By Kevin Michael Grace,
Sunridge Gold Corp V.SGC announced April 10 that the feasibility study of its Asmara Project in Eritrea is on schedule for completion in early May. The study is being conducted on four of the five deposits that comprise Asmara and will outline a mining plan that integrates the four deposits being processed at a central concentrator near the large Emba Derho copper-zinc-gold-silver deposit.
In order to achieve early cash flow and minimize initial capital costs, it will include a staged start-up process over the first three years of the minelife. A prefeasibility study of Asmara Project was completed in May 2012.
Kevin Michael Grace from Resourcewire.com (RW) spoke to President/CEO Michael Hopley (MH) and VP Business Development Greg Davis (GD) April 12.
RW: When will your Asmara feasibility study be completed?
MH: It will be completed the second week of May and announced that week.
RW: You’re going to rollout Asmara in four stages. Why have you decided to do this?
MH: I guess one big reason is that in the resource business at the moment there is a lot of concern about runaway capital costs. In particular, juniors attempting to raise large amounts of money. We felt the way to get away from that is to have Phase 1 pay for Phase 2, Phase 2 pay for Phase 3, etc. Luckily, Asmara is laid out in such a way that we can do that.
RW: Can you take me through the four stages?
MH: Yes, but remember that they overlap, and this is just the order of when they start.
RW: I understand.
MH: Phase 1A is the direct shipping ore. The very first thing we’ll do is start open pit mining on the Debarwa project and access the 116,000 tonnes of 16% copper ore that’s available between 30 metres and 50 metres beneath the surface. It’s very shallow, easy to get to, and so all we do with that material is mine it, crush it, bag it and ship it to a smelter.
That has a minimal capital cost. We don’t have the final numbers yet because the feasibility is still in progress, but it will be less than $100 million.
RW: Do you have offtake agreements for your copper?
MH: We don’t at the moment, but we’re in negotiation with several smelters. Typically those offtakes are done after a bankable feasibility study, so we expect we’ll have offtakes later this year.
RW: Phase 1A: 116,000 metric tonnes at 16% copper, 3 grams per tonne gold and 77 grams per tonne silver, these are extraordinarily high grades. Presumably you’re expecting Phase 1A to grease the skids for the rest?
MH: Grease the skids, yes. It doesn’t pay for everything else, but it goes a long way towards it. The gross value of that 116,000 tonnes of DSO is in the order of $150 million to $160 million.
RW: Phase 1B?
MH: Phase 1B, which will start a few months after 1A, is taking the gold caps. So while we’re mining the upper material to gather the DSO, most of that material is gold mineralized material, and it will heap leach.
So we’re taking that material and the silver material from Emba Derho and having a centralized gold heap leaching operation near the big deposit of Emba Derho. That’s a very inexpensive method of gold production. We expect capital costs there to be less than $50 million, and that would start generating gold a few months after the DSO is in production.
RW: Phase 2?
MH: These various phases, by the way, Kevin, they reflect the zones in the deposits. So we’ve got the gold production from the top, the DSO just beneath that, and then in the supergene zone is this very high-grade copper zone of which the DSO is part, but there is another much larger 4% to 5% copper zone beneath that. Phase 2 is mining and processing that 4% to 5% copper material at a rate of about 5,500 tonnes per day. Now that’s about half the rate of the full scale mine that we will ultimately operate, but again this is staged so we get that high-grade copper material. That gives us a very nice influx of copper early on in the process.
In Phase 3, we go into full production, and we double the size of the operating plant to about 11,000 tonnes per day. That will be producing copper and zinc from the primary zones.
We felt the way to get away from [runaway capital costs] is to have Phase 1 pay for Phase 2, Phase 2 pay for Phase 3, etc. Luckily, Asmara is laid out in such a way that we can do that—Michael Hopley
RW: Obviously, you don’t have an exact figure, but can you give me a ballpark figure regarding preproduction CAPEX?
MH: Allocated to the DSO is probably going to be $25 million to $30 million to bring that into production, but we’ll need more or less something less than $100 million to bring the whole thing into production. The heap leach would be in the order of $30 million; the copper plant itself is in the order of $160 million; and then the balance, bringing it up to round numbers, $400 million would be the fullsize plant, the copper and zinc production plant.
