Amara Mining Regulatory News (AMA)

26 February 2016 AIM:AMA

Amara Mining plc

(together with its subsidiaries, "Amara" or the "Group")

YAOURE OPTIMISED PRE-FEASIBILITY STUDY DELIVERS EXCEPTIONAL RESULTS

38% IRR AT US$1,200/OZ GOLD PRICE

25% IRR AT US$1,000/OZ GOLD PRICE

Amara is pleased to announce the National Instrument ("NI") 43-101 compliant optimised Pre-Feasibility Study ("PFS") for its 100% owned Yaoure Gold Project ("Yaoure") in Côte d'Ivoire.

HIGHLIGHTS

· Optimised PFS confirms Yaoure is a compelling gold development project in the current capital constrained market environment

· Based on the updated Mineral Reserve estimate announced on 25 January 2016, the optimised PFS successfully delivers an increased head grade, reduced upfront capital cost and robust economics at a conservative gold price

· Optimised PFS, based on a smaller 4.5 million tonne per annum ("Mtpa") processing plant, achieves significant improvements when compared with PFS key metrics

o Post-tax internal rate of return ("IRR") of 38% and post-tax net present value ("NPV") of US$555 million based on a discount rate of 8% and a gold price of US$1,200 per ounce

o Project remains strong at a gold price of US$1,000 per ounce with a post-tax IRR of 25% and a post-tax NPV of US$281 million

o Average annual production of 248,000 ounces in years 1-5 and average annual production of 203,000 ounces1 over a 15 year life of mine ("LOM") from a single open pit containing 3.2 million ounces

o Average head grade processed of 1.62g/t based upon Mineral Reserve estimate announced on 25 January 2016

o Upfront capital cost of US$334 million, including US$44 million contingency and US$60 million for an owner-operated mining fleet

o LOM average total cash cost (including royalties and refining) of US$618 per ounce and average all-in sustaining cost ("AISC") of US$667 per ounce

o Payback period of 2.1 years with mining throughout this period focused on the higher grade, continuous CMA zone where 72% of Yaoure's Proven Mineral Reserves are located

· Additional work is being completed, including reviewing other smaller plant sizes, to confirm and refine the parameters of the project to take through to Bankable Feasibility Study ("BFS")

OPTIMISED PFS KEY PARAMETERS: COMPARISON TO PFS AND MII SCENARIO:

Notes

1. This represents average annual production over the first 14 full years of production in the life of mine. Production in year 15 (89,000 ounces) is not included in the average as it is not a complete year of production.

John McGloin, Chairman and Chief Executive Officer of Amara, commented:

"I am delighted to be able to deliver materially improved economics for our Yaoure Gold Project, including a 100% increase in the project's IRR at a US$1,200 per ounce gold price. The optimised PFS has achieved both of our key objectives for Yaoure: to significantly increase the average head grade going to the processing plant and to significantly decrease the upfront capital cost. As a result of the higher grade, Yaoure's strong production profile is maintained despite using a smaller processing plant, with average production of 248,000 ounces in years 1-5 of the mine's life. The reduced capital cost is also better tailored to the current capital constrained market environment.

"Yaoure's other metrics have also improved substantially, cementing Yaoure's position as one of the few gold development projects that achieves an IRR of 25% at a US$1,000 per ounce gold price. Due to the excellent existing infrastructure of Côte d'Ivoire, it benefits from exceptionally low operating costs and we expect Yaoure to be among one of the lowest cost, largest new gold mines in Africa. We are completing work to confirm that 4.5Mtpa is the optimal processing plant size in light of the significant reduction in the cost estimates we received during the optimisation work and I expect the results to further highlight the exceptional economics and versatility of the Yaoure Gold Project."

For more information please contact:

About Amara Mining plc

Amara is a gold explorer/developer with assets in West Africa. The Group is focused on unlocking the value in its development projects. At Yaoure in Côte d'Ivoire, this will be done by increasing the confidence in the existing Mineral Resource and economics at the project as Amara progresses it through to Bankable Feasibility Study. At Baomahun in Sierra Leone, this will be achieved by gaining an improved understanding of the exploration upside potential and underground opportunity. With its experience of bringing new mines into production, Amara aims to further increase its production profile with highly prospective opportunities across both assets.

