Contango Holdings Plc, the London listed natural resource development company, has acquired the Garalo Gold Project in Mali for US$1-million. The acquisition of Garalo, which is expected to commence gold production in H2 2021, further advances the company’s strategy of acquiring defined assets with near-term production potential and modest capital requirements.
In conjunction with the acquisition, the company has raised £1,8-million (before expenses) through an oversubscribed placing of 36 000 000 new ordinary shares of GBP0.01 each at a price of 5 pence per placing share. The placing was undertaken by its broker Brandon Hill Capital Limited and is expected to provide sufficient funds to bring Garalo into production in H2 2021.
The Garalo permit occupies 62,5 km² in the Sikasso region of southern Mali, 200 km south-east of the capital Bamako and close to the Guinea border. The permit is surrounded by a number of multi-million ounce gold deposits and the region is home to some of the world’s leading gold miners, including AngloGold Ashanti, IAMGOLD, Barrick, B2 Gold, Endeavour Mining and Hummingbird Resources, which has helped to establish Mali as the third largest gold producer in Africa.
Contango has secured an agreement to acquire Garalo for US$1-million, of which US$100 000 has already been paid to the vendor, who will retain an initial 25%. The vendor’s interest is not free carried and will dilute in the event the vendor does not provide his pro rata contribution to the development of Garalo.
The balance of the acquisition cost, being US$900 000, falls due in February 2021, following conformational exploration work to be undertaken by Contango in the period. It should be noted the deposit has been known to certain members of the Contango team since 2015 and the company does not foresee any discrepancy with historical data reviewed to date.
Garalo is an advanced discovery and has a non-independent resource of 320 Koz Au at an average grade of 1,5 g/t across three dominant structural trends. Garalo has been subject to the following work to date: regolith mapping and interpretation; soil geochemistry; airborne magnetic and radiometric surveys; and over 900 drill holes, which have returned grades of up to 43 g/t.
To date the drilling programme has focused on the G1A and G3 targets, which cover a relatively small footprint of the licence and remain open along strike, indicating further resource upside. With the planned exploration work to be undertaken by Contango over the coming months, the company expects to be in a position to reclassify the resource to JORC standards in 2021, in conjunction with an anticipated increase in resource ounces. However, given the attractiveness and robust nature of the economics and drilling undertaken to date, the company intends to trigger construction ahead of this to enable first production in H2 2021.
Given the excellent infrastructure in the vicinity, historical exploration and the deposit’s surface location, the company believes the mine can be brought into production in H2 2021 for a capital cost of just US$1,2-million. This will enable initial production of circa 10 000 oz of gold per annum through an oxide plant, with further capital required for subsequent production from the sulphides.
The company is also looking at the potential of sourcing a further US$4-million through non-equity capital providers, which would enable it to increase production to a rate of 30 000 oz per annum. Discussions are underway with regional banks, well versed in the gold industry, as well as providers of royalties and the company is optimistic it will have sourced this additional funding, without any dilution at the plc level, to enable a larger project and significantly enhanced economics by the time construction is scheduled to start in Q1 2021.
At current gold prices of circa US$1 900, the company’s mine planning and block modelling studies suggest that margins on production would exceed US$1 000/oz (at the 10 000 oz per annum production level). Consequently, the Board believes this would result in a potential EBIT figure of circa US$1-million per month from Garalo. In the event a larger 30 000 oz per annum mine was constructed, the average cost per ounce of production would reduce further, thereby increasing the margins and associated EBIT figures.
Carl Esprey, executive director of Contango Holdings, says: “I am delighted to confirm the acquisition of Garalo for just US$1-million. It is a deposit both myself and our newly appointed in-country mine manager have known for some time and I am confident it is an ideal fit within the Contango portfolio, which is focused on low capex, high margin, near term production assets.
“Once Garalo is in production, there should be a significant opportunity to acquire similar projects nearby, which have typically been overlooked by the larger operating companies in the region that are developing multi-million ounce deposits. This, coupled with the prospectivity that remains unexplored at Garalo, should in due course ensure a significant boost to reserves and mine life, which already stands at over 10 years.
“At a stabilised base case of 10 000 oz per annum, we would expect the Garalo deposit to generate circa US$1-million of EBIT per month. In the event we are able to increase the production rate to 30 000 oz per annum, there would be a further material increase in earnings.
“In Zimbabwe we recently reported two LOIs for a combined 32 000 t per month from our Lubu coking coal project. As previously stated, we expect to move these to formal offtakes over the coming months, thereby enabling construction ahead of first production also in H2 2020. Discussions are ongoing with other interested parties with respect to additional LOIs and offtakes and we expect to provide a separate operational update to the market on Lubu later this quarter. If the Company is successful in converting the 32 000t per month under LOI, the Board believe additional earnings of circa US$1-million per month could be realised from Lubu based on current pricing discussions.”