Katoro Gold plc (Incorporated in England and Wales)
(Registration Number: 9306219)
Share code on AIM: KAT
(“Katoro” or “the Company”)
07 May 2020
Katoro Gold plc (‘Katoro’ or the ‘Company’)
BLYVOOR GOLD PRODUCTION JV – SCOPING STUDY RESULTS
Katoro Gold plc (AIM: KAT), the AIM listed gold and nickel exploration and development company, is pleased to announce the results of the scoping study (the ‘Study’) completed in respect of the Company’s Blyvoor near term gold production opportunity (the ‘Project’).
· The Study demonstrated an unlevered Project Net Present Value (‘NPV5’) of US$131million, a 25% Internal Rate of Return (‘IRR’) and a Return on Investment (‘ROI’) of 260%
· Mine life of 25 years building to a production capacity of 500,000 tons per month and 35,000 ounces of gold production per annum. Overall production of 661,171 ounces of gold over the 25 years, generating revenue of US$992m
· Low cost operation with an estimated All-in Sustaining Cost (‘AISC’) of US$727 per ounce of gold and an All-in Cost (‘AIC’) of US$920 per ounce of gold. Total Project capital costs of US$110m across the life of the Project, with peak funding requirement of US$36.4m
· The Study utilised a gold price of US$1,500 per ounce compared to the current price of c. US$1,700 per ounce
· Based on the current data available, Minxcon has estimated the potential Mineral Resource at the Project which is used in the Study to be 1,290,000 ounces of gold with 277,000 ounces in the Measured and Indicated categories and 1,013,000 ounces in the Inferred category
· Following rigorous independent evaluation and assessment the Project demonstrates robust technical and economic viability
Louis Coetzee, Executive Chairman of Katoro, said:
“When Katoro signed the Project agreement in January 2020 we believed the Project represented a unique opportunity for near-term gold production and potentially considerable financial returns.
“We were keen to subject the Project to thorough independent validation, and the completion of the scoping study was an important step in that process with pleasing results.
“The Study (Preliminary Economic Assessment) results announced today have exceeded the board’s expectations and importantly back our initial confidence by demonstrating the robust technical and economic viability of the Project.
“The Study has highlighted areas where, in the build up to production, we can add further technical and economic value, and has confirmed that sufficient historical work has already been undertaken to allow the Project to immediately progress to the definitive feasibility stage.
“A detailed review of the Study is now underway and a further update to the market will be provided in due course considering the findings in detail and outlining the next steps in project development, including with regard to project level financing negotiations.”
On 30 January 2020 Katoro entered into a binding conditional agreement to form a 50/50 unincorporated joint venture (‘JV’) with Blyvoor Gold Operations (Pty) Ltd (‘Blyvoor’) and its holding company, Target Mine Consulting (Pty) Ltd (‘Target’). Katoro and Blyvoor are together, the JV Partners.
Blyvoor has the necessary mining licence, environmental impact assessment (‘EIA’) and supporting approvals in place to commence operations once funding has been secured and plant construction completed. The life of the “New Order Mining Right” is thirty years, renewable in 2047, and the EIA (approved in 2000) was updated in 2017 to reflect the proposed mining process for the tailings dam.
SCOPING STUDY RATIONALE:
Minxcon (Pty) Ltd (‘Minxcon’) was mandated by Blyvoor Gold Operations (Pty) Ltd – on behalf of the JV Partners – to complete a Scoping Study on the Blyvoor Gold Tailings Retreatment Project situated in Carletonville, South Africa to independently assess and evaluate all historical technical studies and development work that has been done in terms of the Blyvoor tailings facilities, to amongst others provide an opinion on:
· Whether the historic technical work done is adequate in scope and standard to immediately proceed with a definitive / bankable feasibility study; and
· Economic, technical and operational feasibility of the Blyvoor gold tailings retreatment project
Blyvoor had completed a number of studies in developing the project. Minxcon was mandated to review, optimise and collate these into a single scoping study (Preliminary Economic Assessment) on the TSF retreatment project.
SCOPING STUDY KEY OUTCOMES:
Scoping Study Element
The Study demonstrated an unlevered Project Net Present Value (‘NPV5’) of US$131million, a 25% Internal Rate of Return (‘IRR’) and Return on Investment of 260%.
Total estimated free cash flow of US$267.4m across the life of the Project.
Note – The study utilised:
· A constant exchange rate of ZAR 17/USD over life of project, compared to the current exchange rate of c. ZAR 18.85/USD.
· A constant gold price of US$1,500 per ounce over life of project, compared to the current price of c. US$1,700 per ounce.
