2012-11-14 13:05:56 -
LONDON, UNITED KINGDOM -- (Marketwire) -- 11/14/12 -- Amara Mining plc (formerly Cluff Gold plc) ("Amara" or "the Company") (AIM:AMA)(TSX:AMZ), the dual AIM and TSX-listed West African focused gold mining company, is pleased to announce its results for the quarter ended 30 September 2012.
HIGHLIGHTS FOR Q3 2012
Operational
-- Results of the Preliminary Economic Assessment for Sega gold project
confirm potential viability of the project, with robust metrics
including 48% IRR(i)
-- Gold production from Kalsaka of 14,369 ounces despite unusually heavy
rains in Burkina Faso
-- 8% decrease in cash cost per ounce produced to US$883/oz compared to Q2
2012 (US$961/oz)
-- 2012 production is expected to be 53,000-57,000 ounces at a cash cost of
under US$1,000/oz - higher grade ore is now anticipated to be recovered
in H1 2013
-- Work continues on the resource update for the Baomahun gold project in
Sierra Leone
-- Exploration at Yaoure gold project in Cote d'Ivoire continues to yield
encouraging results - resource update on track for Q1 2013 with all
holes drilled to date intersecting the targeted mineralised zone
Financial
-- 22% increase in Group EBITDA to US$7.6 million compared to Q2 2012
(US$6.2 million) driven by lower cash costs
-- Cash and liquid assets of US$28.4 million at 30 September 2012
-- Balance sheet further boosted by US$20 million cash drawn down under the
Samsung facility in Q4
Corporate
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Peter Spivey, Chief Executive Officer of Amara, commented:
"During Q3 2012 Amara has been transformed: financially, operationally and corporately. Financially, with the commencement of the partnership with Samsung, we have made significant progress towards funding the development of Baomahun. Operationally, we have demonstrated that Kalsaka's mine life will be extended through integration with Sega through the Preliminary Economic Assessment which offers robust metrics. Corporately, our rebranding to Amara comes at a time when we are focused on demonstrating our ability to move to a larger production platform, through the long term development of our growth portfolio at both Baomahun and Yaoure. With a strengthened team and diversified portfolio of assets, we are well positioned for the future."
The Company will host an analyst conference call at 10:00am UK with a simultaneous webcast. Dial in details are as follows:
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To log into the webcast, which will be aired simultaneously, please go to the homepage of the Company's website: www.amaramining.com. The webcast will subsequently be available for playback on this link.
A second conference call will be hosted at 9:30am EDT/2:30pm UK time for North American analysts. Dial-in details are as follows:
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Operational Review
Overview
Q3 2012 has been a transformational period for Amara at all levels, as the Company has taken significant steps towards achieving its goal of becoming a mid-tier producer. Amara is more than just the sum of its assets. It is the Company's strong management team, non-executive directors and operational staff who will ensure that maximum value is delivered to shareholders from the Company's portfolio of assets.
During Q3 Amara has successfully moved to a more solid financial footing. The innovative funding deal with Samsung C&T Corporation ("Samsung"), which does not require recourse to expensive hedging or royalty financing, will allow the Company to deliver its growth plans while maximising returns to equity investors. It also ensures Amara's shareholders are exposed to the upside of an appreciating gold price. This partnership provides a framework for the long term funding of the Baomahun gold project ("Baomahun") in Sierra Leone and other development opportunities. Amara's management remains committed to expansion while minimising dilution to investors and the delivery of this new form of financing is testament to its ability to think innovatively to benefit shareholders.
Of equal importance, the results of the Preliminary Economic Assessment ("PEA") for the Sega gold project ("Sega") in Burkina Faso have confirmed the potential viability of mining oxide and transitional material at Sega. This will extend the mine life of the Kalsaka gold mine ("Kalsaka") and ensure that Amara maintains its status as a producer. The PEA demonstrates that Sega's metrics are robust, with a post-tax net present value ("NPV") of US$49.5 million. Including the initial acquisition costs, this delivers a strong internal rate of return ("IRR") of 48%. As the material will be processed at Kalsaka, Sega requires limited upfront capital expenditure (US$9.5 million) and mining is expected to commence in H1 2013, before Kalsaka's remaining reserves are exhausted. The results of the PEA were announced alongside an update on the promising exploration results received from Sega. Amara firmly believes that through the on-going exploration programme the mine life of the Kalsaka-Sega complex will be further extended, ensuring that it continues to deliver cashflow to underpin the development of the Company's growth projects.