RW: What would be your optimistic prediction of when Phase 1A could begin?
RW: How much cash does your company have now?
MH: We have around $4 million in cash.
RW: What’s your burn rate?
MH: That is difficult to say. We’re at a high burn rate at the moment because we’re doing our engineering studies and completing them. A month from now, we’ll be at a very low burn rate for the rest of the year because we’ll just be completing environment work.
RW: Another way to ask the question would be: how soon will you need additional financing?
MH: In the middle of this year.
GD: We’re looking at all options for additional financing after the feasibility is complete. We’re working on lining up a debt facility for capital costs, and we’re also in talks regarding offtakes, royalties, silver and gold streaming—non-dilutive options to finance going forward.
RW: You’re currently negotiating with ENAMCO [Eritrean National Mining Corp] for them to take 30% of the project. What is the state of those negotiations?
MH: I like to think we’re towards the end of them. They exercised their option on July 4 of last year, and we’re wrestling back and forth on what they’re going to pay for their 30%, how they are going to pay it and when they are they going to pay it.
These negotiations take a while. They always have. In the case of [Nevsun Resources Ltd’s T.NSU] Bisha [Mine], they took so long that it was agreed to postpone the valuation until after production. I’m not saying that will happen here, but my point is the eight months we’ve been negotiating this is not an unusual length of time.
GD: It’s also important to point out that we’re negotiating on the purchase price for that 30%, but on top of that they will then be a contributing partner and be responsible 33.3% of all the capital costs as they’re incurred. That will help in a big way in coming up with the CAPEX for the project.
RW: How would you characterize your relationship with the government of Eritrea?
MH: I’d say excellent. It’s been very good ever since we’ve been there. Yes, we’ve been through some difficulties, as you always do. We’ve had a nine-year partnership with the government. Having said that, they are a government, and they act slowly. Sometimes decisions are hard to come by. But I would say that we have a good, friendly relationship with them.
RW: When did you first start operations in Eritrea?
MH: We signed the agreement in 2003 and got active in 2004.
RW: How would you characterize your progress of the last couple of years?
GD: In late 2010 we raised $26.5 million, and then in October 2012, we raised an additional $10.8 million. We used that money to get through the various stages of engineering studies, prefeasibility, and now we’re in the final few weeks of feasibility. So in the last couple of years we’ve transitioned from exploration to development.
MH: The progress has been excellent. There has been some pretty heavy lifting. Remember, when we started these studies we had no idea that you could combine these four deposits into one centralized operation. That, to me, was the big headline from the prefeasibility study. The feasibility study is really refining the results of the prefeasibility study to make the whole thing financeable.
We’re looking at all options for additional financing after the feasibility is complete. We’re working on lining up a debt facility for capital costs, and we’re also in talks regarding offtakes, royalties, silver and gold streaming—non-dilutive options to finance going forward—Greg Davis
RW: You announced March 7 the results of your 2013 drill program. Will those results be incorporated into the feasibility study?
MH: No, the feasibility study is too far along for that. However, the Kodadu deposit, for which we will announce a resource estimate in the next few weeks, may well become part of the operations described in the feasibility study, but it won’t be incorporated in the feasibility study as such.
GD: We expect it will be mined as part of Phase 1B.
RW: What are your drilling plans, if any, for Asmara for the rest of 2013?
MH: We have very few drilling plans for 2013. We’d like to drill Kodadu some more; we’d like to drill Adi Rassi some more in order to expand and upgrade those resources; and there are some other exploration areas we would like to drill. However, these are just plans until we have done more funding.
RW: Given the results you had in the past, would you say it’s not unreasonable that you could expect a significant increase in your resource in the future?
MH: Yes. We’ve always said that Asmara Project is very prospective. As always on these projects, you have to draw a line somewhere, and say, OK, we’ve got enough here to complete feasibility and bring it to production, knowing that the upside is still there. That’s very much the case with Asmara, which we think of as a VMS district we’ve had to ourselves.
The Emba Derho deposits are 17 million tonnes at the moment, but that’s defined only by the depth of the drillholes. In almost all areas, it’s open to depth and open to the northwest as well. Not to mention satellite areas we see from geophysics.