OPTIMISED PFS FOR YAOURE GOLD PROJECT

Overview of optimised PFS

Following the announcement of the PFS and MII scenario in May 2015, Amara conducted comprehensive optimisation work to further improve Yaoure's economics. The Group reviewed ways to reduce the upfront capital cost of the project in light of the current capital constrained market environment, with a range of lower throughput scenarios compared to the original 6.5Mtpa PFS. This work suggested that a 4.5Mtpa plant delivered the optimal balance of reduced capital and robust returns.

The NI 43-101 compliant optimised PFS is based on processing 4.5Mtpa of ore from an open pit operation to produce an average of 203,000 ouncesi of gold per annum over a 15 year mine life. The project demonstrates strong economics due to its low processing costs, which are driven by the simple processing circuit and the excellent infrastructure in the area. The Yaoure Gold Project is located 40km northwest of Yamoussoukro, the political capital of Cote d'Ivoire, and 5km west of the Kossou hydro-electric power dam and national power infrastructure, providing reliable low cost power. Over the LOM average total cash costs (including refining and royalties) are US$618 per ounce and average AISC are US$667 per ounce.

All figures are based on a US$1,200 per ounce gold price unless stated otherwise.

Comparison to PFS and MII

The optimised PFS delivers substantial improvements across the key metrics. The PFS and MII scenario were based upon the previous Mineral Reserve estimate, announced on 14 May 2015. Following additional drilling during Q2 and Q3 2015 a new Mineral Reserve estimate was announced on 25 January 2016, with a 22% increase in ounces and a 37% increase in head grade, and the optimised PFS is based on this estimate. A smaller processing plant also offers the optimal balance of reduced upfront capital costs and compelling financial returns, further aided by the declining prices of key consumables as a result of the current weak commodity price environment.

The key technical, operational and financial parameters for the optimised PFS are summarised in the following table, along with the parameters of the original PFS and MII scenario:

Mineral Reserve statement

The Mineral Reserve estimate, announced on 25 January 2016, is based on the NI 43-101-compliant Mineral Resource estimate announced on 24 November 2015 and on capital and cost estimates generated in the PFS announced on 14 May 2015. New cost estimates have been used as the basis for the optimised PFS.

The Mineral Reserve is the portion of the Measured and Indicated Mineral Resource that falls within a pit design, which was based on an optimised pit shell corresponding to a gold price of US$880 per ounce. The Mineral Reserve estimate is shown in the following table:

Notes to Mineral Reserve table

1. Canadian Institute of Mining and Metallurgy and Petroleum ("CIM") definitions were used for the Mineral Reserve.

2. The Mineral Reserve was estimated by the contents of a resource block model within a pit design. This design was based on an optimisation, in which only Measured and Indicated Resources were enabled. The optimised shell selected corresponded to a gold price of US$880/oz, using costs based on the PFS announced on 14 May 2015.

3. The Mineral Reserve is reported at a cut-off grade of 0.5 g/t Au. This cut-off has been derived from the breakeven level corresponding to a gold price of US$1,000/oz.

4. Dilution and ore loss have been applied by adding a dilution skin of 0.5m laterally and 0.25m vertically to ore blocks neighbouring waste in addition to dilution inherent in the regularisation of the ore blocks to 6.25m x 6.25m x 5m. This results in an overall dilution of 17% and a mining recovery of 94% within the reserve.

5. The Mineral Reserves were estimated based on the NI 43-101 Mineral Resources, effective as of 24 November 2015.

6. A 90.3% metallurgical gold recovery was used.

Amara's Mineral Resource statement is included in Appendix A.

Economic sensitivity analysis

The economic analysis for the optimised PFS is based upon a gold price of US$1,200 per ounce over the LOM, which reflects approximately the gold price at the time of publication. However, sensitivity analysis demonstrates that Yaoure continues to generate strong financial returns at a gold price of US$1,000 per ounce, with an IRR of 25% and an NPV of US$281 million (8% discount rate). Conversely, if the gold price were to rise above US$1,200 per ounce, the analysis shows there is substantial upside potential. At a US$1,400 per ounce gold price, Yaoure generates an IRR of 49% and an NPV of US$827 million (8% discount rate).