In Sierra Leone, Amara has completed a structural analysis of the Baomahun deposit and the remodelling of the orebody is close to its conclusion. Whilst this work has taken longer than originally anticipated, the improved understanding of the mineralisation at Baomahun is absolutely necessary for both the near term development and the longer term exploration of the area. Amara expects to complete the resource update imminently and the full feasibility study in H1 2013. The Company's objective remains to see first gold poured at Baomahun in 2015. Importantly, the structural analysis has identified a number of additional exploration targets. These lie within the anticipated open pit shell and are the subject of Amara's current Baomahun drilling programme.
Most excitingly, the Company has had continued exploration success at the Yaoure gold project ("Yaoure") in Cote d'Ivoire, with all holes drilled to date having intersected the targeted mineralised zones. The final holes of the current phase were drilled in early November and the Company is currently compiling and analysing the data with the intention of announcing a significant increase in the resource base early in 2013. Amara has now drilled out an area covering a strike length of 1km across the historic open pits, targeting a shallow dipping (25 to 35 degrees ) package of mineralised material varying in thickness from 10m to 25m on drill fence lines with an average spacing of 100m by 100m.
Kalsaka has continued to perform well in Q3, generating US$16.3 million in net cash inflows from operating activities and ensuring that that the Company's business model remains sustainable. While gold production fell by 5% during the period, cash costs decreased by 12% and the gold price strengthened, improving margins and lifting EBITDA by 20%. These improvements were seen despite Q3 being a challenging quarter, with unusually heavy rains in Burkina Faso forcing Kalsaka's mining team to alter its plans and move to areas of lower grade and higher waste stripping. Due to the working capital cycle of a heap leach operation, the full effect of these challenges will not be seen until Q4.
Looking ahead to Q4, Amara expects to return to higher grade zones in the K-zone 1 pit. However, due to the leach cycle the Company expects to fall marginally short of the lower end of previous guidance, producing 53,000-57,000 ounces as opposed to the 60,000 ounces originally anticipated. The ultimate impact will be that some of the higher grade ore will now be recovered in H1 2013, giving Amara further comfort on the smooth transition between Kalsaka and Sega ore sources in 2013.
The Company finished the quarter with US$28.4 million in cash and liquid assets. With the additional US$20 million from the Samsung facility, Amara is in a very healthy position to deliver on its near term growth and exploration plans. The management believes that there is better clarity than ever before on the future growth potential of the Company. A strong balance sheet, ongoing production and the long term partnership with Samsung ensure that Amara is well placed to deliver on its aspiration of becoming a mid-tier producer. As the Company move towards the feasibility study at Baomahun, an updated mineral resource estimate at Yaoure, and further extensions of the Kalsaka-Sega mine life, Amara is confident that it can continue to demonstrate the latent value in the Company for the benefit of all shareholders.
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Kalsaka delivered robust EBITDA in Q3 despite challenging conditions, with production decreasing by 5% on the previous quarter. However, due to the lower cash costs achieved in Q3 and the strengthening gold price, Kalsaka's EBITDA increased by 20%.
Burkina Faso suffered unusually heavy rains this year, which had a negative impact on both head grade and strip ratio. The original Kalsaka mine plan for H2 2012 focused on the K-zone 1 pit, which contains higher than average resource grade material. However, the heavy rainfall caused pit-wall failures, restricting access to higher grade ore and increasing waste stripping. Consequently, Kalsaka's operational team focused on opening lower grade pits, originally scheduled for mining in H1 2013, in order for production to continue. The gold produced from this material will not come out of the heap until Q4 as the leach cycle time is approximately 4 months. Now that the wet season is complete, Kalsaka's mining team is re-accessing K-zone 1's higher grade material, which is expected to have a positive impact on head grade and production in H1 2013.
