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Shanta Gold Limited - West Kenya Project Scoping Study

RNS Number : 8538B
Shanta Gold Limited
13 October 2020
 

13 October 2020

 

Shanta Gold Limited

("Shanta Gold", "Shanta" or the "Company")

 

West Kenya Project Scoping Study

 

Shanta Gold (AIM: SHG), the East Africa-focused gold producer, is pleased to announce the results of an independent Scoping Study for the high grade West Kenya Project ("the Project") in western Kenya.

 

Project Highlights

 

Production Potential

·    Life of Mine ("LOM") gold production of 949,000 ounces ("oz");

·    Average annual gold production of 105,000 oz for 9 years;

·    Average head grade mined at 9.3 g/t;

·    Open pit mining for 2 years followed by underground mining;

·    Conventional CIL processing plant with annual processing capacity of 480 kt;

·    Cut-off grade of 3.6 g/t for underground Long Hole Open Stoping ("LHOS"); and,

·    Production schedule does not include any potential future exploration success.

 

Costs1

·    LOM C3 cash costs (including royalties) of US$582 /oz;

·    LOM All In Sustaining Costs ("AISC") of US$681 /oz;

·    LOM All In Costs ("AIC") of US$850 /oz inclusive of pre-production costs; and,

·    Estimated pre-production capital cost of US$161 m.

 

Economics2

·    LOM EBITDA of US$1,061 m, averaging US$118 m annually;

·    LOM operating margin of 66%;

·    LOM free cash flow of US$531 m;

·    Post-tax NPV8% of US$340 m; and,

·    Unlevered IRR of 110%.

 

Notes.

1. Cost figures are aligned with World Gold Council standards for reporting

2. Project economics have been prepared using a LOM gold price of US$1,700 /oz

 

 

Community Benefit and Value to Kenya

 

The Project Scoping Study is based on a NI 43-101 Inferred Resource which requires an investment by Shanta to undertake infill drilling and technical studies over the next 24-36 months to determine the economic viability of a potential mining operation. Moreover, should the economic viability of a mine be confirmed, the Scoping Study estimates pre-production capital investment of US$161 million will be required from Shanta prior to first gold production. Assuming Shanta proceeds with construction of the West Kenya Project through to the point of gold production, the following long-term benefits could arise:

 

·    Community development, infrastructure, employment, skills development and training;

·    Royalties on gold production, of which 70% would accrue to the Government of Kenya, 20% to the County, and 10% to the community according to the Mining Act in Kenya;

·    A further 1% of gold revenues to be spent on community development under the terms of the Community Development Agreement Regulations;

·    Corporate income taxes and payroll taxes;

·    Mining licence fees and other levies;

·    Demand of local Kenyan supply chain, particularly in areas such as goods and services, transportation and communication;

·    10% Free Carried Interest to the Government of Kenya; and

·    Numerous other indirect benefits to community and stakeholders.

 

 

Eric Zurrin, Chief Executive Officer, commented:

"The West Kenya Project Scoping Study has resulted in attractive project economics. As with all Scoping Studies there is a significant amount of work to be completed before the assumptions can be confirmed. The Board is committed to making the investment to confirm the viability of a mine with a construction decision expected within three years."

 

 

Analyst conference call and presentation

Shanta Gold will host an analyst conference call and presentation today, 13 October 2020, at 09:30 BST. Participants can access the call by dialling one of the following numbers below approximately 10 minutes prior to the start of the call or by clicking on the link below.

UK Toll-Free Number: 0800 358 6374
UK Toll Number: +44 (0)330 336 9104
PIN: 312393

https://events.globalmeet.com/Public/ClickToJoin/ZW5jPXREZWRtbEQvdklzUElFMFZaRXA3dU5zaHl1NW5jVGVodEtGUTJ0WFZJNjVaZkZOWVhkK2JJdz09

Participant Passcode: 312393

The presentation will be available for download from the Company's website: www.shantagold.com

A recording of the conference call will subsequently be available on the Company's website.


Enquiries:

 

Shanta Gold Limited

 

Eric Zurrin (CEO)

+44 (0) 14 8173 2153

Luke Leslie (CFO)

 

 

 

Nominated Adviser and Broker

 

Liberum Capital Limited

 

Scott Mathieson / Clayton Bush / Louis Davies

+44 (0) 20 3100 2000

 

 

Broker

 

Tamesis Partners LLP

 

Charlie Bendon / Richard Greenfield

+44 (0) 20 3882 2868

 

 

About Shanta Gold Limited

Shanta Gold is an East Africa-focused gold producer. It currently has defined ore resources on the New Luika and Singida projects in Tanzania and holds exploration licenses covering approximately 1,200km2 in the country. Shanta Gold also owns the West Kenya Project in Kenya with defined ore resources of 1.2Mt grading 12.6 g/t. Shanta's flagship New Luika Gold Mine commenced production in 2012 and produced 84,506 ounces in 2019. The Company has been admitted to trading on London's AIM market and has approximately 849 m shares in issue. For further information please visit: www.shantagold.com.

