| Wed 29 Jul 2009, 8:00 | | AFA - African Eagle Resources plc - Scoping Study Report On Dutwa Nickel |
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AEA
AEA
AFA - African Eagle Resources plc - Scoping Study Report On Dutwa Nickel
Project Delivered To African Eagle Management
African Eagle Resources plc
(Incorporated in England and Wales, registered number 3912362)
AIM share code: AFE AIM ISIN: GB0003394813
JSE share code: AEA JSE ISIN: GB0003394813
SCOPING STUDY REPORT ON DUTWA NICKEL PROJECT
DELIVERED TO AFRICAN EAGLE MANAGEMENT
Work started on Feasibility Study
- Report conclusions indicate that project would be profitable if
operating today
- Sensitivity analysis shows significant project upside, based on
reasonable economic parameters
- African Eagle begins work on feasibility study
African Eagle announces that it has now received the full Scoping Study
report on the Dutwa Nickel Laterite Project in Tanzania, undertaken by GRD
Minproc of Perth, Australia, and confirms that work on the feasibility study
is now beginning.
African Eagle`s Managing Director Mark Parker commented, "Using current
metals prices and recent long-term forecast prices, the investment case for
the project is very strong. The study indicates that if Dutwa were in
production today, it would be making a comfortable profit. The report`s
conclusions allow the Company to examine further aspects of the project, in
particular:
- the potential upside at metals prices higher than base case prices
- opportunities to improve the "bottom line" still further by cost
reductions and revenue optimisation."
"In the context of a gold project, at today`s metal prices the Dutwa nickel
project is approximately equivalent to a nine million ounce gold deposit in
"metal in the ground" value terms and our discovery cost to date of US$7.50
per tonne of nickel is equivalent in value terms to a gold discovery cost of
about USCents (USD)35 per ounce, just 1/70th of the long-term gold industry
average of US$25/oz."
Following the Company`s initial announcement of the "proof of concept"
scoping study results on 24 June 2009, the final report now delivered shows
the potential upside at metals prices higher than the base case and allows
the Company to begin work to improve the "bottom line" by reducing costs and
optimising revenues.
Recent consensus among a number of analysts is that nickel prices are likely
to improve over the long term. For example, in an analysis published on 25
June 2009, BMO Research forecast a long-term price of US$8.50/lb.
As a potentially low-cost producer, the upside for the Dutwa project is
considerable if nickel prices are above the $7/lb used in the base case. The
following table shows the key metrics for several upside cases, including the
$8.50 BMO long-term forecast and today`s prices of $7.68/lb nickel and $18/lb
cobalt (27 July 2009).
Ni price US$/lb 8.50 7.68 7.50 7.00 6.50
Co price US$/lb 15.00 18.00 15.00 10.00 10.00
Average EBIT $M/yr 130 110 100 87 71
Pre-tax IRR % 28 23 22 18 14
Post-tax IRR % 24 20 18 15 12
Pre-tax NPV $M 554 390 336 230 117
Post-tax NPV $M 367 247 210 130 47
Case BMO 27 Base
forecast July case
Base case: Abbreviations:
Nickel price = US$ 7/lb EBIT = Earnings before
($15,430/tonne) interest and tax
Cobalt price = US$ 10/lb IRR = Internal Rate of
Discount rate = 10% Return
Transport cost = US$100/tonne NPV = Net Present Value
(8Cents (USD)/tonne/km) DCF = Discounted cash
Tax rate = 30%, fiscal incentives flow analysis
not accounted
Royalty = 3% All numbers stated to 2
significant digits
The financial modelling was
conducted in US dollars with an
estimated accuracy of +/-30%
The Study indicates that Dutwa, if it were in production today, would be
profitable. Earnings, on an EBIT basis, would be of the order of $110 million
per annum on average over the life of mine, giving an internal rate of return
around 20%.
To provide indicative economics and demonstrate "proof of concept" at this
stage, the Study adopted a fairly broad brush approach to many of the costs
with GRD Minproc estimating individual capital and operating costs to +/-
30%, based on their considerable experience with nickel laterites. These
variables will be determined with more accuracy and confidence during the
forthcoming feasibility work.
The Study identified several key areas where further testwork and detailed
study are especially likely to result in improvements to the "bottom line" or
to important gains in confidence. These areas include:
- Improved global deposit model and the potential for early "high-
grading". The Ngasamo resource will be drilled and incorporated into a
more sophisticated global resource model and mining plan. From this, it
will be possible to establish whether richer ore can be mined first,
giving increased early cash-flow and an improved NPV.
- Ore beneficiation and project scale. The capital and operating costs of
the plant would be reduced if mechanical beneficiation of the ore prior
to leaching yields a smaller tonnage of richer material for processing
through the plant.
- Advanced leaching testwork. Column and vat leach tests at bench and
pilot scale will determine the best operating conditions to optimise
nickel extraction, including acid concentration, residence time and
temperature.
- Reagent cost reductions. The cost of reagents, notably sulphur and
lime, will be a significant component of operating costs and
profitability will increase considerably if these costs are minimised.
Transport is a substantial part of the reagent costs and ways to
minimise this will be investigated, as will the availability of more
local sources, particularly of lime.
- More sophisticated fiscal and economic modelling. Tanzania offers a
number of tax incentives for exploration and mine development, which
were not fully accounted in the Study economic model.
While the Company is raising funds to address these activities and studies in
order to progress the project towards feasibility, it has already committed
some of its current cash reserve to start the work with further metallurgical
testing having commenced on drill core samples at Mintek laboratories in
South Africa. The Company will also start resource drilling at Ngasamo in
September.
