LONDON (Alliance News) - Tengri Resources saw its shares drop on Wednesday after dealing a blow to shareholders by announcing it would not be progressing the Taldybulak gold project in the Kyrgyz Republic.
Tengri shares were trading down 13% to 3.15 pence per share on Wednesday morning.
"Whilst the company believes that Taldybulak and Andash host large resources with significant upside exploration potential, the board has decided not to proceed with the development of Taldybulak in the current commodity price environment," said Tengri.
The news leaves Tengri looking for a new asset and fails to build on the work conducted by Tengri on the asset over the last year. The miner has suspended the majority of all operations in the Kyrgyz Republic, where all of its assets are located.
The decision was based on the results of the scoping study on the project which suggested the project would struggle to be economic in the current environment of lower gold and copper prices, with the wider commodity market facing a subdued outlook over the near term.
Tengri began work on the project back in August 2014, after it acquired the assets through its reverse takeover of Robust Resources Ltd. At the time of acquisition, Tengri was still called by its former name, Mentum Inc.
Tengri was planning on developing the project over two phases, building a modest project through the first phase to keep capital costs down and then adding the nearby Andash mine to act as a satellite mine to feed production to the plant at the Taldybulak mine.
However, the scoping study has shown it would not be in the company's interest to pursue that strategy.
"The scoping study shows that the Taldybulak and Andash projects, under all studied development scenarios, do not meet the company's investment criteria at this time. In particular, the company had hoped that the scoping study would demonstrate that Taldybulak and Andash could deliver an internal rate of return in excess of 25% and production costs in the lowest quartile of the global cost curve," said Tengri.
According to the scoping study, the project would have needed USD320.0 million to get the project up and running to produce 70,000 ounces of gold per year and 7,750 tonnes of copper concentrate.
That was based on gold prices of USD1,200 per ounce and copper prices being around USD5,500 per tonne, but even at those prices the project would have had a negative net present value and a low internal rate of return, let alone at current prices.
Gold was trading at only USD1,065 per ounce on Wednesday morning with London Metal Exchange copper prices trading at USD4,585 per tonne.
Tengri said it would need higher commodity prices or to find new high grade zones at either Taldybulak or Andash for it to reconsider its decision in the future. In the meantime, it will not be applying for development licenses for the project and will undertake a detailed review of what to do next with the asset.
The miner said it intends to maintain its exploration licenses over the project in the near term whilst it decides what to do, but has also suspended the majority of operations in the Kyrgyz Republic to preserve costs and shareholder value, it said.
"Given the aforementioned general weakness in global resource prices, the company believes that opportunities may exist outside the company's existing areas of operation, which both require lower start-up costs and a faster route to production and cash flow than the company's current asset base. Accordingly, management will start to devote additional resources to the search for such assets," said Tengri.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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