 

This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

 

 

West Kenya Project Overview

 

In August 2020 Shanta acquired Acacia Exploration (Kenya) Limited ("AEKL") from three subsidiaries of Barrick Gold Corporation ("Barrick"). AEKL's primary asset is a 100% interest in licences which includes an existing high-grade NI 43-101 compliant resource known as the West Kenya Project. The West Kenya Project is made up of two greenfield deposits, the Isulu and Bushiangala Prospects ("the Deposits") and includes mineral rights which cover an area of 1,161 km2. The following Table summarises the Project's resource by deposit.

 

Table 1 - NI 43-101 compliant resource summary1

 

Deposit

Resource Category

Ore

(Mt)

Grade

(g/t Au)

Contained
(koz Au)

Isulu

Inferred

2.5

13.0

1,060

Bushiangala

Inferred

0.4

9.9

122

Total

2.9

12.6

1,182

 

Note 1: Mineral Resource Estimate completed by the previous owner (Acacia Mining Plc ("Acacia")) in May 2018.

 

The West Kenya Project is located in western Kenya in the county of Kakamega. The project lies within the Liranda Corridor some 300 kilometres northwest of Nairobi, the capital of Kenya, and 30 kilometres north of the town of Kisumu.

 

Various work has been undertaken on the project historically by the previous owner (Acacia, and subsequently Barrick). A summary of historic work undertaken on the Project has been outlined as follows:

 

·    1920's to 1963: Various colonial prospectors and companies undertook small scale mining in the area;

·    1982 to 2000: Bureau de Recherches Geologiques et Minieres (BRGM) undertook stream and soil surveys as well as helicopter surveys;

·    2003 to 2007: AfriOre undertook soil sampling, rock chip sampling, pitting and trenching;

·    2007 to 2010: Lonmin Plc undertook soil surveys;

·    2010 to 2012: Aviva Mining Limited undertook soil surveys, rock chip sampling, geophysical surveys, geological mapping, RC and DD drilling; and,

·    2012 to 2018: Acacia undertook detailed geological mapping, geophysical surveys, RC and DD drilling. This work led to the declaration of a maiden mineral resource estimate ("MRE") in February 2017. This was followed by an updated MRE in May 2018.

 

Scoping Study Overview

 

Following Shanta's purchase of the Project, the Company has engaged Bara Consulting (Pty) Limited ("Bara Consulting") to update previous scoping study work undertaken by Acacia for new work undertaken by Shanta, focused on the mining and costing aspects of the study. Shanta's expertise in LHOS has enabled the Company to apply its established cost base at its New Luika Gold Mine ("NLGM") to the West Kenya Project, creating value and lending confidence to the underlying operating model. The resource models adopted for the Isulu and Bushiangala deposits have also been updated for Shanta's estimation approach, resulting in a minimal 1% difference in total ounces versus the most recent MRE completed by Acacia. All project economics have been independently prepared by Bara Consulting.

 

A discounted cashflow ("DCF") analysis using a gold price of US$1,700 /oz has been prepared, taking into consideration royalties, tax and government dividends based on a 10% free carry ownership in the project. The economic results yielded by this DCF analysis have been summarized in the Table below.

 

Table 2 - West Kenya Project economics summary

 

Metrics

Units

Results

Milled Tonnes

Mt

                        3.45

Recovered Content

Moz

                        0.95

Recovered Grade

g/t

                        8.56

Life of Mine (LOM)

Years

                          9

Revenue (LOM)

US$m

                      1,614

Operating Cost (LOM)

US$m

                         553

Pre-production Capital Cost

US$m

161

Sustaining Capital Cost (LOM)1

US$m

                           105

Free Cashflow (Pre-Tax)

US$m

                         795

C1 Cash Cost

US$/oz

                         463

C3 Cash Cost

US$/oz

                         582

AISC

US$/oz

                         681

AIC

US$/oz

                         850

Pre-Tax Project NPV8%

US$m

                         507

Pre-Tax Project IRR

%

                         196

Post-Tax Project NPV8%

US$m

                         340

Post-Tax Project IRR

%

                         110

Average Annual EBITDA

US$m

118

Operating Margin

%

                        66

 

Note 1: Includes US$87 million of underground development costs incurred following pre-production development

 

 

Mining Method

 

A pit optimisation study has been undertaken for the Deposits to determine the potential for open pit mining at the Project. Based on this assessment an initial open pit at each of the Deposits has been shown to have potential. Following pit optimisation results, a pit shell has been selected for each deposit. Open pit mining will be by standard drill, blast, truck and shovel methods. Open pit mining is expected to benefit from free dig mining of oxide resources.

