AMN - BURKINA FASO: Avesoro signs Youga mining contract

Avesoro Resources subsidiaries Burkina Mining Company SA (BMC) and Netiana Mining Company SA (NMC) have entered into an open pit mining contract with Orkun Group Sarl for the Youga Gold Mine in Burkina Faso. This is based on the monthly excavation of between 800,000 to 900,000 bank cubic metres (BCM) of material, including a minimum 120,000 tonnes of ore delivered to the ROM pad.

Over the life of mine, the contract is based on the excavation of a minimum of 42 million BCM of material over the life of mine which can be increased, at the company’s option, to 60 million BCM on the same terms.

The contract price of excavation during the minimum TMM period is US$4.26 per BCM or about US$1.60 per tonne reducing to US$3.75 per BCM thereafter for the remainder of the contract.

Orkun will pay an earn-in fee of US$0.51 per BCM to acquire BMC’s existing heavy mining equipment (HME) fleet. This fee will be offset against the amounts invoiced by Orkun. Upon completion of the minimum TMM, ownership of BMC’s HME fleet will transfer to Orkun.

However, Orkun assumes full responsibility for the ongoing upkeep and maintenance of the HME from commencement of the contract.

Orkun has also committed to supplement the existing HME fleet with US$5 million of additional equipment at its own cost. This includes five excavators, 15 haul trucks and auxiliary equipment to ensure that the contracted material movement is achieved.

BMC and NMC retain responsibility for mining geology, planning and certain other costs which are included in the total cost of mining reported by the company.

Avesoro’s chief executive officer Serhan Umurhan said: “This contract will enable Avesoro to significantly reduce its future mining costs at Youga.

“Outsourcing the mining activity will also enable us to reduce our direct employee headcount and overall business complexity thereby reducing G&A costs.

"The responsibility for future fleet maintenance costs has also been transferred to Orkun, thereby significantly reducing the company’s 2019 funding shortfall that was announced on June 10, 2019.

"To achieve the material movement targets set out in the contract, Orkun will also supplement the existing Youga mining fleet with five additional excavators and 15 haul trucks at its own cost.

"This should ensure a minimum of 120,000 tonnes of ore is delivered to the ROM pad each month and that the Youga Processing Plant is maintained at full operating capacity.”

The prevailing gold price has strengthened considerably since the company’s funding shortfall announcement on June 10, 2019, averaging around US$1,385 per ounce since that date. If the gold price averages around $1,400 per ounce during H2 2019 the company, on its current production guidance, would generate around US$11 million more revenue from H2 2019 gold sales than was anticipated in the June 10, 2019 announcement.

Furthermore, under the terms of the mining contract with Orkun, the contractor assumes responsibility for all future mining fleet overhaul costs. As a result, the Company has reduced its expected H2 2019 capital expenditure requirement by around US$4 million.

Based on these assumptions the H2 2019 funding gap would reduce to US$10–15 million from the previous guidance of a shortfall of between US$25–30 million later in 2019.

The funding gap includes US$12.9 million of debt provided by a related party lender falling due for repayment in 2019. The company is holding constructive discussions with the related party about deferral of these debt repayments.

www.avesoro.com