemented an initiative to transition both Youga and New Liberty to contractor mining to further reduce the mining cost at both mines whilst increasing mining volumes.

Serhan Umurhan, Chief Executive Officer of Avesoro, comments:

“During Q1 and thus far in Q2, Avesoro has experienced significant ore dilution at the Youga Gold Mine which we have focussed on remediating to maintain sufficient ore grades to the ROM pad.

“Following a comprehensive cost review, we have implemented an initiative to transition both Youga and New Liberty to contractor mining to further reduce the mining cost at both mines whilst increasing mining volumes. As part of this initiative we have seen a temporary reduction in operating performance and associated inefficiencies at both assets.

“At Youga, this has resulted in the open pit mining fleet operators refusing to work. If the situation at Youga is not resolved on or before June 12, 2019 gold production at Youga will be temporarily suspended.

“Negotiations are on-going between both parties and I am optimistic that we can find a mutually acceptable resolution to this issue in the near future.

“The planned transition to contractor mining at New Liberty has also resulted in disruption to mining activities and gold production, with production materially deviating from budget in April and May as a result.

“I expect the downside of this initiative to be short lived and that the anticipated reduction in mining costs will be beneficial to Avesoro over the longer term.

“However, as a result of the aforementioned issues, production guidance for 2019 has been reduced to 180,000 – 200,000 ounces (previous guidance 210,000 – 230,000 ounces).

“Assuming the stoppage in mining operations at Youga is resolved quickly, we expect a funding shortfall of between US$25 milliion to US$30 million later this year.

“I am confident that these short-term challenges will be quickly overcome, and Avesoros focus remains firmly on delivering production from both mines in line with the forecasts within the Technical Reports whilst delivering a successful transition to underground mining operations at New Liberty within the next two years.”

Youga Gold Mine, Burkina Faso

As highlighted in Avesoro’s Q1 2019 Production Results unexpected ore dilution had been a feature in Q1 2019.

This has continued into Q2 with the average mined grade at the Gassore satellite pit during the five months ended May 31, 2019 (“YTD”) substantially lower than the reserve grade of 3.74 g/t published in the updated Mineral Reserve estimate announced on May 8, 2019.

In order to address the unplanned dilution, the mining rate at Gassore has been reduced and as a consequence, mining volumes YTD are c. 14% behind budget. The shortfall in ore tonnes mined has been supplemented by low grade stockpiles to maintain mill feed levels.

This has resulted in a mill feed grade for the year to date of 1.87 g/t compared with a budgeted feed grade of 2.94 g/t. Provisional, unreconciled production from Youga for the YTD was 30,700 ounces.

An initiative, driven directly by Avesoro’s Chairman Mehmet Nazif Günal, to transition Youga to contractor mining is also being implemented with the objective of further reducing mining costs. As part of this initiative and a drive to reduce costs in general the Burkinabe employee headcount has been reduced by c.300 employees, most of whom were employed within the mining department.

Avesoro’s proposed mining contractor, Orkun Group Sarl, is currently in negotiation to re-hire the open pit operators. However, they have refused to work since June 7, 2019 resulting in the suspension of open pit mining activity at Youga.

Gold production has continued using mill feed from existing stockpiles and emergency lower grade stockpiles have been used since June 8, 2019.

However, the emergency stockpiles will be depleted, and gold processing operations will be suspended on June 12, 2019 unless open pit mining operations resume before that date.

In order to mitigate against the impact of this temporary stoppage in mining activities and to increase future material movement at Youga, Orkun has committed to supplement the existing Heavy Mining Equipment fleet, at their own cost, with five additional excavators, 15 haul trucks and other associated auxiliary equipment.

New Liberty Gold Mine

At New Liberty in Liberia, Avesoro, also under the direct supervision of the Chairman, commenced an initiative to the transition from owner mining operations to contractor mining operations.

During April 2019 a number of staff in the existing HME maintenance team chose to resign rather than accept the alternative employment terms being offered by the incoming mining contractor, Demir Kose Insaat Turizm Tasimacilik Ithalat Ihracat Sanayi Ticeret AS.

As a consequence, production at New Liberty in April was reduced to 3.4koz before increasing to 8.1koz in May 2019.

Provisional unreconciled production from New Liberty for the YTD stands at 37,400 ounces.

Total material movement in April and May at New Liberty was 5,079kt. In order to increase material movement to budgeted levels, the contractor is expected to supplement the HME fleet with additional HME with an approximate value of EUR 7 million, at their own cost.

The first shipments of this equipment have already started to arrive at New Liberty, with the balance due throughout the remainder of June and July 2019.