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Cluff Gold: Algy hands over the reins as his target moves within reach

Cluff's first production milestone of 250,000 ounces per annum now within striking distance

In July of this year, Algy Cluff finally stepped down from his executive role at the eponymous Cluff Gold (LON:CLF, TSE:CFG) and assumed the title of non-executive Chairman.

It’s more than 50 years since he first discovered the sheer pulling power of the African continent as a young Guards officer, and whilst some of his successes in the mining and exploration field have been elsewhere, it’s Africa where the Cluff footprint has made the deepest impression.

Quoted earlier this year in the Financial Times, Cluff gives a cogent and compelling reason for this emphasis: ““In Africa you’ve got geology....”

But non-executive is as non-executive does, and it’s clear that Algy Cluff does not mean to sit back and relax. Cluff Gold - thanks to a carefully planned succession policy - is now in the more-than-capable hands of CEO Peter Spivey and his team, but Cluff himself will still be instrumental in formulating and guiding the company’s strategy and maintaining relationships with key stakeholders and partners.

And it’s unthinkable that the man will be able to stand back from the final development of his most recent discovery - the potentially world class Baomahun deposit in Sierra Leone - now a mine-in-waiting...

The current development area at Baomahun is focused on the southern-most tip of of the largest of Sierra Leone's four Archaean greenstone belts, the north-south trending Kangari Hills-Sula Mountains Belt, comprising metasediments/schists of the Kambui Group. Greenstone belts are invariably prolific gold hosts, and this one - which contains more than half a dozen gold deposits including Yirisen and Lake Sonfon, and was host to a flourishing alluvial gold mining industry in the 1930s - is no exception.

At Baomahun, the gold is hosted in steeply dipping sulphide pods and lenses, in zones up to 20 metres thick which tend to be found in the areas where banded iron formation (BIF) units meet adjacent metasediments.

This is typical of many such deposits, as hot mineralising fluids rising from below have exploited any weakness – such as the contacts between different rock formations - and forced their way into gaps, cracks and fissures before cooling and solidifying to form the mineralised pods. The fluids also tend to exploit any other weaknesses in natural folds - as at Baomahun's Fold Zone - and fault zones.

The mineralised package lying within the company’s project area strikes roughly north-north-west over approximately 12 km. The currently defined resource covers only 3 km of strike, in four separate but contiguous zones – East, Central and Western, with the Fold Zone lying between East and Central.

Most of the mineralisation within these zones dips steeply to the east-north-east, but this is locally interfered with by a strong folding event which has altered the general direction of strike to east-west in the Fold Zone and in the East Zone which abuts it. 

The original Preliminary Economic Assessment for Baomahun envisaged a combined open-pit/underground operation encompassing these zones which would support the production of approximately 150,000 ounces of gold per annum, over an 8 year minelife, at a cash cost in the region of $500 per ounce. Capex was forecast at just short of $200 million.

However, the infill drilling which enabled the recent resource update has improved understanding of the deposit, and it is now clear that the mineralised area contains extensions - albeit at a lower grade - along the limbs from the high grade fold noses that had been the focus of previous drilling campaigns.

This additional tonnage means that more of the material contained within the open pit can now be profitably mined and processed, allowing a deeper pit with a larger gold content to be mined without excessively increasing the waste to ore stripping ratio.

Consequently, the current studies which form part of the soon-to-be released DFS are focusing on an open-pit only scenario, which will reduce both operational and capital costs. Further cost-reducing initiatives are also under way, including metallurgical testwork, which indicates that the addition of a flotation stage to the process route might be workable, leading to a significant reduction in capital and operating costs compared to the conventional CIP/CIL option currently being considered. 

Power generation is also under the microscope, with the aim of reducing the dependence of the project on heavy fuel oil. The studies show that a run-of-river hydro-electric plant could provide around 70% of the annual power requirement, without any significant environmental disruption. This would contribute a significant reduction in cash costs as well as minimising the logistics involved in shipping oil supplies.

