By Alastair Ford | for Proactive Investors,
“We’ve been involved in Eritrea since 2003,” says Sunridge Gold’s (CVE:SGC) Greg Davis.
Indeed it was back in August of that year that the company first took an option on the Asmara and Debarwa copper-gold projects not far away from the Eritrean capital Asmara itself, right in the centre of the country.
But this was no shot in the dark taken by a company casting around for opportunity in the boom that was then gathering.
Rather, it was a calculated move by a group of people who were getting to know Eritrea pretty well via what was to eventually be the country’s great mining success story: Nevsun (TSX:NSU).
“Sunridge was at first sort of an unofficial sister company of Nevsun,” says Davis.
“We looked at Debarwa. The board at Nevsun took a pass at it, and two board members had a shell company which acquired it and that’s how Sunridge was born.”
Nevsun, on the whole, had bigger fish to fry. The company’s Bisha mine produced 32.4mln pounds of copper in concentrate in the third quarter of this year and generated US$58mln in cash.
It just shows what can be done, and Sunridge is now aiming to be the next cab off the rank.
In the time that’s elapsed between that first foray in 2003 and now, much work has been done.
“We’ve had a tremendous amount of success,” says Davis.
“We’ve drilled 400,000 metres. We’ve completed a full bankable feasibility study, and we did a full environmental impact assessment in 2013. Since that time it’s been all about the permitting.”
In some respect that’s been a slow process, but with the government on board as a participating equity partner, the ultimate outcome was never really in doubt.
That certainty has allowed the Sunridge team, led by chief executive Michael Hopley, to line up the necessary financing to get a mine at Debarwa up and running fairly quickly.
“On September 11th 2015 we officially signed a mining agreement with the mining ministry in Eritrea,” says Davis. “That led to the issuance of the mining licenses.”
So now, it’s all systems go.
With one proviso.
In light of the economic conditions around the world, Davis explains, it seemed prudent to start with a smaller operation and work up.
The plan is to build a mine in three phases, the first of which will be low cost and supported by high grade, which will then in turn support the initiation of the larger second and third phase.
“Debarwa offers a start-up for only US$32mln,” says Davis. “It grades 16% copper. We can mine it, crush it and direct ship it.”
After years of hard work, it’s now become as simple as that.
Of course, even if Debarwa doesn’t command the billion dollar price tag that has made some projects prohibitive to finance in recent markets, that US$32mln is still real money and will need to be sourced from somewhere.
Davis has little doubt that Sunridge can do it though, and – perhaps more importantly – in a way that won’t be dilutive to shareholders.
Partly that’s because with C1 costs set to come in at between US$0.70 to US$0.80 per pound, the margins on offer are still huge, even allowing for today’s weaker copper price of around US$2.40 per pound.
But there’s more to it than that.
Around US$14mln or US$15mln of the required cash can be raised through equipment financing at the project level.
Add that to an existing US$10mln debt facility at the parent company level and the contribution due from Sunridge’s blue-chip partner, the Eritrean government, and the money looks all cued up and ready to go.
In fact, much of the recent legwork has gone into laying the groundwork for the follow-on fundraise (fundraising?) that will be required to get phases two and three into production.
The bigger sums of + US$350mln that were talked about in the 2013 study will obviously be harder to pull together, especially considering that the copper price is much lower now than it was then.
But Davis and team is ready to meet that challenge too.
“There are ways to optimise for lower metals prices,” he says.
“The price of copper may be down, but we’ve also seen costs come down. We originally modelled diesel at US$1.10, but we could expect it to get to US$0.80 now.
More to the point, by then the company will have a mine that’s up and running.
“Once the initial financing is secured we’ll be staffing up and beginning the process of procurement,” says Davis.
“There’s no lead time, just shipping time. By the fourth quarter of next year we’ll have the DSO and we’ll begin commercial production.”
Sunridge also acknowledges that the M& A file is open, although the team is focussed on moving the project into production as quickly as possible.