Optimised PFS Discount Rate and Gold Price Sensitivity

Mine plan

The optimised PFS assumes Yaoure will be developed and mined as a single open pit, comprising the CMA and Yaoure Central deposits. It is designed as a simple Drill & Blast, Load & Haul operation assuming an owner-operator scenario. In the first year of production, fifteen 130-150 tonne trucks, two 22m3 diesel hydraulic face shovels and two 10-12m3 front end loaders are required. While the loading requirements remain constant, the number of trucks increases slowly to 17 in year 5 and in the latter years as the depth of the pit increases the number of trucks also increases to a maximum of 26 trucks.

The strongest years of production are at the start of the mine life, which ensures that Yaoure's value is unlocked as quickly as possible. Although it requires pre-stripping, for the first 5 years of Yaoure's life the mining schedule is focused on the high grade, continuous CMA zone accounting for more than 75% of production, with the balance coming from near surface material from the Yaoure Central zone.

The strip ratio has increased to 6.0:1 primarily due to the increase of the cut-off grade from 0.33g/t in the PFS to 0.5g/t in the optimised PFS, which sees some lower grade material previously treated as ore being treated as waste. This gives the opportunity to stockpile material for processing at the end of the mine life.

Metallurgy and processing

Yaoure's mineralisation is simple and non-refractory. As part of the PFS work programme, Amara undertook a comprehensive metallurgical testwork campaign in 2014 that demonstrated high gold recoveries over a 24 hour period using cyanide leaching. Whole ore processing via tank leach followed by carbon-in-pulp is a conventional processing method and was selected as being the most cost effective, with an expected life of mine recovery rate of 90.3%.

The comminution circuit comprises single stage crushing followed by a SAG and ball mill combination, which is a simple and low cost comminution method.

Operating costs

As part of the PFS optimisation process, new cost estimates were assembled by Tetra Tech, Inc., using a range of data sources and first principle estimates.

In the optimised PFS, Yaoure delivers an average AISC of US$667 per ounce over the LOM, benefiting from the large-scale operation and low relative input costs, and an average all-in cost of US$781 per ounce over the LOM.

Cost breakdown in optimised PFS compared to PFS and MII Scenario

Mining costs

Yaoure benefits from low mining costs due to:

· Low diesel price - the optimised PFS is based upon a five year quote for diesel fuel priced at US$0.84/litre

· Rationalised site layout to minimise cycle times to waste rock dumps

· Owner-operator mining - contractor mining is higher cost in terms of mining cost per tonne

· Simple ore body that is amenable to a bulk mining approach - less costly than selective mining approach

· Single pit - all ore will be trucked from one pit covering the two zones optimising trucking distances

· Large operation that benefits from economies of scale

· Locally produced explosives for blasting

Processing costs

One of the key cost drivers for gold mines is the price of power. Yaoure is located 5km from the Kossou dam and power station, which offers low-cost grid power from a combination of hydro-electric power and oil & gas generated power from other power stations in country. The processing plant is powered exclusively by grid power.

An average power cost of 11.3 cents/kWh is estimated, based on the expected power cost in 2017 as set out in the Côte d'Ivoire Government's power pricing strategy. As part of the next phase of work in the project's advancement, Amara expects to begin discussions with the Government and Côte d'Ivoire's state electricity provider, Compagnie Ivorienne Electricité (CIE), to sign a power stability agreement over Yaoure's LOM to ensure that power costs remain consistent during the mine's life.

Despite this increase in power costs, Yaoure's average power cost of 11.3 cents/kWh is still significantly lower than the average cost of heavy fuel oil generation or diesel generation in West Africa. This represents a distinct advantage for Yaoure in terms of project economics, which is realised in the relatively low processing costs of US$9.73/t processed in the optimised PFS. Yaoure's processing costs are further assisted by the relatively low reagent consumption of the Yaoure ore.

