West African Resources (ASX: WAF, Share Price: $0.32, Market Cap: $155m) is one of our favourite emerging African gold companies. 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 drilling, enhanced gold resource base and positive PFS results at its Sanbrado Project.
WAF has reported further high-grade results from the M1 deposit at its Sanbrado gold project – with TAN17-DD111 proving the best hole to date in the 2017 drilling program – with 21m at 53.13 g/t Au from 408.5m including 0.5m at 1,613.41 g/t Au and 0.5m at 530.38 g/t Au and 14.5m at 38.27g/t Au from 459m.
Market Significance
The two-year chart underlines WAF’s tremendous share price performance, surging from our initial coverage price of $0.08 in Sep 2015. This reflects growing market recognition of its high-grade Sanbrado project, reinforced by continuing strong diamond and RC drilling results. In turn, these positive results are set to flow through to a significantly-enlarged resource base, scheduled for release during Q3 2017. At the same time, the company is working on an optimised Feasibility Study that should incorporate enhanced project economics (incorporating open-pit and underground mining) based on recent drilling results.
Announcement Detail – Latest M1 Drilling Results
WAF has announced that assay results have been returned for TAN17-DD111, which intersected 21 metres at 53.13 g/t Au from 408.5 metres (including 0.5m at 1,613.41 g/t Au and 0.5m at 530.38 g/t Au) and 14.5 metres at 38.27 g/t Au from 459 metres – the best hole so far in the 2017 drilling program.
Mineralisation remains open at depth across the 350 metres of strike of the M1 South deposit. Recent drilling at M1 South has been very successful in extending the depth of known mineralisation on section SE425 and SE450. High-grade mineralisation is open at depth on both sections and results are pending for more than 15 additional holes from M1 South between sections SE400 and SE100.
Technical Significance
The February 2017 open-pit Feasibility Study demonstrated robust economics, rapid pay-back of capital and simple metallurgy. However, it did not reflect the full potential of the project, as demonstrated by the results of drilling completed since the open-pit feasibility study was released.
In the open-pit feasibility study mine schedule, the recently discovered M1 South high-grade zone was effectively mined out in the first 2.5 years of the project. The current drilling program has defined mineralisation outside the M1 South pit, which was the basis of the open-pit feasibility study – and may result in a material increase in the mine life (open-pit and underground). Similarly, drilling at the M5 deposit has defined new mineralisation outside of the pit design used in the feasibility study, which may result in an increase in the mineable resources at M5.
Optimised Feasibility Study
WAF’s board considers it essential to define the deposits before determining the optimal development strategy for Sanbrado. Whilst a material change in throughput or capital requirements is not envisaged, the company believes it would be premature to complete an optimised feasibility study, including an investigation of both open-pit and underground mining scenarios for M1 and M5, before mineralisation has been closed off or drilled to a depth below which new mineralisation does not materially change project valuation (NPV).
Figure 1: Sanbrado Gold Project – Mineralised Trends and Prospect Locations
Following the positive results received since the open-pit feasibility study was released, it is anticipated that it will take longer to drill out the existing deposits than originally anticipated. Therefore, WAF will focus on targeted drilling for the remainder of 2017, aimed at maximising the project NPV. The company will update resources during Q3 2017 based on results from the current drilling program.
Follow-up drilling will be planned once all the results from the current program are received. It is anticipated that development scenarios will be analysed, leading to a revised open-pit and underground feasibility study and the request for proposals from project finance providers in H1 2018.
Summary
We initiated coverage of West African Resources around $0.08 during September 2015 – representing a current gain of 300%.
The current drilling program has been designed to extend mineralisation at depth and enhance resource confidence by shifting them from the Inferred to the Indicated category, with the results to be included in an optimised Feasibility Study – which has now been delayed until H1 2018.
WAF currently has six rigs on site and is well-funded to complete all of its proposed work programs, with $14m in cash reserves and more than $7.5m of ‘in-the-money’ options. Accordingly there remains the prospect of further share price appreciation.
