West African Resources (ASX: WAF, Share Price: $0.41, Market Cap: $90m) remains one of our best-performing African gold producers. Operating in Burkina Faso since 2007, it ranks as the largest ASX-listed acreage holder within the country and has accelerated its progress towards production status via aggressive exploration drilling, an enhanced gold resource position and positive PFS results.
The company has advised of several significant milestones with respect to its Tanlouka gold project. Firstly, it has completed the final step in the permitting process (permit approval expected before end of 2016); secondly, it has raised $21m via a placement; and thirdly, it has boosted its JORC Resource base.
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Market Significance
WAF’s share price has surged from a recent 12-month low of $0.048 during February to a 12-month high of $0.445 this week. The strong price move reflects growing market recognition of the company’s high-grade Tanlouka mineralization, reinforced by extremely high-grade recent diamond and RC drilling results. These in turn have led to a significantly-enlarged resource base, which will boost project economics. The latest $21m capital raising is enormously significant, as it reflects investor confidence in WAF’s capacity to deliver, reinforced by the strong Resource upgrade, positive PFS results and soon-to-be-completed DFS.
Announcements’ Detail – Project Approvals, Capital Raising and Resource Upgrade
Firstly, WAF has provided a pleasing update with respect to Tanlouka Project approvals.
- The Ministry of Environment, Green Economy and Climate Change in Burkina Faso has delivered a favourable opinion of the company’s Resettlement Action Plan (RAP) and the Environmental and Social Impact Assessment (ESIA) in relation to the mining permit application for its 100%-owned Tanlouka Project.
- This represents the penultimate component of the permitting process for Tanlouka. The final decision to grant the mining permit, made by the Council of Ministers and decreed by the Cabinet of the Government of Burkina Faso, is expected before the end of the year.
Secondly, WAF has received commitments for a capital raising to the tune of $21 million.
- It will involve the placement of 70 million shares at a price of $0.30 per share, representing 7% discount to WAF’s five-day VWAP.
- The placement will strengthen WAF’s balance sheet, which allows for the early repayment of a US$5 million debt facility with Macquarie Bank. The funds will also allow WAF to accelerate exploration and resource drilling at Tanlouka, along with completion of the project Definitive Feasibility Study (DFS).
- WAF also intends to commence early Tanlouka civil works, including the construction of a camp facility, ablutions and water storage facility, amongst other items.
Thirdly, WAF has announced a maiden Resource estimate for its M1 and M3 prospects, along with an updated mineral resource estimate for its M5 deposit at Tanlouka.
- Project mineral resources now 9.8Mt tonnes at 2.1 g/t Au for 670,000 ounces of gold (Indicated) and a further 10.7Mt tonnes at 2.0 g/t Au for 695,000 ounces of gold (Inferred).
- 34% increase in Indicated mineral resources for Tanlouka
- Maiden M1 South Indicated mineral resource of 290,000 tonnes at 10.3 g/t Au for 96,000 ounces of gold and Inferred mineral resource of 410,000 tonnes at 6.4 g/t Au for 83,000 ounces of gold
- M1 South structure averages 1,600 ounces per vertical metre from 30m to 130m below surface and remains open along strike and down-plunge
- The company will report a further resource update at M1 South in Q4 following a 10,000m diamond drilling campaign to test mineralisation down to 300 vertical metres
WAF’s focus has shifted to M1 South since the discovery of high-grade gold shoots during March 2016. The company is stepping up the drilling campaign with additional diamond rigs, focused on adding to the resource inventory and upgrading inferred resources. This is principally focussed on M1 South – but also the M5, M1 North and M3 deposits. WAF will provide a further resource update for Tanlouka during Q4 2016 and aims to have completed both its DFS and secured a granted mining permit by the end of 2016.
This discovery should significantly impact upon the potential economics of the project. M1 South mineralisation is open both down-plunge and along strike. The bulk of the current M1 south resource sits between 30m and 130m below surface, where contained gold averages 1,600 ounces per vertical metre. To date, M1 South has only been drilled to an average vertical depth of 120m.
Summary
We initiated coverage of West African Resources around $0.08 during September 2015 – representing a current gain of 412%.
Importantly, gold mineralisation at the M1 and M3 deposits lies less than 2km from the proposed heap-leach starter-pit at M5. The key is the high-grade nature of the mineralization being encountered, which should enhance project economics and boost overall mine life. The company has so far done relatively little work outside of the M5 resource area and the new gold discoveries at M1, M2 & M3 are likely to boost project economics – to the point that the company in now investigating a larger-scale CIL development scenario.
