Aureus Mining has now released its interim results for the year ending 2016.
Revenues increased when compared to the first half of last year with a $6.9M growth in gold bullion revenue and a $288K increase in concentrate revenue. Operating costs only increased by $1.9M with smaller increases in amortisation and depreciation to give a gross profit $3.8M higher. Admin expenses increased by $390K which meant that the operating profit was $3.4M higher than last time. We then see a $1.2M charge relating to the revaluation of warrants after the share price increased and there was a $494K finance cost on gold trading compared to a $174K gain last time. Tax charges increased by $556K to give a profit for the period of $1M, a growth of $929K year on year.
When compared to the end point of last year, total assets increased by $7.6M to $288.6M driven by a $9.2M growth in assets held under finance leases, a $6.4M increase in ore stockpiles, a $1.9M growth in consumables, a $1.6M increase in mine closure and rehabilitation and a $1.5M growth in Liberian evaluation costs, partially offset by a $7.8M decline in the value of mining and development properties, a $2.9M fall in cash and a $1.9M decrease in the value of gold in circuit. Total liabilities also increased during the period due to an $11.9M increase in promissory notes, a $3.2M growth in bank loans and a $4.4M increase in payables. The end result was a net tangible asset level of $98.4M, a decline of $13.1M over the past six months.
Before movements in working capital, cash losses widened by $2.5M to $4.6M. There was a large cash inflow from working capital, with a huge increase in payables, which meant that the cash from operations was $5.6M, a positive movement of $17M year on year. The group also received $14.8M in proceeds from pre-production gold sales but they spent $35.7M in property, plant and equipment to give a cash outflow of $16.1M before financing. After the issue of a promissory note which brought in $12.3M and $2.7M, which came from the issue of new shares, the cash outflow for the period was $2.9M to give a cash level of $4.2M at the period-end.
The additions to intangible assets included near mine exploration at New Liberty, Silver Hills, Cape Mount and Ndablama. Capex included $1.2M of deferred stripping costs, $800K of water diversion works, $200K of construction works at the RAP village, $300K for lifter bars and grates for the mill, and $100k for a new larger sized gravity screen.
During Q2, the group mined 2,747,266 tonnes including 201,774 tonnes of ore at a grade of 3.58g/t. There was 99,438 tonnes of ore milled at a grade of 2.5g/t which produced 8,274 ounces of gold. The group sold 11,731 ounces of gold at an average price of $1,253 per ounce with operating cash costs of $1,287 per ounce before the shut-down.
Excavation work continued on the flood diversion trench and bund along the southern final pit limit to prepare for continuing mining operations throughout the wet season, with an additional 259,501 tonnes of material moved during the quarter and leaving about 15,000 tonnes remaining. Mining operations continued to focus on the Kinjor and Larjor starter pits and opening access to fresh rock before the onset of the wet season.
During May, five new 100 tonne rigid haul trucks and one excavator were commissioned and added to the mining fleet. Despite this, mining activities throughout the period were hampered by low equipment availability, including poor drill rig availability affecting the rate of drilling and blasting ability. This had a knock on effect leading to a lack of broken ore stock ready for mining. A new drill rig and contractor rig arrived on sire in July to remedy this situation.
As previously reported, in May the group temporarily suspended processing operations at the mine as a consequence of operating problems with the detoxification circuit in the process plant. It had not been operating to original design specs and as a result, higher concentrations of Cyanide WAD were contained within the process effluent being discharged to the tailings storage facility. The onset of earlier than expected heavy rainfall in May inadvertently resulted in a small overflow of tailings effluent from the TSF onto the wetlands area.
As a result of the overflow, the process plant was shut down on May 7th and the group began conducting remediation work to rectify the issues in the detoxification circuit and to manage future water discharge from the TSF. Apparently there has been no adverse impact on any human settlement as the discharge took place some five km from the nearest settlement (whether water sources etc were contaminated is unclear).
During the suspension of processing operations the group focused on the completion of various modification to the process plant and detox circuit. Modifications included the optimisation of the performance of the gravity circuit, through to the replacement and installation of a new larger sized gravity screen which aims to separate and recover a higher proportion of gold and metal sulphides within the gravity circuit and increase the feed to the Falcon concentrator, a step which will reduce the level of metal sulphides reporting to the CIL and detox circuits of the process plant.
