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Gold miner eyes profit even at low metal prices
Hummingbird Resources (HUM:AIM) is confident it can make a decent profit even if gold falls to $1,100 per ounce, as was threatened in late 2016. The miner estimates its all-in costs for running the Yanfolila gold mine in Mali will be in the region of $695 for every ounce of gold it produces.
The gold price fell by nearly 20% between August and December 2016 to a low of $1,126 per ounce – effectively wiping out all the gains made earlier that year.
Although gold has since recovered to approximately $1,200, investors are understandably nervous about backing gold miners if they can only make a small profit.
Investors need to ensure they are being fully compensated for the risks involved with putting money in the mining sector.
When will Hummingbird start mining?
Hummingbird is approaching the halfway mark with development of Yanfolila. It hopes to be in production by the end of 2017.
It is expects to start pre-production mining in August to build up a stockpile of material; start testing the processing equipment in the fourth quarter of the year; and reach commercial production levels in March 2018.
It could potentially generate $50m to $60m in cash in the first full year of commercial production. That equates to 50% to 60% of its current market value ($100m or £82m). It starts to repay the bulk of debt used to build the mine from September 2018.
The miner expects to produce 132,000 ounces of gold in the first year and have 107,000 ounces average annual production over the seven-year life of the mine.
How can it mine for longer?
Hummingbird’s challenge is to find more gold to extend the mine life. It cannot afford to do more exploration drilling until Yanfolila starts generating cash from operations. Once it reaches this milestone, the miner plans to recommence
drilling at a satellite deposit 5km from Yanfolila called Gonka.
The miner tells Shares that Gonka could potentially contribute an additional 30,000 ounces a year of gold-rich material to be processed at Yanfolila. ‘If we started drilling in Q1 or Q2 next year, within 18 months we could be processing this material,’ it says.
Interestingly, Gonka has higher grade gold than Yanfolila’s main deposit once you go deeper into the ground.
Theoretically Hummingbird could produce even more than 107,000 ounces a year (on average) if the processing plant is being fed higher grade material, as there would be more gold contained within the rock. (DC)