Capital Drilling says it has signed binding agreements with Allied Gold Corp for the provision of a full range of mining services to its Bonikro gold mine in Côte d’Ivoire.

Additionally, Capital Drilling has made a strategic investment of $3 million in Allied.

The contract represents the company’s first comprehensive mining services contract win, with Capital Drilling now able to provide load and haul services to its clients in addition to its existing drilling, maintenance and mineral analytic capabilities.

Bonikro is a producing gold mine in Côte d’Ivoire which commenced production in 2008 and was previously operated by Newcrest, prior to the sale of its majority interest to a consortium of F&M Gold Resources and the Africa Finance Corp, in December 2017, and the recent acquisition by Allied. It has historically produced over 1 Moz of gold. With existing in-pit resources of 1.17 Moz of gold, Allied expects to produce approximately 120,000 oz of gold in the coming 12 months, Capital Drilling said.

Under the agreements, which are in addition to the previously announced exploration drilling contract, Capital Drilling will provide a full range of mining services at Bonikro including drill and blast, load and haul, grade control dewatering.

Capital Drilling commenced a phased management oversight at the Bonikro site in July 2019 with a small team of personnel, followed by an expanded team in September.

The company recently attained management control of mining operations and is working closely with Allied’s management to refine the Bonikro mine plan, it said. “Once the mine plan has been confirmed, the parties intend that the agreements will transition in the first half of 2020 to a comprehensive schedule of rates contract, primarily linked to tonnes mined and moved (schedule of rates contract).

Subject to the agreement of the schedule of rates contract, it is intended that the initial term of the contract will be five years, with contract revenues subject to the confirmation of mine plans and the terms of the schedule of rates contract. It is anticipated that revenue for 2020 will be in the range of $25-$30 million, with activity primarily focussed on the existing Hiré pits before ramping up over the life of the contract.

The contract will initially utilise five production rigs (blast hole and grade control), including two from Capital Drilling’s existing fleet. Furthermore, Capital Drilling will assume management control of Bonikro’s heavy mining equipment (HME) fleet including 16 mining dump trucks, four mining shovels and other associated mining equipment, “providing the group with a unique opportunity to enter into a contract of this nature with modest immediate capital requirements”.

Capital Drilling says it has committed to supplement the existing HME fleet with additional equipment at its own cost, including one excavator, three bulldozers and auxiliary equipment to ensure that the contracted material movement is achieved.

“Together with the three new blast hole rigs to be acquired, near term capital commitments are expected to total approximately $8 million, apportioned between the drilling fleet ($4 million) and the ancillary earth moving equipment ($4 million).

Under the agreements, Capital Drilling assumes full responsibility for the on-going upkeep and maintenance of the HME fleet and will assess longer term capital requirements as the contract progresses, the company said.

Commenting on the contract win and strategic investment, Jamie Boyton, Executive Chairman of Capital Drilling, said: “We are excited to embark on this new phase for Capital Drilling and to commence our first comprehensive mining services contract. Load and haul operations are a natural extension to our existing world-class drilling and maintenance capabilities. It means we can now offer clients a completely integrated mining service from initial exploration drilling right through to extraction and delivery of ore to the mill. We will draw on the extensive experience of our team to successfully incorporate and deliver this new service.

“It is also pleasing to add another long-term contract to our existing portfolio of long term, mine-site based projects. Further to this, our strategic investment into Allied represents a transformational opportunity for Capital Drilling. It expands our revenue sources into less cyclical mine-site based activities, while being aligned to our growth strategy of building a superior portfolio of long-term contracts.

“Allied’s pipeline also presents substantial growth opportunities and we look forward to working closely with the company to deliver incremental operational and productivity improvements at the Bonikro site. We anticipate this strategic investment, together with the addition of load and haul services, will provide further long-term growth opportunities with projects in the production phase and greater revenue and earnings sustainability in the future.”