Encouragingly, they have revised their price target to 70c (for the gold alone).
Some key takeaways that resulted in the uplift:
The plant is fit for purpose with refurbishments well advanced
Plant is “commissioning-ready” and refurbishments have been completed
Quality of the infrastructure and current team is thanks to the legacy of Randgold and Anglogold’s 20-years at Morila
Impressed with the advanced state of plant refurbishments. The structure is in good repair and many of the refurbishment works are completed.
The plant design itself provides significant flexibility – can produce from oxide, sulphide or both.
Most notable are the earthworks: nearly twice the plant footprint has been completely cleared and there is ample space for modifications or additions to the circuit.
Site access and infrastructure: The site is well accessed from Bamako via paved road to Bougouni and laterite roads from Bougouni to site.
The roads around the site are mostly paved and the site civil infrastructure and camp are fixed buildings and are very well maintained.
The topography is flat and not a major obstacle for exploration or development, while the roads from the satellites to the plant are well maintained.
The crushing circuit has been refurbished and the ball mill has been refurbished and relined. The pumps, screens and conveyor belts have been reviewed by their vendors and been found to be in good condition.
Sprott expect commissioning of the plant to begin imminently now that mining at Pit 5 has recommenced.
Cost reductions expected
Expect operational costs to come in as per guidance or lower, and note there are considerable upside opportunities.
The site team is well experienced at the operation, and highly localised, therefore Sprott expect site costs to be significantly better than a new operation which typically would have a larger expat contingent than Morila does.
Given the scale of the open pit mining tender, Sprott believe Firefinch should be able to secure good rates on material movement as this will comprise one of the largest open pit operations in country.
On processing costs, Sprott are comfortable that the US$15.45/t included in the LOM plan is achievable after visiting site, noting the options for lowering power cost through solar or LNG.
On G&A given the predominantly Malian workforce and extremely low FIFO component, Sprott believe that US$15m total for G&A is achievable at the mine level.
Estimated steady state power draw is 20MW and the company is considering alternatives to reduce site energy costs and environmental impact. These include solar and LNG options.
Firefinch will benefit significantly from the work done by Anglogold and Randgold
The team in Mali and on site are excellent, with a wealth of experience with capability to ramp up quickly, and have operational flexibility as needed. Will be more than capable of executing the life of mine plan, and its future revisions.
With Morila, Firefinch has significant advantages over a new start-up operation of similar size and this was clearly apparent on site.
The operating systems and procedures are well established with SAP and other reporting systems in place. The facilities and camp are world class, with fixed buildings (not pre-fabricated) and a higher standard of accommodation than Sprott are used to seeing and they believe this will be an advantage when recruiting technical staff and operators.
Community relations are strong and benefits from a twenty-year history of the mine being a good local citizen.
Human capital and social license: Site team: The majority of the senior staff on site are Malians and long-time veterans of the operation including the GM Drissa Arama, plant manager Bakary Djire, and numerous other senior operators. Group Mining Manager, Denis Matanda is a Tanzanian expat that joins the team from Resolute where he led the Tabakoroni open pit operations.
The community relations are excellent and benefit from sincere and well managed community programs dating back to Randgold and Anglogold. The mine’s social programmes benefit from Randgold’s legacy of actively sponsoring local business, which Sprott believe is of high local impact.
The mine plan is significantly less dependent on dewatering than we thought
Less risk on Morila main pit dewatering than previously thought, as much of the main pit ounces are in a westerly cutback of the upper benches, not at the bottom of the pit, plus the capacities of the pumps are known and ensure that the pit will be dewatered as required for mining timelines. First 4 years of mining do not even require full dewatering
Satellite mining will provide over a year of ore to the plant (180koz @ 1.15g/t) if needed. Haul roads are in very good condition.
Opportunities: Exploration and underground could lift annual production to >200kozpa
Exploration: With >700km2 of licenses, Firefinch holds a belt sized land package surrounding Morila, which has proved to be a truly world class orebody.
Sprott believe the lack of major discoveries surrounding Morila has more to do with the structure of the JV (Randgold was more incentivized to spend exploration dollars at its 100% owned project at Loulo-Gounkoto while Anglogold was a less prolific explorer and later became financially constrained) than a lack of geological potential, and they believe there is significant discovery potential from here, as evidenced by recent drilling at the K3 discovery where Firefinch intersected 21m @ 13.45g/t hosted in metasediments.
The SAG mill is currently not in the production plan, but refurbishing it is likely, Sprott estimate this could increase throughput by ~500kt to 4.5Mtpa which could generate an incremental ~20kozpa (US$35-40m revenue) for minimal additional OPEX. Historical gold recovery was 91%.
Underground Mining: The east and NE of the pit ended in very high grade ore, which was noted by nearly every veteran operator at site. Drilling is planned to test high grade continuity and this will inform a scoping study to determine the viability of establishing a decline access underground, to replace higher strip portions of the Stage 2 pit, and/or potential extensions beyond the S2 pit if drilling confirms continuity.
Sprott estimate that a 500ktpa UG at 4.0g/t would increase average annual production by an additional 50kozpa and lower AISC to US$1000/oz based on mining costs of US$58/t including development.
Through the discovery of higher grade ore, refurbishment of the SAG mill, and addition of an underground mining circuit, the mine could easily crack the 250kozpa target in the directors performance incentives.
Very impressed with site visit
Impressed with speed of Firefinch’s works to date, and confident in the company’s ability to deliver – the team is executing well, and Sprott believe Firefinch is a unique opportunity with the tangible growth and intangible blue sky potential that will reward investors.
The combination of the plant’s strong historical record, the highly experienced operators at site, and the quality of refurbishment work gives us little concern over the ability of the plant to achieve >90% recovery in the next phase of Morila’s mine life. Huge derisking enabling the plant to easily achieve >200kozpa on current grades.
In short, Firefinch may be a new company to investors but this is a mature and experienced operation that can hit the ground from day one. Such a combination has benefitted investors in the past (examples include Ero Copper, Northern Star and Leagold).
Given Morila’s prolific history, Sprott’s main objective was to see the condition of the plant, the pits and the team on site and in each case our expectations were exceeded, and they have confidence in Firefinch’s ability to deliver.
“Stepping back, many of the highest return M&A opportunities have been taking under explored mature assets off majors (Northern Star, Saracen, Evolution, Leagold, Calibre, Ero Copper) and reinvesting in exploration and we think this is especially applicable in Morila’s case as the JV structure inhibited reinvestment in our view.”
“The opportunity with Firefinch is to benefit from the operating experience and systems of the majors with the per share upside and nimbleness of a single asset company, and we leave site with high conviction in Firefinch’s potential.”
Key points:
2.35Moz at 1.51g/t resource base gives the potential for 10-year mine life at 150-200kozpa
20-year Morila production history with operating plant and infrastructure
At depth and regional exploration potential with 700km2 land package in Birimian
Building strong management team and board and with an experienced operating team in country
Catalysts
May/June 2021: Mill restart and production from satellites, starting with Pit 5
Mid-2022: Re-commencement of mining from the Morila Main Pit
Given Sprott's calibre, and how impressed their team was at what we have at Morila, I think the market will rest assured that any of the doubts they may have had thanks to trolls on here have been put to bed.
This note, coupled with the price of gold breaking out of an 8 month down trend and continuing it's march to $2,000/oz and beyond should result in some big volume coming in over the next couple of weeks.
Don't forget the lithium... slated for an initial price of >$200M whilst peers trade at >$500M...
FFX Price at posting:
42.5¢ Sentiment: Buy Disclosure: Held
(20min delay)