 

Underground mining will commence after open pit mining, with the proposed mining method for the Deposits being LHOS with backfill. LHOS is the underground mining method employed at the Company's producing asset in Tanzania, New Luika Gold Mine.

The envisaged underground mine will be accessed by two portals, at Isulu and Bushiangala, from which declines will be driven down at each deposit.

 

A combined mining schedule has been established which incorporates planned open pit and underground mining. The Table below summarises the mineable inventory derived under this plan.

 

Table 3 - Summary of Mining Inventory

 

Deposit

Tonnage
(kt)

Grade
(g/t)

Ounces
(koz)

Bushiangala

OP

293

5.9

56

UG

541

6.0

104

Total

834

5.7

160

Isulu

OP

71

43.0

99

UG

2,545

9.4

773

Total

2,616

10.4

872

Total

3,540

9.3

1,032


Note: The resource models adopted for the Isulu and Bushiangala deposits have also been updated for Shanta's estimation approach, resulting in a minimal 1% difference in total ounces versus the most recent MRE completed by Acacia.

 

 

Metallurgy

 

Metallurgical testing was performed at the ALS Metallurgy laboratory in Perth, Western Australia, Australia. Testwork was performed on samples of drill core composites selected from the various geological domains identified in the Deposits. Three samples representing the major domains were prepared, together with five samples representing the minor domains. The three major domain samples were generally representative of the Deposits and the minor domain samples were included as indicative of some of the variability that exists in the Deposits.

 

Metallurgical testwork was carried out by Sivad Resources on domain and variability samples provided by ALS. Based on the testwork results, content from mined ore will be recovered through a proposed processing route consisting of:

 

·    Primary crushing;

·    SAG and ball milling;

·    Gravity concentration;

·    Intensive cyanidation of the gravity concentrate; and,

·    Carbon-in-leach on gravity tailings followed by elution, electrowinning, carbon regeneration, acid washing and tailings thickening and filtration, prior to safe disposal.

 

Overall recoveries on the domain samples were around 92% on a sample head grade of 11 g/t. This is slightly higher than the planned plant feed grade of 9.3 g/t however recoveries are not expected to be affected by this minor difference in head grade. Taking these results into account, the overall plant recovery used for the Scoping Study is 92%.

 

Key process design criteria modelled within the Project's Scoping Study are shown in the Table below. Further testwork will be carried out during future feasibility studies to validate and expand upon these results and process design criteria.

 

Table 4 - Key Process Design Criteria

 

Parameter

Units

Value

Maximum required plant capacity

tpa

480,000

Gold recovery

%

92.0

Plant availability

%

91.3

 

 

Tailings Management and Power

 

Tailings will be stored in a lined waste disposal area together with waste rock from underground mine development. The project is located in a high rainfall area and a tailings and waste storage area has been designed to accommodate this. Waste rock will be used to create the outer walls of the disposal area, with filtered tailings being deposited in the central basin of the disposal area.

 

The tailings storage basin area will be prepared by scarifying and re-compacting in-situ soils and installing a 1.5mm HDPE liner, covered with a soil protection layer. On top of the compacted soil layer a drainage layer will be constructed consisting of waste rock and drainage pipes. The drainage pipes will be connected to a drainage tower which will drain collected water to a drainage sump, from where the water will flow to a drainage pond. Seepage and stability monitoring for the waste area has been provided for.

 

The Scoping Study has considered several options for electrical power supply to the Project including supply from the Kenya electricity grid and an owner operated diesel power station. Following an initial trade-off study and based on anticipated stability, capacity and planned upgrades of the national grid, a planned connection to the Kenya electricity grid has been adopted for the Scoping Study. This assessment will need to be repeated at the feasibility study stage of the Project.

 

The expected maximum power demand at the Project will be 6 MW with an average annual load of 4.8 MW. A grid connection would require a new transmission line from the nearest existing substation (approximately 30 km from the Project site) with substations, switchgear and other items also required.

 

 

Capital and Operating Costs

 

Capital and operating costs have been estimated based on the proposed mining approach described above.