Other factors influencing operating costs

Yaoure's location presents other infrastructural benefits, besides the low-cost power and abundant water supply, such as a high quality road network connecting the project to the capital Yamoussoukro (40km) and the port of Abidjan (280km). There is also good accommodation locally and a mining university in Yamoussoukro providing a skilled workforce in the region.

Capital costs

The total upfront capital cost in the optimised PFS is estimated at US$334 million, a 25% decrease (US$113 million) compared to the PFS. This includes a mining pre-strip of 13Mt (US$25 million) to allow higher grade ore from CMA to be accessed in the early years of the mine life, strengthening overall economic returns. The pre-strip primarily involves removing backfilled waste from the CMA zone and thus there are no drill and blast costs. The upfront capital cost also includes a contingency of US$44 million.

Tetra Tech, Inc. assesses its capital estimate for the plant and infrastructure to be accurate to ± 30%. A breakdown is set out in the table below:

The Total Sustaining and Closure Capital over the LOM includes the mine closure costs and the development of the TMF. A breakdown is set out in the table below:

The sustaining cost of the mining fleet is larger in the optimised PFS than in the PFS due to the length of the mine life and a more consistent mining schedule. The PFS envisioned a large mining fleet being purchased at the start of the mine life to undertake the significant pre-strip and the large scale movement of ore and waste in years 1-4 of Yaoure's life. However no further sustaining capex was forecast to be spent in years 7-11 as the amount of material moved in these later years decreased from 55Mt/annum to 25Mt/annum. It was therefore expected that the existing mining fleet could be rotated in and out of use and thus fewer replacements would be necessary.

In the optimised PFS a smaller mining fleet is forecast to be purchased upfront as in years 1-6 the total material moved is 31% lower than in the PFS at 31.5Mt/annum. The rate of material movement stays at this level for the majority of the mine life. However in years 10 and 11 of the mine life, US$29 million is spent on sustaining capital as it is anticipated that after 10 years of operation a significant proportion of the mining fleet would need to be replaced. A small amount of further capital is also expected to be spent in year 13 of the mine life to maintain the remaining fleet. It is this cost of replacing the fleet for the final 5 years of the mine life that is largely responsible for the increase in sustaining capital.

Fiscal terms

Amara participated in discussions between the Government of Côte d'Ivoire and a number of other mining companies operating in country in the drafting of a new mining code. The new code was approved by Parliament in early March 2014. Consistent with the PFS and MII Scenarios, the optimised PFS is based on the 2014 mining code, implementing fiscal regulation and recent precedent mining agreements in country. The assumptions are provided in the table below:

The Government of Côte d'Ivoire is entitled to a 10% free carry, as is usual in the Economic Community of West African States (ECOWAS), once Yaoure's exploration licence is converted to an exploitation (mining) licence. The figures in this announcement are based on Amara's current 100% ownership of the project.

The project will also benefit from an exemption against VAT, preventing the excessive build-up of taxation debtors due from government seen in other ECOWAS jurisdictions.

Next steps

Further work following latest cost estimates

Further to the optimised PFS, additional work is being completed, including the review of a range of other plant sizes, to ensure the parameters of the project are refined ahead of beginning a BFS. The Group will announce the results of this work and the scope for the BFS in due course.

Environmental licence and exploitation licence

Amara's Ivorian subsidiary, Amara Mining Côte d'Ivoire SARL ("AMCDI") submitted its application for an exploitation (mining) licence to the Government of Côte d'Ivoire in early August 2015, which included an Environmental and Social Impact Assessment ("ESIA") for Yaoure. Public consultations were held during February 2016 as part of the ESIA process. The Group anticipates receiving both its environmental licence and its exploitation licence during 2016.

Fiscal stability and power stability agreements

Amara intends to undertake discussions with the Government of Côte d'Ivoire with regards to securing fiscal stability and power stability agreements over Yaoure's LOM. 

Optimised PFS preparation

The optimised PFS has been prepared by Amara with input from GeoSystems International Inc., which reported the Mineral Resource estimate, Tetra Tech, Inc., which proposed the engineering design and cost estimates for the process plant and associated infrastructure for the Project, and Adam Wheeler, an independent mining consultant, who provided the optimised pit designs. In addition, AMEC Foster Wheeler plc reviewed the metallurgical work and is responsible for the ESIA for Yaoure.