Cash costs per ounce produced in Q3 were lower than in H1 as expected, due to the working capital cycle of a heap leach operation. The high grade, low strip ore stacked in Q2, which was leached in Q3, had a beneficial effect on this quarter's cash costs, allowing a pre-tax margin of US$774/oz to be generated. However, cash costs in Q4 will be higher than previously anticipated as the lower grade ore processed in Q3 is recovered. Despite this, cash costs per ounce produced for the full year are expected to remain below US$1,000 per ounce, delivering a healthy pre-tax cash margin.
As production was budgeted to be weighted towards H2 and the operational results achieved in Q3 were weaker than anticipated, full year production is now expected to be 53,000-57,000 ounces. Despite the weaker production, Kalsaka continues to deliver strong EBITDA, which differentiates Amara from its exploration-only peers and self-funds it exploration programme. Amara's production is expected to increase in 2013 as the higher grade Sega material begins to be processed together with the delayed K-zone 1 material at Kalsaka. This, combined with the Company's larger ownership of Sega (90% compared to 78% at Kalsaka), is expected to ensure that Amara continues to generate robust cashflow.
Sega
Maintaining cashflow in Burkina Faso until production is scheduled to commence at Baomahun in 2015 is a key priority for Amara. The Company is committed to upholding its producer status, which lends flexibility to its development plans as it continues to grow its portfolio of assets. The results of the PEA for Sega, which were announced on 16 October 2012, confirm the potential viability of mining oxide and transitional material at Sega, located 20km north of Kalsaka, and transporting it to Amara's existing heap leach operation at Kalsaka for processing.
The PEA demonstrates that Sega has solid metrics, with a post-tax NPV of US$49.5 million, using a gold price of US$1,500 per ounce and a discount rate of 10%. Including the initial acquisition costs, this delivers a strong internal rate of return ("IRR") of 48%. The upfront capital expenditure required for the project is limited at US$9.5 million, as the material from Sega will be trucked to Kalsaka and processed in the existing plant. Combined with the good existing infrastructure in place, this reduces the permitting hurdle and diminishes the timeline to production.
Based on the mineral resources delineated at Sega to date, the mine plan delivers contained gold of 162,825 ounces over the 21 month initial mine life and a cash cost per ounce produced, excluding royalties, of US$821/oz. Amara's management is optimistic that production will continue from Kalsaka's reserves until the trucking of material begins from Sega, ensuring that production continues uninterrupted. The NI 43-101 technical report is on track to be filed on SEDAR before the deadline of 30 November 2012 and the environmental permit is expected to be received from the Burkina Faso government in Q1 2013. The mining licence is anticipated to be received shortly thereafter, with mining at Sega expected to commence in H1 2013.
Kalsaka/Sega exploration
Exploration at the Kalsaka-Sega complex is a primary focus for Amara. Drilling results received to date give confidence that there is further upside potential to Sega's current resources, with particularly encouraging intercepts logged at the Touli prospect. This upside potential adds further confidence that production will continue uninterrupted at the Kalsaka-Sega complex as the Company continues to develop its portfolio of growth assets.
As previously announced, 35,464 metres of RC and RAB drilling have been completed by the Company on the 313km2 Sega licence area. This followed up on the 10,000 metre drilling programme conducted by Orezone in Q1 2012 prior to the transfer to Amara. The recent drilling has focused on the Touli, Sampella, KNW and Bangassilla targets. Significant intercepts include(ii):
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A significant intercept has a minimum width of 2m, a minimum grade of 0.4 g/t and a maximum internal dilution of 2m.
Further RC drilling commenced at KNW in late Q3 and will be completed, together with further drilling at Touli and initial drilling at a further target, Tiba3Sud, in Q4 after the harvest. Exploration work is also ongoing on the Kalsaka permit, focusing on areas east of the existing K-zone pits along the K-zone shear structure, where additional resources are expected to be defined.
