Developing, constructing and advancing a gold mine to production is far from easy and rarely comes without a few hiccups. This is exactly the case for True Gold (OTCQX:RVREF) and its Karma project, where construction activities have been temporarily halted as a result of a disturbance in a local community.
"The Company is working closely with a delegation from the Burkina Faso Ministry of Mines as well as the regional government to address the community's concerns and establish a timely return to normal operations," the company said in the release.
The Karma site has not been affected by the disruption and remains fully secured, according to the company. In addition, the company expects the situation to be rectified shortly and has not changed its initial production target of year-end 2015.
In a previous article on True Gold, I argued shares were worth considering after the company landed a $120 million financing package with Sandstorm Gold (NYSEMKT:SAND) and Franco Nevada (NYSE:FNV), plus a new cement contract, which puts the company in a great position to advance its fully-permitted Karma gold project. With 97,000 ounces of gold to be produced annually at projected all-in costs less than $700 per ounce, I argued that this gold mine could end up becoming a big free cash flow generator for True Gold. The project remains on time and on budget, and recent insider purchases increased my conviction in the stock.
This news is certainly a setback for True Gold and leaves investors with a few question marks. Mainly, what exactly is the disturbance in the local community? This was left unexplained by the news release, although it likely refers to political unrest and protests after natives forced former the former Burkina Faso President to step down. Protesters had previously marched on the presidential palace and burned the parliament building, according to this article. But with the President already resigned from his position, it is unclear why there would be any new protests since this is what protesters wanted. This adds a layer of uncertainty to an investment in any Burkina Faso-based gold miner, including True Gold. I remain bullish on shares, but cautiously so.
Disclosure: The author is long SAND, FNV.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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