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African Barrick Gold: Bulyanhulu Upper East Project gets go ahead?

Contributed by Fox-Davies Capital

African Barrick Gold ("ABG") has announced the expansion of the Bulyanhulu Upper East Project to incorporate Reef 2, in addition to Reef 1. The Board has given approval to begin the ordering of certain long lead items, with production targeted to commence in Q4 2013.

This is positive news for ABG. The plan is to bring forward the mining of around 2m oz of gold by a number of years and produce an extra 90k oz of gold per year and produce gold cheaper than the current cash costs. Most of the estimated pre-production capex of $99M will be spent on underground development and equipment with very little used to upgrade the plant. Life of mine capex is forecast at $379M.

The additional production will amount to 90k oz pa at an operating cost of $164.2/t and a total cash cost of $608/oz. This is based on a recovery of 95% following the recent approval of the CIL expansion project. Initial production is expected to commence in Q4 2013 and take around 2 years to ramp up to full production. The lower costs than the current costs are due to the shallower depth of the ore and the higher recoveries.

The Operation will be run as a separate mine. To ensure good productivity, a trial stope will be established in 6 weeks' time to train up crews in the mining methods to be used. Reef one will use underhand captive cut and fill and reef 2 will use primary/secondary sub level long hole drilling.

The first phase of the work includes ordering the long lead mining development suit of equipment, completing the test stope on Reef 1, completion of the pre-feasibility and feasibility study in Reef 2, and post Board approval, development is expected to commence in H1 2013 utilising the dewatered and rehabilitated 1.8km decline.

Phase 2 commences in early 2014 and comprises a box cut over the shallow portion of the Upper east Zone and driving a decline into the underground to open up the shallower reserves on reefs 1 and 2.