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Cluff Gold`s first half gold production comes in ahead of expectations

Cluff Gold (LSE:CLF, TSX:CFG) is confident that it will produce 100,000oz of gold in 2010.

In its first half trading update, the company revealed at 56% year-on-year increase in gold production to 52,109oz as ramp-up and optimization continue at the Kalsaka mine in Burkina Faso and the Angovia mine in Côte d’Ivoire.

“Gold production is now above our estimates at the half year with cash costs continuing to fall compared to 2009,” chairman and chief executive Algy Cluff said.

“Kalsaka has achieved its best operating performance to date, whilst the new crushing facility now being commissioned at Angovia is expected to have a significant effect on the production profile in the second half of the year,” he added.

The company realised an average gold price of US$1,149/oz, and cash costs were reduced to US$709/oz (H109: US$865/oz).

Aside from its growing production profile in Burkina Faso and Côte d’Ivoire, the company has also been making strong progress in the development of the Baomahun project in Sierra Leone.

During the period, Cluff released a resource update, which took the Baomahun`s measured and indicated resource estimate to 1.42 million ounces (Moz), and the inferred resource estimate to 1.03Moz.

The preliminary assessment envisages a steady-state operation with a 1.9 million tonnes per annum (Mtpa) throughput, consisting of 1.5Mtpa from open pit mining and 0.4Mtpa from underground mining.

The Baomahun mine is expected to reach annual production of 157,000oz, with cash costs of US$500 per ounce and capital expenditure (CAPEX) of US$195m.

Based on a US$1,100/oz gold price, this assessment generated a 10% NPV (Net Present Value) of US$172m and an IRR (Internal Rate of Return) of 31%.

“This demonstrates that the asset has the potential to develop into a 150,000 ounce per annum producer that would provide future long term growth," the chairman said.

Furthermore, the company highlighted that there is “much room for operating cost re-optimization” at Baomahun, which would improve the positive mine economics further.

According to Cluff, the area’s "good hydroelectric potential" may provide an opportunity to materially reduce power costs.

Additionally, the company said it is investigating the cut-off between open-pit and underground mining further as part of the ongoing feasibility study.

Cluff Gold has a US$12m budget for Baomahun until the end of June 2011, as it focuses on advancing the project towards a bankable feasibility study.

The company intends to conduct an in-fill drilling programme to upgrade resources from the inferred resource category to measured and indicated.

Also, long-lead items such as the environmental and social impact assessment (ESIA), hydro-electric power studies and tailings studies have been initiated.

Baomahun’s ‘significant exploration potential’ was also emphasised, as the company intends to carry out a further exploration drilling program on defined targets, identified from the recently conducted VTEM geophysical survey, across the remainder of the 12km prospective trend.

Further drilling is also being conducted at Kalsaka and Angovia.

At Kalsaka, the company said that its focus has turned to "an aggressive drilling program", which is intended to increase the mine's resource base and extend the mine’s life. Drilling will be carried out within the Kalsaka license area as well as the neighbouring Yako satellite deposit.

At Angovia, Cluff is looking at satellite deposits that neighbour the mine. This has already proved successful before, with the small near-surface Blangan deposit, which had a significant effect on gold production in Q4 2009 and Q1 2010. Results from the ongoing drilling program to further increase the resource base and extend the mine life are anticipated in Q4 2010.

Evolution Securities issued a note in response to Cluff Gold's update, saying the group had a great first half in all three of the countries in which it operates.

"The company has achieved production ahead of expectations at the Kalsaka mine, and operational improvements are now getting underway at Angovia. In H1, a positive scoping study was also delivered for the big Baomahun property in Sierra Leone, which underscores the company’s considerable organic growth potential," it added.