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AEX Gold (LON: AEXG) shares plunged on Wednesday after the company revealed it has decided to defer the development of the Nalunaq mine in Greenland due to coronavirus travel restrictions.

The company said that Greenland's government implemented a temporary travel ban, initially effective until the end of February 2021; however, there is a risk it could be extended.

Due to the current restrictions and the fact that the project is dependent on the company being able to access the property with both externally contracted and locally sourced labour, the company feels they won't be able to deploy the size of workforce necessary to complete the development of the project and meet the timeframe initially envisaged.

As part of ATX’s planning before deploying the more significant part of the Nalunaq development programme, the project’s budget has incurred several areas of “very significant” cost increases related to the rise in logistics costs as a result of the current Covid-19 pandemic.

There has also been widespread and material inflation relating to mining activity and equipment resulting from positive commodity prices globally.

There are two notable areas of specific overrun noted by AEX, which will require further external capital to resolve according to the company.

The first is that AEX decided to include flotation circuit to the development as a low-cost and highly value accretive secondary recovery process, but it requires additional civil engineering.

Secondly, an external consultant is required to assess various aspects of the mining, including the structural stability of a concrete bulkhead located near the main portal inside the mine. The bulkhead has been assessed as unsafe, and the company believes it cannot proceed with its previous development plan until it is rectified.

While it does not consider it to be a significant project in its own right, the Covid related restrictions of movement and personnel mean it represents a material risk to the successful completion of the summer 20/21 development programme, which would delay production and reduce initial head grade with a consequent fall in early-stage revenue.

ATX noted it has committed approximately C$13 million to long lead items to date, some of which may be recoverable and about C$58 million of cash on hand.

Therefore it has assessed that the fluidity of both the operational risk and variability in costs is too great to warrant committing the bulk of the company's available liquidity in a timeframe that would permit company's current development scheduled to be met. So, they have deferred the development.

AEX’s management is reviewing various scenarios and will commence a short period of consultation with shareholders.

“AEX's intention is unwavering in executing its objective to maximise value from its vast southern Greenland gold licences. The potential to add a flotation circuit is an example of adding significant value through increasing recovery rates. Whilst we would prefer not to defer the development schedule this is a necessary action in the context of our current circumstances,” said Eldur Olafsson CEO of AEX.

The company’s stock price closed at 30.5p on Wednesday, down 44.73%.

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