Qualified Person

Andrew Carter is a "Qualified Person" within the definition of NI 43-101 and is responsible for the mineral processing and recovery methods upon which the optimised PFS is based. He has reviewed and approved the relevant technical information relating to the recovery methods in this release. Mr Carter (Eur.Ing., C.Eng., MIMMM, MSAIMMM, SME) is General Manager, UK and Chief Metallurgist with Tetra Tech Inc.

Stephen Hill is a "Qualified Person" within the definition of NI 43-101 and is responsible for the Infrastructure upon which the optimised PFS is based. He has reviewed and approved the relevant technical information relating to the infrastructure in this release. Mr Hill (B.Eng, C.Eng, MIMechE) is Senior Project Manager with Tetra Tech Inc.

Leonard van der Dussen is a "Qualified Person" within the definition of NI 43-101 and is responsible for the Capital Cost estimation upon which the optimised PFS is based. He has reviewed and approved the relevant technical information relating to the cost estimation in this release. Mr van der Dussen (MSc (QS), PrQS) is a Project Cost Consultant and Senior Partner with VDDB Project Services.

Adam Wheeler is a "Qualified Person" within the definition of NI 43-101 and is responsible for the pit design and mining schedule upon which the optimised PFS is based. He has reviewed and approved the relevant technical information relating to the mining schedule in this release. Mr Wheeler (BSc Mining, MSc Mining Engineering, C.Eng, Eur.Ing)) is an Independent Mining Consultant.

Peter Brown is a "Qualified Person" within the definition of NI 43-101 and has verified the data disclosed in this release with regards to the exploration conducted at Yaoure for Amara, including sampling, analytical and test data underlying the information contained herein, and reviewed and approved the information contained within this announcement. Dr Brown (MIMMM) is the Group Exploration Manager.

Mario Rossi is a "Qualified Person" within the definition of NI 43-101 and is responsible for the estimation of the Yaoure Mineral Resource. He has reviewed and approved the relevant technical information relating to the resource estimates in this release. Mr Rossi (Fellow AusIMM, Member CIM, Member SME) is Principal Geostatistician of GeoSystems International, Inc.

Appendix A

Yaoure Mineral Resource estimate within a US$1,500 per ounce pit shell with a cut-off of 0.5g/t as of 24 November 2015

Notes

1. The effective date of the Yaoure Mineral Resource estimate is 24 November 2015, prepared by Mario E Rossi, GeoSystems International, Inc.

2. The gold price used in the Mineral Resource estimate is US$1,500 per ounce, assuming an open pit mining scenario, processing via tank leaching. Recoveries have been assumed at 90%. Pit Optimisation was completed by A. Wheeler for all prices shown here and parameters otherwise as derived in the 2015 PFS.

3. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.

4. There are no known environmental, permitting, legal, title, taxation, socio-economic, marketing, and political or other relevant issues that may materially affect the resource estimates.

5. Totals and average grades are subject to rounding to the appropriate precision and some columns or rows may not compute exactly as shown.

6. The stated resources include dilution in the block model that relates to the level of selectivity envisioned in an open pit operation, with the block model regularised to a block size of 6.25m x 6.25m x 5m.

7. Numbers may not add correctly due to rounding.

Glossary

A "Mineral Resource" is a concentration or occurrence of solid material of economic interest in or on the Earth's crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

An "Inferred Mineral Resource" is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.

An "Indicated Mineral Resource" is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.

A "Measured Mineral Resource" is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.

A "Mineral Reserve" is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. Mineral Reserves are sub-divided in order of increasing confidence into Probable Mineral Reserves and Proven Mineral Reserves. A Probable Mineral Reserve has a lower level of confidence than a Proven Mineral Reserve.

The above definitions of "Mineral Resource", "Inferred Mineral Resource", "Indicated Mineral Resource", and "Measured Mineral Resource" conform to CIM Definition Standards - For Mineral Resources and Mineral Reserves, as prepared by the CIM Standing Committee on Reserve Definitions, and adopted by CIM Council on 10 May 2014, and as required by NI 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators.