Canada Unearthed: The men who made Yamana are back targeting Africa’s golden riches

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Few companies have engineered a turnaround quite like the former Yamana Gold.

Launched onto the TSX in the mid-1990s, the miner was treading water 20 years ago after an ill-fated silver development.

Then it picked up a famous garimpeiro gold reserve in Brazil’s Carajas region and Peter Marrone came in as the president and CEO.

It quickly turned from a C$200 million tiddler to a multi-billion dollar player, exiting the market this year with a split US$4.8 billion deal to sell off the business’ assets to Agnico Eagle (TSX:AEM) and Pan American Silver (TSX:PAAS) after battle for control between the TSX players and South Africa’s Gold Fields and a history of returns to shareholders.

Having built up an enviable base of gold and silver mines in Canada and South America, Marrone’s latest play has a different flavour.

In September the former Yamana exec chair and the other principals of the former gold major took privately owned Allied Gold (TSX:AAUC) public in Toronto.

They just released their first set of quarterlies giving the market a taste of the growth plans to come from a portfolio of Pan African assets stretching from the familiar West African gold region to Ethiopia in the east.

It’s a portfolio Marrone thinks can push from an initial level of 350,000-360,000oz on an annual basis to over 800,000oz by the end of the decade.

Chasing growth in West Africa

Allied is down around 25% since its listing in September. But Marrone and Co. have highlighted an approved growth profile backed by a commitment to drilling and a transition from cheap oxide production at their mainstay Sadiola mine in Mali to fresh rock as it expands.

A first phase expansion will modify the processing plant to take in an increased amount of fresh ore, with a phase 2 expansion to build a new mill entirely dedicated to processing fresh rock.

Until that point though, Allied wants as much cheap oxide ore as it can to keep costs low and bolster cash flows.

To do that the miner has picked up the small scale Diba project 15km from Sadiola off Elemental Altus Royalties Corp (TSX-V:ELE). That will lift the asset’s production rate from 175,000-180,000oz in 2023 to over 230,000ozpa in 2024 and 2025, providing more ammunition to fund the development of the Kurmuk project in Ethiopia.

“Moving into 2024-2025, we’re gearing up for an increase in production driven by additional oxide ore sources and the Sadiola Phase 1 expansion with better grades, more oxide ore, lower costs,” Marrone told analysts on a conference call last week.

“This will enhance our EBITDA and cash flow. More detailed insights will follow once our inaugural budget process, which is in progress now, is completed and guidance is issued early next year.

“Kurmuk, as I mentioned, will materially increase production over the intermediate term, surpassing 600,000 ounces on an annualised basis from 2026 onward and looking further into the horizon, then the Sadiola Phase Two will take that production platform at least to 700,000 ounces per year and likely exceeding 800,000 ounces per year.”

Allied’s plan is to get all in sustaining costs below US$1000/oz, but it has a way to go to get there, producing 84,473oz of gold and selling 91,164oz at an all in sustaining cost of US$1546/oz in the September quarter. Allied absorbed a net loss of US$194.6m in the quarter, heavily impacted by transactions costs and exploration write offs.

The firm expects to lift output to over 100,000oz in the fourth quarter however, with its mines expected to deliver 375,000ozpa until those growth initiatives really kick off. Its board has already approved the US$500m Kurmuk development, which will eventually churn out 240,000ozpa over a decade at US$950/oz from its first gold pour in the June quarter of 2026.

US$61.6m has been committed to the first phase of the Sadiola expansion, with US$12m approved for the development of the Diba satellite pit.

Sadiola will ramp up from 230,000ozpa after its initial fresh rock expansion to 400,000ozpa for the first four years of its Phase 2 expansion and 300,000ozpa over a 19-year mine life.

Sadiola (ex-IAMGOLD and AngloGold Ashanti) produced 43,525oz in the September quarter, while the Bonikro mine (former Newmont) in Cote d’Ivoire was a strong performer, delivering 23,628oz at US$1220/oz. The Agbaou mine, also in Cote d’Ivoire and once owned by Endeavour Mining (TSX:EDV), produced 17,320oz at US$2051/oz.

Gold is currently fetching in the order of US$1940/oz.

Opened in 1996, the Sadiola gold field has produced 10Moz, while Bonikro and Agbaou sit in a 32km greenstone belt where around 5Moz has been found and mined historically.

But Australian exploration director Greg Winch said there was plenty more to be drilled.

“During Q3 we drilled circa 50,000m of drilling, which is a large number but is typical for the group to be drilling with 13 rigs, 24 hours a day for a quarter,” he said.

“That’s borne out by 128,000m we’ve already drilled.”

At 2.6Moz Kurmuk — “a brand new gold province” — Winch said there was as much as 1500km2 of exploration land surrounding the main 100km2 mining licence.

I prepared this one for you earlier

If Canadian investors want a sense of how Africa can deliver for gold miners, look no further than B2Gold (TSX:BTO).

BTO is trading at less than half its 2020 highs, an all time bull run in gold equities more generally.

But the C$5.4 billion miner is still up 78% since its founding in 2007.

It produced 242,838oz at an AISC of US$1272/oz in the September quarter, with gold production forecast to be between 1-1.08Moz in 2023 at the low end of guidance of US$1195-1255/oz. So far this year that key metric is tracking below guidance at US$1182/oz, with BTO also tipping a C$0.04 per share dividend in the direction of shareholders as well.

The flagship Fekola mine in Mali is expected to produce at the lower end of its 580,000-610,000oz guidance range for 2023, having sold 460,139oz at US$1125/oz so far this year.

B2 also owns the 170,000-190,000oz Masbate mine in the Philippines and 190,000-210,000oz Otjikoto mine in Namibia, and is planning to start production from the C$890m Goose project in the Back River gold district of Canada’s Nunavut province in 2025.

Its golden goose of course remains Fekola, though there are concerns around how the new Mining Code in Junta-led Mali, designed to capture more of the benefits from mining operations for the State, will impact its planned regional expansions.

“Receipt of an exploitation licence for the Bantako North permit area remains outstanding pending finalisation of an implementation decree for the new 2023 Mining Code by the State of Mali,” B2 said last week.

“As a result, no production is forecast from Fekola Regional in 2023 (budgeted production was 18,000 ounces).”

It does not expect the new mining code to impact the existing Fekola convention, which was signed under the old 2012 Mining Code.

B2Gold boss Clive Johnson told analysts “everyone knows that Mali is looking for increased revenue”, especially related to expansion areas to the north of Fekola.

But he said the Malian Government “should be highly motivated to get permits in our hands and get mining as soon as possible.”

Mali was subject to military coups in 2020 and 2021, eight and nine years respectively after the ousting in a separate coup of Amadou Toumani Toure.

While the Malian Government currently has the right to take stakes of up to 20% in local projects, the 2023 code ups the ante, with the State able to take 10% with an option to acquire another 20% during the first two years of commercial production.

Another 5% can be ceded to private local interests, with some tax exemptions also out the door.

TSX and TSX.V Winners & Losers

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