Additionally, adjustments were made to the pre-oxidation circuit to incorporate the addition of a further pre-oxidation tank to increase resistance time within the CIL circuit. The capacity of the pressure swing adsorption oxygen plant was increased to provide supplementary oxygen to both the CIL and detox circuits. The reagent dosing systems of the detox circuit were also redesigned and the optimisation of reagent consumption including copper sulphate and sodium metabishlphite within the circuit is ongoing following the restart of the process plant in July.
During the period of plant suspension the group also completed various preventative maintenance programmes including performing a full reline of the ball mill, which had previously been scheduled to take place at the end of June. This reline involved the mill being fitted with more heavy duty Weir-Polymet liners than those originally supplied as well as improved lifters and grates with the aim of improving mill liner life and reducing future mill downtime.
Alongside the process plant modifications the group developed a start-up plan to re-start processing operations as soon as the remedial actions on the detox circuit were completed. This plan was submitted to the relevant agencies. On June 6th they received a permit granting permission to restart discharges from the TSF which covers all discharge of TSF water into the wetlands, discharge from the wetlands and discharge outside of the mining lease. Additionally, approval to discharge existing water from the TSF was granted, which was started on the 9th. They received approval to start the plant restart process on June 17th.
The process plant restart procedure is currently underway and includes scheduled periods of plant downtime to allow for performance testing and further optimisation activities, and a gradual ramp-up in processing operations towards achieving plant name plate capacity of 146 tonnes of ROM ore per hour and steady state operations over a period of about two months. With the restart of the plant processing operations in July, it is expected that operating cash flows will fund the New Liberty Gold mine operations going forward.
During Q2, exploration activities focused on the near mine potential around New Liberty with pitting and regolith mapping undertaken around the Western portion of the Bea Mountain license which aimed to test major structures around the mine. Much of the soil sampling around the mine has been found to be in residual or depositional regimes and therefore pitting is needed to reach the saprolite sections. Pitting work has been undertaken in order to check underneath these regimes and sample representative saprolite. The focus of this work is along major and secondary structures identified by airborne geophysics.
The results from some of the pits along major structures have shown that there are several new targets with indicators of gold mineralisation which were not previously detected during soil sampling programmes. Further pitting is ongoing to follow this gold anomalism along with detailed field based geological mapping to constrain the anomalism, with the aims of finding concealed mineralisation along major and secondary structures close to the New Liberty plant site. Other areas of structural and regolith interest have been selected for detailed regolith and geological mapping throughout the rest of the year.
Throughout the quarter, pitting on additional soil anomalism was undertaken to the west of the Ndablama target to test additional areas of mineralisation which have not been previously identified. In Q2, mapping along the SW area of the Weaju project revealed the potential to increase the strike of mineralisation for a further 800m to the SW. Additional mapping and sampling will be completed to better define the surface expression of mineralisation.
Throughout the period, pitting work has been undertaken at Leopard Rock South to test the surface continuation of mineralisation following on from detailed mapping of the Ndablama project, the results of which will enable further follow up work in Q3. Pitting along the entire length of the Yambesei shear was continued in Q2 and has been completed over Gondoja, Musa and Gbalidee. Further follow up work will be completed later in the year once field activities recommence after the rainy season.
At Silver Hills, work focused along the strike of the Belgium target during the quarter with pitting and mapping exploration techniques undertaken along the strike extent of mineralisation. This is highlighted by a NE trending shear and has the potential to extend over 3km up to the Bruges target located in the NE. Detailed regolith mapping and pitting was undertaken during the quarter connecting the Belgium target to the Antwerp target, and locating several areas with subdued soils anomalism due to covering with ferricrete and residual soils. Channel samples highlighted the potential for high grade zones, associated with intense silicification along the strike of previously sampled areas.
During the quarter geological mapping covered the majority of the 15km Matambo gold corridor. The Bomafa, Bangoma and Saanor prospects were all mapped and sampled. Locating a main band of greenstone which underlies the soil anomalism with lithosamples confirming multiple bands of mineralisation at surface. Work on the area will continue after the rainy season on further testing the areas with identified mineralisation.
The group is still embroiled in the arbitration request from their civil and earthworks contractor. The board believes that the request is without merit and currently believe that no material amount will be found payable. They continue to defend themselves against the claims, however, which as can be seen is proving to be fairly costly.
