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Cluff Gold’s Baomahun confirmed as company making gold project

A meeting with Algy Cluff, CEO and Chairman of Cluff Gold (LON:CLF, TSX:CFG) in 2008 was one of the most memorable encounters for Proactiveinvestors.  At the time, the West African focused gold company was working through a few teething problems at its Angovia Gold Mine in Côte d'Ivoire and its Kalsaka Gold Mine in Burkina Faso. Yet despite the market’s concerns about the company’s ability to ramp up two gold mines in quick succession, Cluff was clearly unconcerned.  

Many companies listed in London and further afield like to boast about the management’s experience in finding and developing mining projects.  Often these claims are somewhat exaggerated either by the passage of time or a keenness to impress potential investors….it is not unusual to hear directors from different companies claiming to have discovered the same project!  Yet when you meet Cluff, it’s abundantly clear he knows how to find mines, and he also knows how to finance and build them.  He is also particularly experienced in West Africa, unsurprisingly, the focus of Cluff Gold.

This past experience of developing assets in West Africa is exactly why Cluff didn’t appear all that concerned in 2008. He had been there before, he knew the ‘usual’ issues that companies run into when ramping up a mine, and he also knew he had a potentially much larger project in his portfolio which had the ability to redefine the company.

That asset is Baomahun. 

Today investors were given another glimpse into the potential of Baomahum. Located in Sierra Leone, Cluff Gold has been drilling at a steady pace, aiming to define a large enough resource to justify the development of a substantial gold mine which could more than double the company’s production levels and push it firmly into ‘mid-tier’ status.

Just a few weeks ago Cluff Gold upgraded the resource at Baomahun to 2.4 million ounces of gold.  Impressively, 1.4 million ounces is already in the indicated and measured category at a grade just over 2.9 grams per tonne. Today investors were handed a summary of the Preliminary Assessment which had some very interesting numbers in it.

The report envisaged an eight year (open pit and underground) mine life with average annual production of 157,000 ounces of gold utilizing a 1.9 million tonnes per annum gravity and carbon-in-leach (CIL) plant.

Based on a capital expenditure of US$195 million (including $18 million contingency), cash costs per ounce of US$500 and recoveries of 92%, the mine would generate a pre-tax net present value (NPV) of US$172 million and internal rate of return of 31%.  This projection also assumes a flat gold price of US$1,100 per ounce and a discount rate of 10%.  Pay-back would be 2.3 years.

At current gold spot prices, the mine would generate US$600 million in cash flow over eight years and have a NPV of $263 million.  These numbers could be further improved if, as the company highlighted today, a hydroelectric dam is built to supply power in the wet season rather than relying entirely on diesel.

"Our focus is now on further improving Baomahun's economics by expanding the resource base and optimising various aspects of the project.  We believe that Cluff Gold will be able to develop Baomahun and transition the Company to a 250,000 ounces per annum producer,” Douglas Chikohora, Technical Director of Cluff Gold, commented.

Indeed there is still plenty to do at Baomahun, but Cluff’s conviction back in 2008 continues to ring true – this is a company making project. 

Looking ahead, a pre-feasibility study is ‘well advanced’, which will fill in a lot more detail about the best way to move forward with the project, and drilling continues to not only improve confidence in the current resource area but to add additional ounces.  To date Cluff Gold has only drill tested 25% of the 12 kilometer trend.