Baomahun, Sierra Leone
In Sierra Leone, Amara has completed a fundamental re-analysis of the structural controls of the Baomahun resources. This work ensures that the Company not only has a robust geological model at the core of the Baomahun feasibility study, but it has also proved to be a valuable exploration tool, defining a number of new exploration targets that lie within the existing open pit shell that are currently classified as waste. Work on the Baomahun resource update is nearing its conclusion and it is anticipated that the final resource figures will be announced within the next few weeks.
The feasibility study for Baomahun remains at an advanced stage, based on a 2Mtpa CIL plant. The two outstanding technical aspects are the resource update, as detailed above, and geotechnical work for the final optimised open pit. Amara expects to announce the timing of the delivery of the feasibility study as part of the resource update, but it is currently anticipated that this should be completed in H1 2013. Importantly, with the financing options inherent in the recently announced strategic partnership with Samsung, and the work already completed on initial infrastructure at the Baomahun site, Amara anticipates that it can still meet its expectation of first gold in 2015 at Baomahun.
Exploration
Due to the onset of the wet season in Sierra Leone, exploration at Baomahun was minimal during Q3. Whilst drilling at Pujehun South halted in mid-July, work at the Makong South prospect continued with sampling and trenching in artisanal areas. Following the cessation of the rains, drilling has recommenced in November, focusing on the new targets within the resource area as well as the Pujehun South prospect.
Drilling at Pujehun South, located 700m north of the Baomahun deposit, has discovered multiple zones of mineralisation within the hinge zones of isoclinal folds. The 2013 drilling campaign is expected to progress Pujehun South to the resource estimation stage.
Significant results have been received from sampling of the Makong South artisanal workings in quartz veined mylonites. An aggressive trenching programme is now underway to take the Makong South targets to the early drilling stage, with a drilling programme planned to commence in the current dry season.
Yaoure, Cote d'Ivoire
Exploration is the lifeblood of a mining company and through an extensive exploration programme, Yaoure forms Amara's medium term growth. The promising results received in Q2 warranted an aggressive approach and accordingly up to four diamond rigs were on site at Yaoure in Q3.
The drilling campaign continues to deliver encouraging results, underlining the potential for a large scale, moderate-grade, open pittable deposit. Drilling has covered a strike length of 1km across the historic open pits targeting a shallow dipping (25 to 35 degrees ) package of mineralised material varying in thickness from 10m to 25m where continuity is being established. However, it is expected that thinner, higher grade sub-vertical cross-cutting veins with frequent visible gold contained within the shallow dipping zones will enhance the overall grade of the ore body. Significant intercepts reported on 14 August 2012(iii) included:
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All of the 53 holes reported this year have encountered mineralisation, and the mineralisation remains open in all directions. The current drilling campaign concluded in early November and the Company expects to announce further drilling results in late November 2012, with a resource update targeted for Q1 2013.
The delineation of a sizeable resource at Yaoure would allow Amara to achieve greater flexibility in its portfolio of assets. Yaoure's location presents a number of advantages that will enhance the prospects for a CIL plant to be developed at site. These include excellent existing infrastructure including close proximity to the Kossou Barrage which offers the potential for lower operating and capital costs through the utilisation of hydro-electric power. In addition Yaoure benefits from an existing mining licence and environmental permits.
Corporate
Following John McGloin's appointment as Executive Chairman on 28 May 2012, a number of changes have taken place within Amara. Working alongside Peter Spivey and Pete Gardner, John has refocused Amara on a portfolio approach, ensuring that all of the Company's assets in West Africa are optimised and moved along the growth curve in a timely manner. However, the Company's assets are just one part of Amara's investment case - people are Amara's most valuable resource and it is the management team, non-executive directors and operational staff who will ensure that maximum value is delivered to shareholders.
John's background in geology has also driven the new approach towards the Baomahun resource. The focus on gaining a thorough understanding of the structural controls that underpin the resource estimate is expected to produce a more reliable geological model and consequently a better long term mine plan. Management's philosophy is that it is always best to make decisions with the maximum information available.
