Avesoro Resources Inc. (“Avesoro” or the “Company”), the TSX and AIM listed West African gold producer is pleased to announce that the Company’s subsidiaries, Burkina Mining Company SA (“BMC”) and Netiana Mining Company SA (“NMC”), have entered into an open pit mining contract (the “Contract”) with Orkun Group Sarl (“Orkun”) at the Youga Gold Mine (“Youga”) in Burkina Faso.
Image: A gold mineral. Photo: courtesy of carlos aguilar/Freeimages.com.
The Company is also providing an update on the Company’s funding shortfall position for 2019.
FUNDING POSITION UPDATE
The prevailing gold price has strengthened considerably since the Company’s announcement on June 10, 2019 averaging c.US$1,385 per ounce since that date. If the gold price averages c.$1,400 per ounce during H2 2019 the Company, on its current production guidance, would generate c.US$11 million more revenue from H2 2019 gold sales than was anticipated in the June 10, 2019 announcement.
Furthermore, under the terms of the mining contract with Orkun, the contractor assumes responsibility for all future mining fleet overhaul costs. As a result, the Company has reduced its expected H2 2019 capital expenditure requirement by c.US$4 million.
Based on the assumptions above, the H2 2019 funding gap would reduce to US$10 – US$15 million from our previous guidance of a shortfall of between US$25 – US$30 million later in 2019. The funding gap includes US$12.9 million of debt provided by a related party lender falling due for repayment in 2019. The Company 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.
The 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 ounces as announced on June 10, 2019 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 to 900,000 bank cubic metres (“BCM”) of material per month, including a minimum of 120,000 tonnes 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 US$4.26 per BCM (approximately US$1.60 per tonne) reducing to US$3.75 per BCM thereafter (approximately US$1.41 per tonne) for the remainder of the Contract.
Orkun will pay an earn-in fee of US$0.51 per BCM to acquire BMC’s existing heavy mining equipment (“HME”) 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 US$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.
BMC and NMC 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, Chief Executive Officer of Avesoro, commented: “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.
The responsibility for future fleet maintenance costs has also been transferred to Orkun, thereby significantly reducing the Company’s 2019 funding shortfall that was announced on June 10, 2019.
To achieve the material movement targets set out in the contract, Orkun will also supplement the existing Youga mining fleet with five additional excavators and 15 haul trucks at its own cost. This should ensure a minimum of 120,000 tonnes of ore is delivered to the ROM pad each month and that the Youga Processing Plant is maintained at full operating capacity.”
Source: Company Press Release