ex-Gold Field’s Mali project, Humming along to first gold

by Lawrie Williams

Junior gold explorer/developer Hummingbird Resources appears to be making excellent progress on bringing Gold Fields’ former Yanfolila gold project in Mali into production. It is aiming to produce 100,000 ounces of gold in its first year of operation and is working to achieve initial production in H1 2016.

Hummingbird was initially a one project company striving to develop the potentially bigger Dugbe gold deposit in Liberia. It was effectively the first mover in that African nation after the end of the civil war there – the other major Liberian gold project, Aureus’ New Liberty mine, which poured its first gold in July this year, having been found prior to the war.

liquid_goldBut Hummingbird recognised that it was necessary to try and generate cashflow at an earlier date than would be possible with Dugbe – which is still very much the company’s key asset – and that given its relatively strong financial position, and high profile board of directors, an acquisition which would give it earlier revenues was targeted. At around the same time, Gold Fields, which had conducted considerable work on its then-owned Yanfolila project in southern Mali, was looking to divest non-core assets and felt that this project was perhaps too small for it. Hummingbird’s board had good connections in Johannesburg and with Gold Fields and managed to negotiate a deal whereby it would acquire 85% of, and develop, Yanfolila for a consideration of $20 million in shares. Gold Fields thus owns 20.17% of Hummingbird.

The Yanfolila asset is a very promising one in that it is relatively high grade for an open pit project by today’s standards with an Indicated and Inferred resource of just over 20 million tonnes grading 2.8 g/tonne gold and containing some 1.8 million ounces of the yellow metal, but with scope for extension both around the existing planned pits and at depth. It is also worth noting that Gold Fields had originally defined a significantly larger resource, but calculated at a higher gold price so there is big project upside potential should gold prices recover.

On the downside, Hummingbird has assumed $1,250 gold in its initial base calculations – but it is optimising initial project potential by initially mining low-strip oxide ores where recoveries are simpler, but is planning ahead also to build in concentrator capacity to treat transitional and virgin rock ores as mining gets deeper.  On $1,250 gold the IRR is put at 35.1% with project payback inside 3 years. At $1,100 the IRR comes in still at an acceptable 21.5%, but the company is continually looking at ways of reducing unit costs and considers the project robust and cash generative.

Longer term, though, it is the perhaps the larger and even more promising Dugbe project in Liberia on which the company’s longer term future will likely depend. Here, Hummingbird has defined a plus 4 million ounce gold resource from two open pits. Here it is looking at a 125,000 oz/year gold output rate with a 20 year mine life, but is still in the process of continually optimising its mining plans from its earlier Preliminary Economic Assessment (scoping study) released in 2013. Here again the company reckons to have a robust project at a range of gold prices, but has not yet announced any production schedule as it instead progresses Yanfolila to generate an earlier cashflow. Area infrastructure around Dugbe is relatively good and there is a proposal under way to develop a hydro-power installation in the area – the IFC is funding a feasibility study into the proposed project  – and if this is implemented the prospect of cheaper power would further improve project economics.

There had been worries about building a new project in Liberia – a relatively new area for modern day gold mining, but the success of Aureus Mining in bringing its New Liberty project into production will have improved attitudes towards the country as a new gold mining destination.

Hummingbird also points out that it has enormous exploration potential on its large concessions in Liberia and is following up on a number of promising targets along the Dugbe shear zone.

Assuming it brings Yanfolila on stream profitably and the gold price does not slip much further, Hummingbird would seem to have some excellent potential, but it is somewhat gold price-dependent in the short term to bring this to realisation. As with any junior miner/developer/explorer investment in Hummingbird carries its risks, but  it is perhaps well placed among its peers given it has what looks to be a cash generative project close to production and additional longer term positive exploration exposure, but the gold price remains the key.