West African gold explorer that’s pursuing aggressive appraisal and development of its Mankarga 5 gold deposit in Burkina Faso, where it aims to commence maiden gold production during 2015.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Gold | |
| Share Price: $0.08 | |
| 12-month Range: $0.08 – $0.195 | |
| Shares: 270m, Options: 24m | |
| Top 20: 70% | |
| Net Cash: $1.2m | |
| Market Value: $22m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q3 2014 Exploration Spend: $1.072m |
| Financial Security | ✓✓✓✓ | Q3 2014 Admin Spend: $0.246m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 82%, Admin Spend 18% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q4 2014 Forecast Exploration Spend: $0.85m |
| Project Risk | ✓✓✓✓✓ | Q4 2014 Forecast Admin Spend: $0.2m |
West African Resources is a highly-credentialed gold exploration play that was introduced to our Portfolio during February 2011. The company has managed to identify consistently wide zones of potentially commercial copper-gold mineralization from within its Sartenga prospect, which forms part of its overall Boulsa Project in Burkina Faso, West Africa. More recently the company has undertaken aggressive corporate activity to accelerate its transition from advanced gold explorer to production status.
One of the company’s biggest strengths is its dedicated and highly-experienced exploration team, which boasts a long-established operational association with Africa. Over the past decade there have been a plethora of junior companies that have jumped aboard the West African bandwagon, driven predominantly by broker and speculative hype. West African Resources isn’t such a company – its Managing Director Richard Hyde has a strong operational track record in West Africa and understands its enduring attraction.
WAF has operated within Burkina Faso since 2007, allowing it to assemble a portfolio of high-quality, large-scale gold prospects that rank it as the largest ASX-listed acreage holder within the country. The company’s Boulsa Gold Project encompasses a massive 6,370 sq km landholding, which in turn hosts a whopping 200km strike length of prospective early-Proterozoic Birimian greenstone belts. The company has recently taken significant steps to accelerate its thrust towards near-term production status.
Recent Activity
WAF’s share price has been impacted by the declining spot gold price over recent months, but the company has made great strides in terms of advancing its Mankarga 5 gold deposit, including securing funding to allow completion of the Definitive Feasibility Study on the project and further aggressive exploration drilling. Since its acquisition in January 2014, WAF has fast-tracked exploration at Mankarga 5, including RC drilling, metallurgical diamond core drilling and oriented diamond core drilling targeting higher-grade zones.
Mankarga 5 Project
West African acquired the Tanlouka Permit during January 2014 following its acquisition of TSXV-listed Channel Resources Ltd. WAF entered into a scrip takeover agreement with Channel Resources on the basis of one WAF share (trading at $0.16 prior to offer announcement) for every four Channel shares held (trading at $0.02 prior to offer announcement), valuing Channel Resources at $4.8 million. Channel shareholders now maintain a stake of around 14% in the enlarged WAF.
WAF aims to be a +50,000oz per annum gold producer by the end of 2015 via a low-cost, heap-leach starter project based on the Mankarga 5 deposit. WAF has secured a second-hand 1.6Mtpa heap-leach plant as part of its plan to fast-track development of Mankarga 5.
During April 2014, an updated independent resource estimate was announced comprising 5.7 million tonnes grading 1.7g/t gold for 315,000 contained ounces of gold in the Indicated category, along with 11.4 million tonnes grading 1.6g/t gold for 568,000 contained ounces of gold in the Inferred category (at a 1.0g/t cut-off). The company aims to update this estimate during the current December 2014 quarter.
This resource was used in the Scoping Study and was based on drilling data accumulated until March 2014. WAF has completed 20,000 metres of drilling since then and intends to upgrade the resource before the end of 2014
Scoping Study Results
During July the company announced positive results from the technical and financial assessment relating to a heap-leach starter project at its Mankarga 5 deposit. The Scoping Study evaluation was managed by engineering consulting firm Mintrex Pty Ltd based in Perth, with input from a range of specialist consultants, and was completed to ± 35% input cost estimate.
This Scoping Study has demonstrated the commerciality of a starter project focusing on the oxide portion of the Mankarga 5 resource base. The Scoping Study has assumed annual throughput of 1.6Mtpa, which is in line with the capacity of the second-hand plant the company purchased during February 2014. Base-case assumptions include 100% project ownership and a $1,300/oz gold price.