Based on discussions and the support received to date, there is a reasonable expectation that an appropriate debt repayment schedule will be achieved but there can be no absolute certainty that the negotiations will be successful or that the company will be able to generate the necessary funds to repay the debt as it currently falls due. These conditions indicate the existence of a material uncertainty which may cast significant doubt about their ability to continue as a going concern and that the company may therefore be unable to realise their assets and liabilities in the normal course of business.
In June the group entered into an agreement for an equity financing with MNG Gold to strengthen the balance sheet and fund working capital as it completes the restart of the processing plant. They closed the initial tranche of the equity financing where they issued 59,533,674 new shares at a price of $0.045302 per share and a promissory note for the amount of $12.3M to MNG Gold, raising proceeds of $15M.
In July the company closed the final tranche of the equity fundraising where they issued 331,111,209 new shares at the same price, raising proceeds of $15M. Further, the promissory note converted into 271,577,546 shares upon closing of the final tranche. An aggregate of 662,222,429 shares have been issued which means that MNG Gold became a 55% shareholder of the company.
Following this transaction, the company received credit approval from their lenders for a four month default waiver and standstill agreement during which time the company will be will work with the lenders to reschedule the debt repayment profile. The waivers encompass all existing, as well as future breaches of the loan documentation that may occur during the standstill period, and a deferral by the lenders of all principal and interest payments during this time.
The group has submitted a number of mine plan scenarios at varying gold price levels to the lenders as the basis of discussions to mutually agree an appropriate debt repayment schedule which is expected to be concluded in October.
Going forward, the group remains committed to maintaining its listing on both the AIM and TSX markets but the immediate focus of the management team is to stabilise and then improve both operational and financial performance at the mine. The management team is currently undertaking a comprehensive review of the group’s cost base and following the completion of the operational and financial performance reviews and the achievement of steady state operations at New Liberty they intend to produce a new life of mine plan.
Notwithstanding the closing of the $30M equity financing transaction with MNG Gold in July, management believes that the company remains undercapitalised to deliver to its full potential and is likely to require further funding for capital investment activities. MGG Gold intends to be a long-term supportive shareholder for the company and fully expects to support them in any future funding endeavours that may arise from the conclusions of the ongoing performance reviews – it looks like there is some more dilution on the cards then.
Overall then this has been a very difficult period for the group. There was a gross loss even before the shut-down, net assets declined and although the operating cash flow improved, this was due to a delay in paying the payables and cash losses widened with a big cash outflow before financing. With a price received of $1,253 per ounce, the cash operating costs of $1,287 cause an obvious problem and when the shut-down from the cyanide leakage is also taken into consideration, the poor performance is clear.
After the recapitalisation from MNG gold, the finances are a little better but the debt is still at precarious levels and the board see further dilution is likely going forward. This really doesn’t look investment grade quite yet. Until the debt comes down further, I won’t be covering this anymore.
On the 6th September the group announced that the mining services contract with MonuRent has been novated to Atmaca Services, wholly owned by MNG, the group’s 55% shareholder. All other terms of the contract remain the same.
As part of the agreement with MonuRent, Atmaca will pay them cash of $15.4M to take ownership of the mining equipment, $7.1M cash for the inventory currently on site, $7.9M cash for invoiced receivables, about $2.5M for future uninvoiced receivables and $4.5M as a contract novation fee.
It is intended that upon completion of an equity fundraising by the company, which MNG Gold has agreed in principle to fully underwrite, the sale assets will be sold to the group at no gain or loss. They will also pay Atmaca a fee of $4.5M to terminate the contract. Management believes that the adoption of owner-operator mining will significantly reduce the ongoing costs of mining operations and improve the operational and financial flexibility of the company. This is certainly a good deal for MNG!
Following the restart of processing operations at New Liberty in June, the group continues to experience periods of unscheduled plant downtime. Average plant availability has been 66% over the past 65 days but better availability has been achieved in recent weeks. Plant modifications and optimisation activities continue with particular focus on optimising the ball mill grind size and also reagent consumption in the CIL and detox circuits of the process plant. Since the restart of processing operations to date, they have shipped about 8,100 ounces of gold.
The detox circuit has been operating at a stable level and performing to its design specs following recent modifications. All discharges from the TSF have been within permitted levels but the group is working in conjunction with consultants to modify the operation of the TSF, including using it as a source of plant make up water, to allow for an increased retention time for process effluent and more control over future discharges.