Amara is moving closer to its goal of becoming a mid-tier producer and to mark the beginning of this transitional period, the Company changed its name from Cluff Gold plc to Amara Mining plc on 1 October 2012. The rebranding coincided with the change of Amara's registered office to 29-30 Cornhill, London, EC3V 3NF.
As part of the Board's review of its structure following John's appointment, Bobby Danchin, Nicholas Berry and Ronald Winston resigned as directors on 30 September 2012. The Board now comprises three executive directors and three non-executive directors, which is appropriate for a company of Amara's size. Amara now has the right team to drive the Company's growth and achieve the next stage of its development into a sustainable mid-tier producer.
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Amara continued to deliver a robust financial performance in Q3 with Group EBITDA increasing by 22% to US$7.6 million, driven by the strong financial performance at Kalsaka. At Yaoure, the quarterly EBITDA represents a US$1.6 million loss as the remaining gold in process from the old Angovia heap leach was recovered. Amara's management is targeting reduced administrative costs at Yaoure in Q4 to reflect the project's status as an exploration property.
Sustaining capital expenditure fell in the quarter as the main annual cost, the addition of leach pads at Kalsaka, was incurred during H1. Other capital expenditure includes some of the initial costs of mechanical equipment for Sega; however, the majority of expenditure for Sega will be incurred during Q4 2012 and Q1 2013.
Group exploration expenditure was maintained in line with budget, with US$9.3 million incurred during the quarter compared to US$10.6 million in the previous period. At Yaoure, four diamond drills worked throughout the quarter with the aim of delivering a resource update in Q1 2013. Expenditure at Baomahun represents the ongoing costs of the feasibility study, together with maintenance of the camp and minor exploration work. Kalsaka expenditure relates entirely to work commencing on the new Sega licences, targeting the upside potential around the existing resource. Other segment expenditure relates to the completion of the initial drill programme in Mali.
Amara ended the quarter with cash and liquid assets totalling US$28.4 million, comprising US$23.9 million in cash and US$4.5 million in bullion sold after the quarter end. This healthy financial position has been strengthened further in October by the drawdown of the US$20 million facility provided by Samsung. This form of financing is revolutionary for both Amara and the wider mining sector as, unlike many traditional forms of debt, it does not require any hedging. The price paid by Samsung for gold is not fixed in any way, so Amara's shareholders will still see the majority of the upside of a rising gold price. It also avoids the disadvantages of other financing options, such as royalties, as it has a limited life and the obligations to deliver gold to Samsung cease after the debt is repaid. The longer term relationship with Samsung set out in the agreement delivers a solution with the potential to fund a significant proportion of Baomahun's financing requirements, alleviating a significant amount of risk from the Company's long term financing plans.
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1. Basis of preparation
The condensed interim financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and implemented in the UK. The accounting policies, methods of computation and presentation used in the preparation of the interim financial information are the same as those used in the Group's audited financial statements for the year ended 31 December 2011, which this interim consolidated financial information should be read in conjunction with. The financial information has been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting.
The financial information in this statement does not constitute full statutory accounts within the meaning of Section 434 of the Companies Act 2006. The financial information for the nine months ended 30 September 2012 and 30 September 2011 is unaudited, and has not been reviewed by the auditors.
The financial information for the year ended 31 December 2011 has been derived from the Group's audited financial statements for the period as filed with the Registrar of Companies. It does not constitute the financial statements for that period. The auditor's report on the statutory financial statements for the year ended 31 December 2011 was unqualified and did not contain any statement under sections 498 (2) or (3) of the Companies Act 2006.
After review of the Group's operations, financial position and forecasts, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the unaudited interim financial information.
2. Segmental reporting
An analysis of the consolidated income statement by operating segment, presented on the same basis as that set out in the 2011 annual report, is set out below:
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A reconciliation of segmental revenue to that reported in the interim financial statements is as follows:
3 months 3 months 9 months 9 months
ended ended ended ended
30 30 30 30
September September September September
2012 2011 2012 2011
US$'000
