Papillon Resources: West African Gold

West African gold
Papillon Resources Ltd, (PIR) announced an upgraded resource for the Fekola Project of 5.15m ounces in September 2013. The project, located in Mali, is expected to produce 306,000 ounces of gold a year over its nine-year life and will require capex of US$292m. The definitive feasibility study is due in 2014. The mine should be cash positive at US$1300/oz, with a C1 LOM average cash cost of US$580/oz and an all-in sustaining cash cost of US$725/oz. The mineralisation is open along strike and at depth.

Fekola resources upgraded by 22%
Papillon released an upgraded resource statement for Fekola in September 2013, showing that the project now has a resource of 5.15Moz gold, up 22% relative to the previous estimate. The measured and indicated resources account for 4.64Moz, grading at 2.4g/t. This suggests that the project may be more robust than indicated by the PFS. The PFS indicates that pre-tax operating cash flows of US$190m a year are possible at a gold price of US$1,300/oz. The definitive feasibility study is expected to be completed during 2014.

Capex in the order of US$292m
As a result of the PFS, Papillon has filed for a mining permit, having been granted its Environmental Permit in May 2013. The environmental study incorporated community feedback, suggesting that the community is largely supportive of the project. Indicative cash operating costs are US$580/oz and all-in cash costs are US$725/oz. Capex is expected to be US$292m for the mine, plant and infrastructure. Mining is likely to be outsourced.

A strong balance sheet
As at 30 June 2013, Papillon had A$53.4m cash, as a result of a shares issued during the year that raised A$52.9m and the exercise of options that raised a further A$10m. Exploration and evaluation expenditure for the year was A$25.6m and operating expenses were A$2.4m, suggesting that the group is well capitalised at present but will need financing to complete the project.

Valuation: US$67 per resource ounce
Papillon has a total resource of 5.15Moz and an enterprise value of US$343m, yielding an EV/total resource ounce of US$67/oz, which is above the sector rating of US$29.5/ oz (based on our Gold – US$2070 by 2020 report of November 2013).

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