JOHANNESBURG (miningweekly.com) – Aim-listed Sierra Rutile has kicked off the first of two development phases at the openpit Gangama dry mine, in Sierra Leone, outlining in a statement on Tuesday that Phase 1 would see the construction of a 500 t/h operation that would likely deliver the first batch of rutile in the second quarter of next year.

This would be followed by the development of Phase 2 and a separate 500 t/h unit, which remained subject to supportive market conditions.

Capital expenditure for the project was expected to be about $77-million, with $44-million of to be spent during the Phase 1 development.

Phase 1 was expected to reduce Sierra Rutile's total operating cash costs to $595/t and all-in operating cash costs to $670/t on average over the first five years of the project.

The Phase 2 expansion costs would reduce further to $535/t and $600/t respectively over this period.

The miner added that it had calculated a first-phase internal rate of return (IRR) of 81% and a net present value (NPV) of $232-million, while the combined Phase 1 and 2 offered an after-tax IRR of 83% and an NPV of $351-million.

In its first three years, Phase 1 of the Gangama project would increase rutile production by an average of 21 000 t over the volume sold by Sierra Rutile in 2014, ensuring the additional volumes could be easily absorbed by the market.

The initial phase remained fully funded through internally generated cash flows and a modest drawdown on the $30-million Nedbank senior term loan facility.

“A $15-million standby loan facility has also been entered into with Pala Investments to ensure there is no risk of cash tightness during the construction period,” the company noted.

Commenting on the expansion plans, CEO John Sisay said the Gangama dry mine was an “extremely compelling” project that would drive down unit production costs and cement Sierra Rutile as a premier low-cost producer of high-grade feedstocks across the cycle.

“Progressing the project without the need of additional equity finance and without placing undue strain on our balance sheet is very important, and positions us well to fulfil our aspiration to become a mature, cash-generative company and, ultimately, a dividend-yielding company in the medium term,” he asserted.

Sierra Rutile’s existing mine in Sierra Leone produced 114 163 t of rutile and 35 839 t of ilmenite in 2014.