Asante Gold (CVE:ASE) has several stock-jumping catalysts ahead this year after recently signing a definitive option agreement for the Kubi gold project in Ghana, where it is planning to launch a high grade mining operation in short order.
The company signed a deal, subject to final closing, with Goknet Mining Company Limited to earn up to 100 percent of the project, which is located near two major mills between AngloGold Ashanti’s 60 million ounce Obuasi mine and Perseus Mining’s 6 million ounce Edikan property.
Under the terms of the deal --- which comes after a cancelled royalty arrangement on the Obotan deposit last year --- Asante can earn a 50 percent stake in Kubi Gold, which owns the mining leases, in exchange for issuing to Goknet 2 million shares. It must also pay US$2 million within four months of closing and provide a total of US$15 million in funding within two years.
Asante can then choose, in two separate stages, to bolster its stake to 75 percent and to 100 percent, by issuing more shares or by paying additional cash.
The current NI 43-101 compliant resource on the property, which sits 4 km off a main highway, stands at 350,000 ounces at a diluted grade of 5.5 grams per tonne (g/t), based on extensive drilling done up until the late 1990s. The company estimates that over US$30 million in exploration and development work was carried out at Kubi since the mid-1980s.
Specifically, Asante says it will target the 8 to 10 g/t gold plus “steeply plunging gold mineralized shoots” indicated from the previous drilling for early development, via a decline from a previously mined pit.
“In the current gold market and with those types of grades, and considering the fact that we don’t need to build a mill, we expect to be able to put [the operation] together,” says chief executive officer Douglas MacQuarrie.
The CEO says Kubi Gold has already hired a lead mining engineering firm in Canada to produce a pre-feasibility study (PFS) to mine Kubi, and has selected Mining and Building Contractors (MBC) as the lead contractor based in Ghana, a company which was the main underground development contractor at the Obuasi mine from 1921 through to 2012.
“We’re talking to MBC to get firm numbers for the PFS, and very soon we expect to have a preliminary cash flow model,” MacQuarrie adds.
The company’s next order of business is to negotiate a toll milling contract with one of the nearby mills, which will assist Asante to secure about $20 million in an operating line of credit to fund the development of the Kubi operation.
“Discussions are going well. It will be mutually beneficial for these mills, as we reduce our capex by circa $30 million and our timeline to production by one year, while the mills will secure an additional profit centre in a tough gold market. We both look like heroes,” explains MacQuarrie.
“The bottom line is that a four year toll milling contract would be worth US$140 million assuming current gold prices and circa 30,000 ounces of gold produced every year for four years. If we can get that contract, and the US$20 million credit line, it will be a complete no brainer [for investors],” he says.
Even better, the company’s current market cap is under $2 million, with the stock trading at 10 cents. MacQuarrie believes that if all goes according to plan and the company can start shipping, investors will soon realize the stock is worth much more than this.
MacQuarrie, who has worked in Ghana for over 20 years and includes in his successes building PMI Gold’s assets in the country to over 5 million ounces, is betting on this, as he is Asante’s biggest believer and the single largest shareholder, holding 22 percent.
After the toll milling and credit line arrangements are wrapped up, Kubi Gold will look to undertake permitting for development. The property is already a mining lease with 13 years remaining, and is renewable. Further permits from the Mines Department, the EPA and forestry allowances are also necessary. “Given that it’s a brownfield site and we are proposing an underground operation utilizing mainly local Ghanaian miners and contractors, we don’t ascertain any problems with this,” affirms the CEO.
The project is, after all, located just a 15 minute drive north of the town of Dunkwa, a main regional supply centre, and 15 km south of AngloGold’s Obuasi mine --- a major mining centre for more than 115 years.
Once the permits and funding are in order, operations could start within one year, with a steady stream of cash flow to support the business. Right now, MacQuarrie says Asante is funded by shareholders on a private basis, a strategic move to avoid tough market conditions for equity offerings, which would have overly diluted shareholders.
“The key thing [at Kubi] is it has been previously surface mined by AngloGold Ashanti and there are strong indications of high underground grades of up to 40 grams per tonne. We believe we can outline high grade areas that can permit early payback and throw off a lot of cash,” says the CEO.
More importantly, MacQuarrie believes that this high grade, low cost mine model can be used to grow the company with other acquisitions, developing similar “high grade, high margin” mines.
“The Obuasi mine to the north of us is developed to 2,500 metres below surface, and our current mineral resource drilling is only 300 to 400 metres below surface,” he adds, suggesting the Kubi property also has enormous exploration potential.
Upside or not, the high grade mining operation planned for Kubi is expected to generate some significant cash flow for Asante within the next year.