Nyota – promising Ethiopian gold project but strapped for cash

Gold explorer Nyota Minerals, is on a bit of a knife edge as it looks for finance to continue to de-risk and develop its Tulu Kapi gold project in Ethiopia.

These are tough times for gold exploration juniors, and LSE AIM and ASX-listed Nyota Minerals, which is looking to exploit the very interesting Tulu Kapi gold project in western Ethiopia is no exception.  It has already come up with an estimated resource of an open pittable 1.9 million ounces of gold at 2.34 g/tonne, which is a fairly decent grade these days, but with its share price languishing at around 1p, its options for raising ongoing capital are somewhat limited.  At the moment it has enough cash in hand to see it through to September without having to cut back any more on its current expenditures, but is obviously having to work hard to secure ongoing finance.  So far its major shareholders, Centamin with 19.4%, Resource Capital Funds with 13%, and JP Morgan Asset Management with 7.1% have been supportive in capital raising (a fourth, IFC with 9.9% did not participate in the most recent capital raising exercise) but in the current climate nothing should be taken for granted when it comes to raising funds.

So where is Nyota with Tulu Kapi?  It has completed a feasibility study, but this was assessed at a gold price of $1500 an ounce and it is in the throes of coming up with a de-risking optimisation of this, using independent consultants, looking at a potentially profitable outcome at a lower gold price of $1050 an ounce.  It reckons it can achieve this by a more closely defined pit shell, rescheduling of operations and implementing a stockpiling strategy which could increase the grade of ore to the mill to between 2.1 g/t and 2.4 g/t for the first five years of operation.  This would increase gold output by 30% over the original study calculations to some 133,000 ounces a year, peaking at 145,000 ounces as compared with 105,000 ounces and 111,000 ounces.  This would enhance the IRR and payback time strongly improving project economics.  The original feasibility study suggested gold could be produced at a cash cost of around $600 an ounce making it potentially a low cost producer.  Capital cost was put at some $238 million to bring the mine to production, with an IRR of 24%.

Nyota has applied for a mining licence, but in a country with no real mining history to draw on, such an application moves slowly, although the government is seen as supportive.  But even when it receives a go-ahead there is then the difficulty of financing an actual mine and Nyota CEO, Richard Chase, who would dearly like the company to be able to finance and mine the deposit on its own, told Mineweb that he realistically assumes that this is probably unlikely at present and perhaps the best it could hope for is a significant stake in a subsequent operation which would actually be developed by a third party.

Tulu Kapi infrastructure is seen as remarkably good given its remoteness.  The Chinese are upgrading and metalling a road from Addis Ababa to the South Sudan border, which runs close by the mine site, and grid power is again relatively close by.  Ethiopia is aiming to become this region of Africa’s power hub and is building an enormous dam, backed by the Chinese, on the Blue Nile to the north of Tulu Kapi – this is aimed to provide more than twice the power output of Egypt’s famed Aswan High Dam at 5250 MW.  This project is due for completion in 2017.

There is also strong local and regional exploration potential, but cash constraints mean that the company is currently unable to do anything but minimal work.  However it reckons on its initial investigations there is excellent potential for finding another 1 million ounce plus orebody close enough for production to be treated at the proposed Tulu Kapi plant, while there is definite scope for increasing the resource at Tulu Kapi itself and ultimately move underground to exploit a high grade feeder zone.

All in all an interesting project – but Nyota has to survive to be able to realistically benefit, short of a merger with, or takeover by, a larger entity.  Nyota’s market capitalisation is currently only around £9.5 million which could also make taking the company private another option which would save on admin and listing costs.  It does have scope to cut back work on the project and on administration to further preserve cash if necessary, but it is one of the many junior explorers in survival mode these days.  It does have an interesting, and potentially profitable, gold mining project which surely will glean external attention even in these straitened times, but Nyota remains on something of a knife edge for the moment unless and until it can raise another tranche of finance within the next few months.