By Dr. Michael Green

A Q4 operations update from Caracal Gold really shows the tremendous progress that the team is making, not only at the  Kilimapesa Gold Mining and Processing Operations in Kenya, but also at the recently acquired Nyakafuru and Simba advanced gold projects in Tanzania.

The company was able to draw attention to both the corporate highlights and the gold operations highlights. Corporately, the last quarter saw Prospecting Licence PL/2018/0189, which surrounds Caracal’s Mining Licence and current gold production facilities at Kilimapesa, being renewed for three more three years. This Prospecting Licence actually forms part of the company’s much wider exploration and development activities at Kilimapesa, which total 55.3 km² (62 times larger than the Mining Licence) which is integral to the company’s long-term exploration and development plans in Kenya and is certainly the key to increasing current resources to +2-3Mozs over the next 18 months. 

In addition, during this three-month period, Caracal acquired a 100% interest in the advanced Nyakafuru Gold Project and secured a 75% stake in the Simba Gold Project. Both are located in the world-class Lake Victoria Gold Fields in Tanzania. These two advanced gold projects cover 350km² and include 26 granted mining and prospecting licenses and 5 existing license applications. Importantly, they served to increase the company’s attributable gold resources to over 1.5Mozs. Both these projects were acquired at a low cost per resource ounce of US$5.95 with low up-front cash payment and most of the acquisition costs payable in shares on hitting key development milestones.

Highlights from the gold operations included record run of mine (ROM) ore production at Kilimapesa for the quarter, with 38,351t of ore produced from both the underground operations and open pit operations. Record tonnage was processed through the Carbon in Leach (CIL) plant and in December 2021, the company achieved its 1,000oz per month production target. Operating costs were slightly lower at US$950/oz and switching over of the power supply at the processing plant from diesel power generation to national grid power is expected to deliver an estimated cost reduction of US$100/oz at current production rates.

Following the strong operating performance seen during Q4 2021, last week, management announced the decision to accelerate implementation of the final phase of the initial three-phase operational plan to double monthly gold production to 2,000ozs and improve efficiencies at Kilimapesa.

Gold exploration during the last quarter included trenching work that saw some impressive length and grades being announced. Plus, Caracal commenced an initial 3,000m Diamond Drilling (DD) and 10,000m Reverse Circulation (RC) drilling program at Kilimapesa where work continues on rapidly increasing the current JORC compliant resource of around 670,000oz to +1.5Moz. Drilling results are on course to be announced during the current quarter and will feed into updated Reserve and Resource statement that is planned to be released later on in 2022.

There is going to be no let up in the speed of progress during the current quarter with the accelerated development plan at Kilimapesa. This will see further expansion to the open pit and underground mining and mine development activities to allow ROM production to rise to support a 100% increase in the milling circuit capacity from 500tpd to 1,000tpd. The milling circuit is being further expanded through the installation of the second ball mill, which is currently in Nairobi to be refurbished.

In addition, Q1 2022, will also see work beginning on new crushing and screening plant and upgrades to the thickeners, cyclones and installation of additional CIL tanks will also commence. Ongoing metallurgical testwork in Germany will provide important data for the construction of a new heap leach plant operation. A new gold elution plant is planned to be installed in Q2 2022, which allow more gold to be smelted on-site.

Investors should realise that there will be no shortage of news flow in the current quarter which is expected to see initial assay results from the DD and RC drilling at Kilimapesa. This looks likely to include DD drilling which has commenced 400m to the east of the active underground mining and opencast pit operation at Kilimapesa – intended to confirm the mineralisation strike extent. Plus, further regulatory approvals are expected in respect to the acquisition of the advanced Nyakafuru and Simba Gold Projects in Tanzania. Management will be on site later this quarter to commence activities in the country. On top of all these developments, there will be the appointment of an experienced engineering company to implement the works programs of the accelerated development plan in Q2 2022.

At the time, Robbie McCrae CEO was quick to point out that “Caracal is 100% committed to growing its gold mining business in East Africa and the past quarter has been one of us walking the walk as we fulfil our East African growth ambitions. We have successfully demonstrated our ability during this past quarter to upgrade and improve our existing gold production and mine expansion activities at Kilimapesa in Kenya. At the same time, we have acquired game-changing gold projects in Tanzania, the Nyakafuru and Simba Gold Projects, which have proven high-grade shallow gold resources and historical mining and development studies, allowing us to accelerate their developments. Our gold strategy is firmly focused on establishing Caracal as a significant gold producer, mine developer and exploration company in East Africa. Our recently strengthened management is focused on achieving this growth by increasing production and reserves and resources at its existing Kilimapesa Gold Mining and Processing Operations in Kenya, and through strategic acquisitions, as evidenced with our recent transactions in Tanzania….”

To provide a bit of background here – Caracal Gold is a mid-tier gold producer in the making with a very compelling organic and acquisitive growth strategy in highly prospective East Africa. The company is the old Papillon Holdings which joined the LSE in 2016 as a shell. After a couple of false dawns, the Kilimapesa Gold Mine has been reversed into it together with a highly experienced management team equipped with the necessary funds to recommence production and really get things moving.

Caracal was readmitted to the LSE in August 2021 with big plans to rapidly increase gold production and build a substantial JORC compliant resource base in short order by taking advantage of later stage opportunities in gold projects across Kenya, Tanzania, and Uganda.

The company’s impressive management team has a bold ambition of achieving annual gold production of 50,000 ounces and a Mineral Resource Estimate (MRE) in excess of 3 million ounces of gold by the end of 2022. Gold production has risen swiftly at Kilimapesa since the reopening to 1,000oz per month. Well-defined development plans are in place to optimise operations to significantly increase production, while rapidly building up the resource base to create a reasonably sized long life mine with good margins.

It has to be said that there are also big plans for growth in Tanzania in 2022. The news flow from here is expected to include approval of the acquisition of major gold development projects, updated JORC resource and reserve and open pit optimisation studies, a new Project Team appointed to complete development studies and the completion of an updated Feasibility Study. All this work ought to pave the way for the commencement of site preparation and mine construction.

We believe that Caracal has an enviable pipeline of acquisition opportunities to be actioned in 2022. The acquisition pipeline includes one project that is close to production, coming with a recently finalised Bankable Feasibility Study (BFS). In addition, there is also a Kilimapesa look alike which is already in production. As before, vendors seem more than happy to take paper as they appreciate that the Caracal team is successfully and rapidly adding value.

Align Research very recently initiated coverage on Caracal Gold with a Conviction Buy stance and a target price of 2.73p. We are more than happy to confirm our stance.

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