RW: There was a report earlier in January of a supposed coup d’état attempt in Eritrea. There are conflicting reports as to what happened. What is your understanding?
MH: I was actually there the day after this happened. My understanding is that a few disgruntled senior army officers protested against some aspects of the government for a few hours. There was no bloodshed; life went on as normal; and it still goes on as normal. From my perspective, at least, it was a storm in a teacup.
RW: Does Eritrea’s ongoing military hostility with Ethiopia potentially imperil your project?
MH: No, it doesn’t and I think your characterization isn’t quite right. There are not ongoing skirmishes. Yes, from time to time you hear things about the border, but the border is a long way from us; it’s hundreds of kilometers away. It certainly does in effect give us a discount for being in the country of Eritrea, but on a day-to-day basis, it has no affect.
Eritreans are a feisty, independent people who would not be subjugated by Ethiopia—Michael Hopley
RW: There are many Canadian mining companies that work in one-party states, and I have to say I find it rather extraordinary that Eritrea is regularly referred to as a “pariah state.” It seems tremendously disproportionate that this country with a GDP of $3.1 billion is supposed to be some sort of worldwide threat. What do you make of this?
MH: I think you make an excellent point. Eritrea has got a bad rap as far as its image is concerned. The reality of working there is so much in contrast to the reputation of the country. We find it to be hospitable and friendly. Security has never an issue for us. The only way of explaining what you’re asking, Kevin, is to say that its neighbour, Ethiopia, is a country that is five times its size and population, is a big player in the Horn of Africa and has the support of the US and other major powers.
RW: Ethiopia was strongly backed first by the Soviet Union and now by the US. Reading the press reports, particularly from Reuters, one somehow gets the impression that Eritrea is the bully here, which I find rather amusing.
MH: That partly comes from the fact that Eritrea won the War of Independence against Ethiopia. They are a feisty, independent people who would not be subjugated by Ethiopia.
RW: Nevsun got into trouble for is use of forced labour at its operations. What measures have you taken to ensure this won’t be a problem for Sunridge?
MH: We were a little surprised by this Human Rights Watch report that came out in January. We’ve got 70 – 100 Eritrean employees at any one point in time, depending on our level of activity. Interestingly, this isn’t a recent measure—the government has always insisted that the papers of all the people we employ show they have either done or are not subject to their national service.
So we’re not allowed to hire national-service people. It’s never been an issue for us. My understanding is the issue at Bisha is the use of Eritrean subcontractors, one in particular. I suppose it’s possible in the future that we would be using that subcontractor. But again, part of the legal agreement is that they can’t use conscripts. That will be a policy we will continue and one we’ve had for some time.
RW: Would you say that operating in Eritrea has lowered the value of your stock?
MH: We often talk about an Eritrean discount. I think it would be silly to argue otherwise. If we had these deposits in Canada, for example, I’m sure we would have a much higher value.
GD: We use Nevsun as an example. They’ve been in production now for two years and have been very successful. They have no debt and somewhere around $400 million in the bank. They have demonstrated that Eritrea is a great place to work, and you have full government support. If Nevsun were somewhere like British Columbia, perhaps its share price might be higher, but we don’t think they would be in production yet.
RW: I’d say that if Nevsun were in British Columbia, its chances of ever opening a mine wouldn’t be very good.
MH: That’s sort of funny and not funny, but it’s true.
GD: Bisha was brought into production in fewer than eight years after the first drillhole.
RW: Final words?
MH: We believe Sunridge has an exciting future over the next few months. Completing the feasibility study, applying for our mine permit, adding some significant staff and getting geared up for production. We’re following in the steps of Nevsun, about three years behind.
GD: There are several key milestones in the near future. Number one is completing our feasibility study which would outline a very strong mining plan and show some very strong numbers for Asmara. Two, is hopefully concluding our negotiations with the government for their purchase of 30%. We will then have a strong government partnership in this project, which will help us in terms of the capital requirements for which they will be responsible for one-third. And three, following the completion of the feasibility study, we will apply for a mining license, which expect to take somewhere from six to 12 months.
At press time, Sunridge had 175.2 million shares trading at $0.15 for a market cap of $26.3 million.