Operational Costs/Gold Price
The Project has an All-in Sustaining Cost (‘AISC’) of US$727 per ounce of gold and an All-in Cost (‘AIC’) of US$920 per ounce of gold.
It was assumed that the plant will be owner-operated while tailings deposition will be completed by a contractor.
Mine Life/Production Level
Mine life of 25 years, with mining and processing planned to take place at 250,000 tons per month for the first 36 months, building to a production capacity of 500,000 tons per month and 35,000 ounces of gold production per annum.
Overall production estimated at 661,171 ounces of gold over 25 years generating revenue of ZAR16.86 billion (c. US$991.7million).
Timeline to first production still achievable within 18 months.
A total of 18 months was allowed in the Study to complete the drilling, Mineral Resource updates, Feasibility Study as well as plant and infrastructure designs, manufacturing and construction before production ramp up to 250,000 tons per month.
Project Capital Expenditure
Total project capital costs of US$110m across the Project, with a peak funding requirement of US$36.4million and a payback period of 5.3 years from the start of production.
Further feasibility work is required to complete trade-offs to determine the optimal processing and mining method. The optimum option would then require more detailed designs and capital costing. This would be completed as part of a Definitive Feasibility Study.
Potential Mineral Resource
Based on the current data available, Minxcon has estimated the potential Mineral Resource at the Project which is used in the Study to be 1,290,000 ounces of gold with 277,000 ounces in the Measured and Indicated categories and 1,013,000 ounces in the Inferred category.
Minxcon has restated the Mineral Resource based on the findings of the review in terms of the volume reconciliation, estimation or declared grade reconciliation with average grade of the dataset; and Mineral Resource categories based on drill hole spacing, estimation ranges and data quality. This Potential Mineral Resource is stated at a zero-cut-off grade. This Mineral Resource is Minxcon’s view of what the Mineral Resource may be if the Tailing Storage Facilities (‘TSF’) are re-estimated under latest JORC standards and requirements.
In parallel to the completion of the Definitive Feasibility Study further drilling and Resource upgrade work will be undertaken to enable declaration of Probable Reserves.
Grade and Recovery
For the purpose of the Study, and calculation of Net Present Value, an average recovery of 52% at a fixed residual gold grade of 0.14 g/t over the life of the Project has been used, with recoveries ranging between 50% and 62% over the various TSF’s.
Progress to Definitive Feasibility Study
Adequate work with high enough confidence done historically to allow immediate progression to Definitive Feasibility Study.
Scoping Study found the Blyvoor Gold Tailings project to be robust in terms of technical and economic viability.
Detailed review of the Study findings and determination of next steps including forward work programme and operational timeline.
Continuation of project level financing discussions utilising the Study data as the basis for finalisation of commercial agreements with finance provider(s).
Important Information for Shareholders
Katoro shareholders should note that there is no certainty that the Project Funding will be secured for the construction and commissioning of a plant to reprocess material from the Tailings. In the event that the Project Funding is not secured, the conditions of the Agreement will not have been satisfied and the JV will not be formed, meaning that the Company will have no interest in the JV and/or the Tailings. Katoro shareholders should also note that in such an instance, whilst the Loan would become repayable by the JV Partners pursuant to the terms of the Agreement, there is no guarantee that the Loan will be repaid in full or if it is repaid, will be repaid in a timely manner.
Katoro shareholders should be aware that there is no certainty that the projected returns set out above for the Project will be achieved, as there is no certainty that the Project Funding will be secured. The returns to Katoro will also be affected by the structure of the Project Funding, which the Board currently expect to be fully funded by debt. The Project Funding terms will affect how economical the Project is to the Katoro shareholders. In addition, if the Project Funding is in the form of a mixture of debt and equity, as opposed to just debt as currently proposed by the Board, it could potentially lead thereto that the Parties interest in the JV could be diluted.
Also, there can be no guarantee that in the event that the Tailings are reprocessed, that the projected production and/or recovery rates will be achieved, or that the targeted 500,00tpm of material within three years will be achieved, which could result in lower returns and which may require additional funding to be secured.
Unless defined specifically in this announcement, terms in this announcement will have the same meaning as defined in the Company announcement of 30 January 2020.
This announcement contains inside information as stipulated under the Market Abuse Regulations (EU) no. 596/2014.
For further information please visit www.katorogold.com or contact:
Katoro Gold plc
+44 (0) 20 3440 6800
RFC Ambrian Limited
+44 (0) 1483 413 500
SI Capital Ltd
Isabel de Salis
+44 (0) 20 7236 1177
St Brides Partners Ltd
Investor and Media Relations Adviser