Some of the key features of the Scoping Study include: pre-tax IRR of 57%, NPV (5% discount rate) of $84 million, pre-production capital of $35 million plus working capital and contingency of $9 million, capital payback of 16 months and all-in sustaining cash costs of $685/oz (including cash costs, royalties, refining & sustaining capital) and current study mine life of 5.4 years.
The study demonstrates that Stage 1 of the Mankarga 5 development offers a very rapid payback, high internal rate of return and NPV of 2.5 times capital costs. There is also immediate potential to improve project economics by upgrading the existing resource, as well as from further optimization of the mining schedule by processing higher-grade ore in years one and two of the project.
There is also significant potential to define additional sulphide resources proximal to the existing resource area. Recent metallurgical test-work has confirmed that the sulphide mineralisation is non-refractory and amenable to conventional milling and CIL processing, with gold recoveries of up to 98.5% and averaging 93.8% in direct cyanidation test work. The company intends to conduct a Scoping Study into a Stage Two sulphide project during 2015.
Exploration Activity
Diamond drilling during the recent September quarter has confirmed the potential for a Stage Two carbon-in-leach (CIL) project at Mankarga 5. The drilling has revealed excellent grade continuity beneath the proposed oxide starter pit that WAF plans to treat via conventional heap-leach processing.
West African continued oxide resource definition drilling as well as diamond drilling at Mankarga 5 during the quarter. Oxide resource definition drilling has focused on infill drilling at 50-metre spaced lines on the north-eastern sections of the deposit, with drilling in the central and southern portions of the deposit returning grades significantly higher than represented in the April resource model. Resource definition drilling was completed during August.
Numerous high-grade results were reported from these programs, including:
o TAC0315: 2 metres at 9.05g/t Au from 50 metres (ending in mineralisation)
o TAC0348: 22 metres at 1.87g/t Au from 3 metres, including 8 metres at 2.46g/t Au
o TAC0398: 8 metres at 1.77g/t Au from 16 metres
o TAC0413: 17 metres at 1.07g/t Au from 8 metres (ending in mineralisation)
o TAC0415: 13 metres at 2.39g/t Au from 4 metres, including 4 metres at 6.21g/t Au
o TAC0463: 15 metres at 2.45g/t Au from 4 metres
o TAC0465: 15 metres at 5.93g/t Au from 13 metres, including 5 metres at 15.8g/t Au
o TAC0466: 7 metres at 4.71g/t Au from surface
Drilling in the central portion of the deposit to better define geology around known mineralised zones was also completed, with results including:
o TAC0453: 33 metres at 1.70 g/t Au from 1 metre, including 6 metres at 3.24 g/t Au
o TAC0455: 15 metres at 3.33 g/t Au from 22 metres, including 4 metres at 9.97 g/t Au
o TAC0456: 9 metres at 4.26 g/t Au from 13 metres, including 3 metres at 10.98 g/t Au
Diamond drilling at Mankarga 5 has also demonstrated excellent grade continuity beneath the proposed heap-leach starter pit. The program targeted primary mineralisation and located a new high-grade gold zone within the hanging-wall of the main zone at Mankarga 5. Results include:
o TAN14-DD018: 2 metres at 6.38 g/t Au from 185 metres
o TAN14-DD020: 29 metres at 1.59g/t Au, including 4m at 2.98g/t Au and 3m at 4.5g/t Au from 62m
o TAN14-DD021: 2 metres at 28.17g/t Au from 56 metres
o TAN14-DD021: 11 metres at 3.30g/t Au from 80 metres, including 3m at 4.27g/t Au from 86m
o TAN14-DD022: 72 metres at 2.15g/t Au from 231 metres
Feasibility Study Funding
WAF recently signed a Committed Term Sheet with Macquarie Bank for the provision of a two-year US$5 million convertible loan facility to fully fund the completion of the Mankarga 5 Feasibility Study. The US$5 million facility amount is to be drawn down in full by way of a single cash advance. The Facility is subject to further title and ownership due diligence and documentation which is expected to be completed by the end of November 2014.
Summary
Encouragingly, WAF is maintaining strong development activity at a time when many West African resource plays have gone off the boil, or simply given up. The Markenga 5 Scoping Study results justify our confidence in the potential for a low-cost, heap-leach operation kicking off during 2015. Accordingly, we recommend West African Resources as an Accumulate around current price levels, due to the low-cost nature of its Mankarga 5 deposit.