 

The tables below summarize anticipated pre-production capital costs and LOM operating costs, as derived within this latest scoping study update for the Project.

 

Table 5 - Pre-production Capital Costs Summary

 

Description

Units

Results

Mining

US$m

54

Processing

US$m

63

Infrastructure

US$m

32

Other

US$m

12

Total

US$m

161

 

 

Table 6 - LOM Operating Costs Summary

 

Description

Units

Results

Mining

US$/t

 87

Processing

US$/t

 30

General and Administration

US$/t

 10

Total

US$/t

 127

 

The Scoping Study assumes the use of a mining contractor for the open pits given their short mine life. Shanta adopts a similar approach at NLGM. Underground mining costs (capital and operating) incorporate Shanta's actual costs from Long Hole Open Stoping mining method at NLGM in Tanzania.

 

Following upfront pre-production works, US$87 m of further mine development costs will be required for the remaining duration of the life of mine. The expected profile of this capital spend is weighed towards the early years of production, tapering off towards the end of the current mine life. An additional annual provision of US$2 m has also been made for other sustaining capital.

 

Table 7 - Mining Productivity Assumptions

 

Activity

Productivity

Development

 

Decline and stockpiles

90 m /month

Service drives

60 m /month

Level access

60 m /month

Ore drives

60 m /month

 

 

Stoping

 

Stope drilling

300 dm /day

Stope mining rate

1000 t /day

Fill preparation

5 days

Back filling

1000 t /day

 

 

Financial Profile

 

The following Table summarizes key financial estimates derived in the Project's Scoping Study following application of the planned operating parameters outlined above.

 

Table 8 - Key Financial Estimates1

 

Units

LOM Total

Gold Revenue

 

 

   Gold Price

US$/oz

1,700

   Gold Sales

koz

949

   Gold Sales Revenue

US$m

1,614

 

 

 

Operating Costs

 

 

   Mining

US$m

302

   Processing

US$m

104

   Royalties & Selling

US$m

113

   G&A and Other

US$m

35

   Total Operating Costs

US$m

553

 

 

 

EBITDA

US$m

1,061

 

 

 

Capital (including sustaining capital)

 

 

   Mining

US$m

141

   Processing

US$m

63

   Infrastructure

US$m

32

   Sustaining2

US$m

18

   Other

US$m

12

   Total Capital (Life of Mine)

US$m

266

 

 

 

Project Valuation

 

 

   Project Net Cash Flow, pre-tax

US$m

795

   Project Net Cash Flow, post-tax

US$m

531

   Post-tax NPV8%

US$m

340

   IRR

%

110

 

Note 1: Figures may not total exactly due to rounding

Note 2: Excludes underground development costs, included within Mining Capital

 

It is anticipated that the first corporate tax charge for the Project will become payable in the first year of gold production.

 

 

Value Sensitivity

 

Table 9 - Post Tax NPV8% Sensitivity

 

Variance

Capex

Opex

Revenue

(40%)

412

424

51

(35%)

403

413

87

(30%)

394

403

123

(25%)

385

392

159

(20%)

376

382

195

(15%)

367

371

231

(10%)

358

361

268

(5%)

349

350

304

0%

340

340

340

5%

331

329

376

10%

322

319

412

15%

313

308

448

20%

303

298

484

25%

294

287

520

30%

285

277

556

35%

276

266

592

40%

267

255

628

 

Table 10 - Post Tax NPV8% Sensitivity to Gold Price

 

Gold Price
(US$/oz)

NPV8%
(US$m)

1,200

127

1,250

149

1,300

170

1,350

191

1,400

212

1,450

234

1,500

255

1,550

276

1,600

297

1,650

318

1,700

340

1,750

361

1,800

382

1,850

403

1,900

425

1,950

446

2,000

467

 

Table 11 - Post Tax NPV8% Sensitivity to Discount Rate

 

Gold price

Discount rates

0%

6%

8%

10%

US$1,500 /oz

412

286

255

227

US$1,600 /oz

472

332

297

267

US$1,700 /oz

531

378

340

306

US$1,800 /oz

591

424

382

345

US$1,900 /oz

650

470

425

385

US$2,000 /oz

710

516

467

424

 

Table 12 - IRR sensitivity to Gold Price (%)

 

Gold price

IRR (%)

US$1,500 /oz

73

US$1,600 /oz

90

US$1,700 /oz

110

US$1,800 /oz

135

US$1,900 /oz

166

US$2,000 /oz

208

 

 

Production Schedule

 

Annual production for the first nine years is expected to average 105,000 oz. A cut-off grade for underground LHOS of 3.6 g/t has been assumed for each of the Deposits.

