Anthony Hilton: Amara has struck gold with deposit discovery near a hydroelectric plant
Saturday 22 March 2014
The new thing I learned this week was that electricity is one of the biggest costs in mining.
The lighting, the pumps, the ventilation, the lifts, the conveyors, the underground trains and the cutting equipment – all consume a massive amount. Adding to the cost is the fact that the power has to be generated by the mining company on site, because mines tend to be miles from anywhere, with no convenient national grid onto which to hook up. As a result it is not unusual for electricity to account for half the costs.
That also explains why when the gold price surged a couple of years ago gold mining profits did not quite keep pace. The conditions which drove up the price of gold price also caused a surge in the price of oil – in this case the diesel used to run the electricity generators. So the electricity cost rose in parallel, meaning they made more profit, but nothing like as much as expected.
All this is relevant in a positive way to Amara – a company which many still remember as Cluff Gold; a few days ago it produced a bullish report on a find in Côte d’Ivoire in West Africa. Yesterday, it announced a fundraiser of roughly $30m (£18m) to do further appraisals and bring the project to the point where the company knows enough to decide whether or not to go ahead and if it does, to look for partners to help meet the cost of bringing the mine into production.
This is where the electricity comes in. Not only are the deposits such that the new find has the potential to be one of the top 10 producers in Africa – according to executive chairman John McGloin – but it is slap next door to one of the biggest hydroelectric plants in the continent. This means that its power cost could be as little as a quarter of what you might normally expect to pay, and that has huge implications for the viability of the project.
It means the mine could break even with a gold price of just $900 an ounce and be healthily profitable at $1,100. Were the gold price to return to the levels of a couple of years ago, or even head in that direction, then the business would be in clover.
There is a growing sense that gold prices are heading up and though absolutely not a ride for the faint hearted, Amara could prove to be a popular way to bet on that.
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