On Tuesday Hummingbird Resources (LSE:HUM) released audited results for 2018 and updated investors on its guidance and draft Life of Mine (LoM) Plan. The firm achieved maiden revenues of $116.54m from its flagship Yanfolila Gold Mine in Mali which was plagued by operational problems in the second half of last year.
Overall, the miner made a post-tax loss of $12.8m and held $21m cash at 31 December 2018. The cash balance includes $9.6m drawn under a loan for the installation of a second ball mill at the Yanfolila plant. This expansion is expected to be completed in Q3 of 2019 and will increase the available plant throughput by around 24pc.
The company forecasts production of 110,000 – 125,000 ounces of gold for 2019 but expects the following 3 years to achieve somewhere in the region of 130,000 – 145,000 ounces of gold per annum. From 2023 production is set to decline to 80,000 ounces per year but the firm is in the process of attempting to mitigate this reduction with an increase in reserves.
In due course, Hummingbird will announce results of a scoping study on both the Gonka deposit, 5km from the process plant, and underground mining at Komana East which is currently operating an open-pit. The firm says that based on current resources over a million ounces of gold sit outside of its reserves.
Although remedial works progressed well - with the company announcing it had resumed full capacity production in Q1 this year - the operational problems have cost the company considerably. Hummingbird’s share price has remained very subdued as all in sustaining costs (AISC) have climbed, hitting profitability. It has resulted in lingering debt too, with borrowings at year end being ‘higher than would have been expected at this stage’ totalling $61m. However, from 2020 the firm anticipates the AISC will return to a much more attractive $800 per ounce and, in today's announcement, the company said 'early estimates from the LoM plan showed a significant improvement on production levels and lowering cost base of the mine'.
Meanwhile, the company is looking to extend operations beyond Mali, with one eye now firmly on the 4.2Moz Dugbe Gold Project in Liberia. The government has just signed a 25-year Mineral Development Agreement (MDA) with Hummingbird for the project. The firm has been granted an initial three-year exploration period with the ability to extend the MDA into other areas with geological continuity.
As I highlighted in an article over on ValueTheMarkets.com, the current sub-15p share price could offer a great opportunity to take a position in Hummingbird ahead of things hopefully improving in the second half of the year and beyond.
In addition, the stock could also serve as an excellent play on any bullish moves in the gold price. Gold had a nice run up to $1340 in February and, at least for now, it seems the August lows of $1160 were bottom-in. Central Banks have remained buyers of the precious metal and, at some point, we could see a run in gold if and when it’s next called upon as a safe-haven.
Author: Stuart Langelaan
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