Amara targets higher grades with Sega PEA

VANCOUVER — West African gold producer Amara Mining (AMZ-T, AMA-L) — formerly Cluffs Gold — is hoping to breathe new life into its 78%-owned Kalsaka gold operation 150km northwest of Burkina Faso’s capital, Ouagadougou.

On Oct. 16 the company released a preliminary economic assessment (PEA) on its Sega gold property, which is a satellite deposit located 20 km north of the Kalsaka mine. Amara’s PEA confirms the “potential viability” of trucking oxide and transitional material from Sega to the company’s existing heap-leach operation for processing.

Amara acquired Sega for US$29.6 million from Canadian explorer Orezone Gold (ORE-T) in February. The 313-sq.km Sega land package offers exploration upside, as well as an existing indicated resource totalling 4.9 million tonnes grading 1.69 grams gold per tonne for 450,370 contained oz. Included in the indicated category is 3.3 million tonnes of oxide material averaging 1.67 grams gold for 176,000 contained oz.

Amara notes that though the grades appear similar to Kalsaka’s existing in-pit reserves at first glance, there is actually a higher-grade core of mineralization at Sega — averaging roughly 2 grams gold — that is expected to provide an economic boost during early-stage production.

Kalsaka holds proven and probable reserves totalling 1.7 million tonnes grading 1.5 grams gold for 82,000 contained oz.

“The delivery of the Sega PEA is a key step in ensuring that cash flow is maintained at our producing mine,” commented chief executive officer Peter Spivey, who noted that the geographic proximity to the company’s existing plant will allow it to extend Kalsaka’s life by nearly two years with limited capital investment. “[We are] committed to a strategy of using cash flows to develop [our] growth assets, providing flexibility as [we] grow into a mid-tier producer.”

According to Amara’s PEA the expansion at Sega would carry capital costs totalling US$9.5 million. Over half of that capital will be required to install a crushing plant on site, as well as necessary mining capital that includes the construction of a haul road.

Under Sega’s open-pit design 2.5 million tonnes would be mined at a head grade of 2 grams gold for 162,825 contained oz. The operation would produce 17.3 million tonnes of waste with a strip ratio of 6.8 to 1 and cash costs totalling $2.59 per tonne.

At a US$1,500 per oz. gold price Sega will carry a 48% internal rate of return and US$49.5 million net present value at a 10% discount rate. Cash costs would clock in at US$821 per oz. before royalties, and the company expects roughly US$59 million in post-tax cash flow from the operation.

Orezone completed metallurgical test work on Sega before the sale was finalized in late May. According to results, Sega’s ore is non-refractory and returned an overall recovery of 87% for oxide material and 70% for transitional material. Amara reasons the results indicate Sega contains comparable mill feed to its existing resource, and it should be able to maintain a 1.6-million-tonnes-per-annum throughput rate at Kalsaka’s processing plant.

Amara hopes to start trucking ore from Sega in the first half of 2013. The company is planning on submitting its permit applications by the end of October, and has already received “verbal authorization” from the Burkina Faso government to begin infrastructure work in advance of its final mining licence. Amara plans on starting up construction on the haul road, on-site crushing facility, and upgraded power plant by the end of the year.

In addition, Amara released results from roughly 19,000 metres of reverse-circulation drilling at Sega, with significant intercepts reported from the Touli, Sampella,and Bangassila prospects.

At Touli the company cut 26 metres grading 3.05 grams gold from 8 metres depth in hole SRB0232, and 18 metres averaging 3.49 grams gold from 18 metres in hole SRB0290. Results at Sampella were highlighted by 5 metres grading 3.48 grams gold in hole SRC0052, while Bangassila returned 4 metres carrying 2.07 grams gold in hole SRC0083.

Exploration is also ongoing at Kalsaka with a resource update expected by the end of the year, with efforts focused on areas east of the existing K-zone pits along the K-zone structure.

“The exploration results received from the Kalsaka-Sega complex have confirmed that there is significant upside resource potential,” commented Spivey.

Amara is planning on using cash flow from its Burkina Faso operations as fuel for a development pipeline that includes its flagship Baomahun gold project in Sierra Leone, which holds 25.6 indicated tonnes grading 2.5 grams gold for 2.07 million contained oz. The company received its environmental permits for the project in April, and is close to completing a feasibility study on a 2-million-tonnes-per-annum, carbon-in-leach operation that would produce an average of 130,000 oz. gold annually over an eight-year mine life.

The company is on track to produce between 60,000 oz. and 70,000 oz. of gold this year, and held US$28.8 million in cash and liquid assets at the end of June. Amara has 161 million shares outstanding and a $195 million press-time market capitalization after closing the day at $1.21 per share.