 

The Table below details the forecast mining schedule over an anticipated initial nine-year mine life. Engineered pit designs and underground mining inventory have been developed based on a long-term gold price of US$1,300 /oz.

 

Table 13 - Production Schedule by Deposit
 

Description

Units

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

LOM Total

UG Mining

 

 

 

 

 

 

 

 

 

 

 

ROM Tonnes

kt

29

252

381

396

414

429

394

388

403

3,086

ROM Content

koz

8

73

98

113

116

125

109

114

123

877

ROM Grade

g/t

8.03

9.05

7.95

8.84

8.69

9.06

8.64

9.11

9.47

8.84

 

 

 

 

 

 

 

 

 

 

 

 

OP Mining

 

 

 

 

 

 

 

 

 

 

 

ROM Tonnes

kt

101

263

-

-

-

-

-

-

-

364

ROM Content

koz

105

50

-

-

-

-

-

-

-

155

ROM Grade

g/t

32.26

5.93

-

-

-

-

-

-

-

13.21

 

 

 

 

 

 

 

 

 

 

 

 

Total Mining

 

 

 

 

 

 

 

 

 

 

 

ROM Tonnes

kt

130

515

381

396

414

429

394

388

403

3,450

ROM Content

koz

112

123

98

113

116

125

109

114

123

1,032

ROM Grade

g/t

26.83

7.45

7.95

8.84

8.69

9.06

8.64

9.11

9.47

9.30

 

 

 

 

 

 

 

 

 

 

 

 

Stockpiling

 

 

 

 

 

 

 

 

 

 

 

Opening Balance

kt

-

-

35

-

-

-

-

-

-

 

 

koz

-

-

8

-

-

-

-

-

-

 

 

g/t

-

-

7.45

-

-

-

-

-

-

 

Tonnes Available

kt

130

515

416

396

414

429

394

388

403

 

 

koz

112

123

106

113

116

125

109

114

123

 

 

g/t

26.83

7.45

7.91

8.84

8.69

9.06

8.64

9.11

9.47

 

Tonnes Processed

kt

130

480

416

396

414

429

394

388

403

 

 

koz

112

115

106

113

116

125

109

114

123

 

 

g/t

26.83

7.45

7.91

8.84

8.69

9.06

8.64

9.11

9.47

 

Closing Balance

kt

-

35

-

-

-

-

-

-

-

 

 

koz

-

8

-

-

-

-

-

-

-

 

 

g/t

-

7.45

-

-

-

-

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

 

 

 

 

 

 

 

 

 

 

Capacity

ktpa

480

480

480

480

480

480

480

480

480

480

Milled Tonnes

kt

130

480

416

396

414

429

394

388

403

3,450

Milled Content

koz

112

115

106

113

116

125

109

114

123

1,032

Milled Grade

g/t

26.83

7.45

7.91

8.84

8.69

9.06

8.64

9.11

9.47

9.30

Process Recovery

%

92.0

92.0

92.0

92.0

92.0

92.0

92.0

92.0

92.0

92.0

Recovered Content

koz

103

106

97

104

106

115

101

105

113

949

 

 

Completed Test Work

 

The Table below summarises work completed by independent consultants contributing to the inputs for information used in the Scoping Study.

 

Consultant

Area of Focus

Bara Consulting

Scoping Study Review and cash flow modelling

C. Pitman - Adiuvare Geology & Engineering

Mineral resource estimate

ALS Global

Metallurgical test work

SGS Laboratories

Metallurgical test work

Lycopodium Minerals

Process engineering and infrastructure

Rescology

Permitting, baseline, environment

Knight Piesold

Tailings and waste rock management, surface water management

MineScope Services

Scoping Study management

 

 

Future work required

 

More detailed study work will be required in order to complete engineering design to a higher confidence level, prior to the Project being ready for a construction decision.

 

The majority of future work required, from a cost perspective, will comprise infill drilling, ultimately designed to convert existing resources into proven or probable reserves. Various additional technical evaluations and assessments are also required for feasibility studies to be completed at the Project. These will include, but are not limited to, the following:

 

·    Formal geotechnical evaluation and design;

·    Additional metallurgical testwork, required to enable design of the process flow sheet in more detail;

·    Early work on the source of bulk water and bulk power;

·    Ground water study and mine groundwater model; and,

·    Work on any specialist environmental and social baseline studies.

 

The Company anticipates that works required to progress the Project to a construction decision will cost US$24-30 m. This additional work, including delineating the size of the orebody and progressing an updated mineral resource estimate, could take up to 36 months to complete.

 

 

ENDS

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