Further logistical improvements could be achieved by relocating the primary crushing circuit closer to the edge of the open pit and an underground chute which would employ gravity flow to move ore down the hilly terrain to reduce haulage requirements. Such a reduction in haulage requirements has the potential to reduce operating costs for both diesel and truck maintenance, whilst also reducing the size of the mining fleet. Results of these studies will be released along with the DFS, when their impact on project economics will be evident.  

The current timescale for development at Baomahun is of course dependent on the full DFS results and project finance, but with good cash flow coming in from their mining operations in Burkino Faso and Cote d’Ivoire, it is expected that initial construction works will commence in November of 2012, leading to first production in early 2014, rising to 150-160,000 ounces per annum when in full production.

However, it’s important to note that the current development at Baomahun is merely Phase I of what is hoped will ultimately be a far larger project.  A versatile time domain electro-magnetic (VTEM) survey last year along the entire 12 km strike revealed more than half a dozen conductive anomalies for follow-up with the drill bit, and this year, Cluff have moved up strike to test these geophysical targets.

Over 7,000m of first pass scout drilling has been completed in 2011, together with 2,750m of trenching. Cluff is currently carrying out infill drilling on the resource area and results are expected in the first quarter of next year. 

Results from Baomahun so far demonstrate that the identified conductive anomalies are indeed associated with gold mineralisation, as they are in the current project area.

Although the preliminary scout drilling results don’t compare with the widths and grades in the main project area, intercepts which include 5 metres at 1.59g/t from 29 metres and 2 metres at 5.77g/t from 81 metres are a clear validation of the exploration technique. This is confirmed by CEO Peter Spivey: “Whilst we cannot predict future exploration results, with the link between conductive anomalies and gold now clearly established, the project has taken a major step forwards in enabling targeted, cost-effective exploration.”

Elsewhere in Africa, Cluff has had its share of setbacks this year, although these are now behind them. Political difficulties in both Cote d’Ivoire and Burkino Faso interrupted production at Angovia and Kalsaka respectively, leading to the temporary closure of Angovia and a short disruption at Kalsaka.

Labour was the problem at the 78% owned Kalsaka mine, but the situation was amicably resolved with the workforce in early June, and the mine has taken the short disruption in its stride. Particularly strong production in the first two months of the current half year - including a record weekly smelt of 3,730 ounces - means that the company are confident that their original target of 70,000 ounces of gold production will be met.

A full program of exploration has also been carried out, seeking near-mine oxide gold drill targets to extend mine life and long term sulphide potential to add to the current resources of 550,000 ounces.  At current gold prices, the indication is that the 49% improvement in Kalsaka’s H1 2011 earnings over the comparable 2010 period could be continued comfortably - or even exceeded - in H2.

Unrest in Cote d’Ivoire made more of an impact and with the consequent disruption to key mining supplies, Cluff took the step of placing Angovia temporarily into care and maintenance in March of this year.

However, activity at Angovia has now resumed, with the stacking of 40,000 tonnes on the leach pad, and the company anticipate a return to full operations early next year. In the words of Peter Spivey: “I am very pleased that activity at our Angovia project has resumed in the second half of 2011, with gold production from existing stockpiles expected to continue for the remainder of the year.

"Exploration drilling is on-going, focused on both the long term sulphide potential and near surface laterite and saprolite areas with low waste to ore ratios. We expect that the latter will allow the Company to profitably operate the existing processing facilities, with full production anticipated to resume during Q1 2012.”

So with the first milestone of 250,000 ounces per annum now within striking distance, Cluff Gold is halfway to its long term aim of being a half-million ounce producer. But as with many junior gold producers/developers, the share price reflects neither the company’s strong progress in the last year nor the rising gold price. At just 78p per share, the company is rated at a market cap of £103 million - very little more than it was 15 months ago.

Almost 60% of the shares in Cluff Gold are held by owners of more than 3%, and the roster reads like a Who’s Who of North American mining investors.

Do they know something the UK market is missing?