A gold reawakening in the DRC

Few, even among major miners, are not dazzled by the 22.5m ounce gold resource...

Few, even among major miners, are not dazzled by the 22.5m ounce gold resource held by Moto Goldmines in the north eastern Democratic Republic of the Congo, a number that compares, broadly, with Alaska’s Donlin Creek (held 50:50 by Barrick, the world’s biggest gold miner, and Novagold), Cerro Casale (held by Barrick and Kinross), and Las Cristinas (held by Crystallex).Following a recent uptick in settlements and clearances under the DRC’s mining review, Moto on Monday released the findings of an optimized feasibility study for the project. Project economics are "significantly enhanced" by introducing a high grade underground mine "and adopting a value acceleration strategy for the open pit mine scheduling".Probable mineral reserves of 42.3m tons at 4.0 grams a ton deliver 5.5m ounces of gold; life-of-mine gold production is put at 4.8m ounces, with an average estimated cash cost of $318 per ounce produced. Further detail is for average annual output of 484,000 ounces of gold over the first five years at an average unit cash cost of $303 per ounce, giving a project payback period of 3.1 years at a gold price of $750 per ounce.Pre-production capital and infrastructure cost estimates total $438m, including contingency ($32m) and 18 months of underground development activities ($32m); deferred and sustaining capital expenditure over the operation’s 16 year life is estimated at a total $180m.Key features of the planned underground mine include a 12 year mine life, with steady state production of around 1.5m tons a year; mineral reserves of 11.6m tons at 6.2 grams a ton, for 2.3m ounces of gold, and life-of-mine cash costs of $281 per ounce produced. The planned open pits are seen as having a seven year mining period (excluding a pre-strip period), followed by a stock reclamation period of nine years. Mineral reserves are put at 30.7m tons at 3.2 grams a ton, for 3.2 Moz of gold, and life-of-mine unit cash costs of $343 an ounce.There is no question that Moto has one of Africa’s best undeveloped gold projects, and also no question that the projects sit in one of Africa’s most challenging countries. AngloGold Ashanti is also active in the area, as is Banro, but quite some distance south, in the troubled Kivu provinces. Moto has a 70:30 joint venture with parastatal group Okimo, giving Moto attributable gold ounces of 15.8m ounces.While Moto’s stock price has performed very well of late, in absolute and relative terms, Moto’s market value, expressed as to its resource ounces, is around $14 an ounce. This can be compared to the 14m ounces held by Randgold Resources across its three projects, Loulo and Morila in Mali, and Tongon in Cote d’Ivoire, valued at around $250 an ounce on the same basis. Randgold Resources recently expressed an interest in a possible scrip deal to absorb Moto.Perhaps the two most relevant recent transaction multiples in this context are the Iamgold/Orezone merger at $26 a resource ounce, for Orezone’s 5.3m ounce Essakane property in Burkina Faso, and Kinross’s $86 a resource ounce takeover of Aurelian, where the Fruta del Norte property holds 14.1m gold equivalent ounces of resource.The Kinross/Aurelian transaction occurred in July 2008 when Ecuador was under a "mining freeze", similar to that seen in the DRC. Aurelian traded as high as CAD 10.00 a share in March 2008, before collapsing to CAD 3.00 in April as the governmental review was announced. Kinross agreed a scrip deal with Aurelian’s shareholders at CAD 6.00 a share, with a full value of CAD 936m.Moto has been drilling its DRC properties since 2003; the country’s previous colonial masters mined 11m ounces of gold from the properties. Barrick, the world’s biggest gold miner, owned the Moto properties but let them go when another DRC war broke out in 1998.While Randgold Resources has been the exception rather than the rule in expressing an interest in Moto, Golden Star has held a stake in Moto. This may change, with steadily improving DRC country risk appetite; Freeport-McMoRan and First Quantum, two big copper miners, have hinted of late to positive license reviews for the Katanga Province’s Tenke Fungurume and Kolwezi projects, respectively, triggering the restart of project finance of $600m and $200m, respectively.