Technical terms
A glossary of technical terms used by African Eagle in this announcement and
other published material may be found at
www.africaneagle.co.uk/p/glossary.asp
For further information:
Mark Parker
Managing Director
African Eagle
+44 20 7248 6059
+44 77 5640 6899
Nicola Marrin
Seymour Pierce Limited, London
Nominated Adviser
+ 44 20 7107 8000
Charmane Russell
Russell & Associates, Johannesburg
+ 27 11 8803924
+27 82 8928052
Ed Portman / Leesa Peters
Conduit PR, London
+44 20 7429 6607
+44 77 3336 3501
About African Eagle
African Eagle is a diversified mineral exploration and development company
operating in eastern and central Africa. The Company`s principal advanced
assets are the Dutwa nickel laterite discovery in Tanzania, where the Company
completed a scoping study in June 2009, and its 49% interest in the Mkushi
Copper Mines joint venture project in Zambia, for which a draft feasibility
study was completed in Q4 2008.
African Eagle is evaluating a second promising nickel laterite deposit at
Zanzui in Tanzania and has defined a JORC gold resource estimated at half a
million ounces at its Miyabi gold project in Tanzania. The Company holds a
well-balanced portfolio of promising earlier stage gold, copper, platinum and
uranium projects, including the Ndola and Mokambo projects in the Zambian
Copperbelt and the Igurubi gold project in Tanzania.
Zambia, Tanzania and Mozambique, the sites of African Eagle`s projects, are
all countries which have highly prospective geology, relatively low above-
ground risks and track records of successful major investments in the metals
and minerals industries.
In December 2008, African Eagle resolved to prioritise the Dutwa project,
because the Board believes that, of all the Company`s projects, it offered
the greatest potential to add value. To take its other discoveries into
production, African Eagle is seeking industry partners with records of
successful mine development, by means of joint ventures, farm-ins, spin-outs
or other mechanisms.
About the Dutwa Project
African Eagle has discovered a significant nickel laterite deposit in the
Dutwa project area in the Lake Victoria Goldfield. Within Tanzania, the
project is favourably situated 100km east of the railhead at Mwanza and close
to the main Mwanza-Nairobi trunk road, a major power line and the shore of
Lake Victoria.
Since the discovery of the Dutwa nickel deposit in June 2008, African Eagle
has explored the project very quickly and cost-effectively, including
resource drilling and an independent resource estimate; laboratory
metallurgical and mineralogical tests which revealed that the deposit could
be processed efficiently by sulphuric acid leaching. On 24 June 2009, the
Company announced the results of its "proof of concept" scoping study. The
study, by GRD Minproc of Perth, Western Australia, indicated that the project
can be economically viable, and African Eagle has now begun work towards a
definitive feasibility study.
For the study, GRD Minproc reviewed information provided by African Eagle
relating to the geology, resources, setting, mineralogy and metallurgy of the
deposit, and the infrastructure in Tanzania and neighbouring countries,
combining this information with its own internal data and experience, to
develop and calculate the economics of ten alternative mining and process
plant options. Costs were estimated in US dollars, to an accuracy of +/-30%.
The economic modelling was an iterative process, feeding back into the mining
plans and the process designs.
GRD Minproc used Whittle mine modelling to optimise the mining plan and cut-
off grade for each process option, based on the deposit model and JORC
compliant resource of 31 million tonnes at 1.1% nickel and 0.034% cobalt
produced by SRK in November 2008. GRD Minproc added a 50% upside, to take
into account the nearby Ngasamo laterite, which adds a potential 15-20
million additional tonnes.
The study showed that the optimum process option is likely to be atmospheric
tank leach, but the project may also be viable using heap leaching. High-
pressure acid leach with direct solvent extraction of the nickel is also
potentially economically feasible.
The financial modelling showed that at today`s nickel prices, the project can
be expected to generate a net cash-flow (EBIT) of US$ 53 million to 130
million per year over a mine life of 15 to 20 years, depending on the
processing method. The detailed results are set out in the table below.
The study also shows a good investment case for the project, with a post-tax
internal rate of return (IRR) of 15% and a net present value (NPV) of US$110
million, using a base case of a 10% discount rate of 10%, a US$7/lb nickel
price, with the best processing option (AL/MSP). The pre-tax NPV is US$200
million.
The cost of reagents, especially sulphur and lime, will be a major component
of operating costs and sensitivity analysis shows that returns can be
considerably increased if these costs can be minimised. Also, as
anticipated, transport costs will form a significant contribution to
operating costs and the Company will investigate ways to minimise them. The
base case used transport costs of US$0.08 per tonne per km; the NPV rises to
$210 million (post-tax) or US$350 million (pre-tax) and the IRR increases to
15.5% if the transport costs can be reduced by 25% and an 8% discount rate is
used.
The study demonstrated that further feasibility studies are now justified and
the Company has commenced work on these. The initial work will be directed
towards investigating ways to reduce costs and increase revenues, together
with drilling the adjacent Ngasamo deposit, improving the resource model and
refining the metallurgical information. A start has already been made on the
additional metallurgical test work at Mintek Laboratories in South Africa,
including column and tank leach tests, sizing analysis and physical test work
to establish more definitively the optimum processing routes.
African Eagle acquired the Dutwa project for its gold potential, but the
Company`s exploration team quickly recognised that there was significant
nickel laterite potential. There is very little outcrop, so the Company
conducted extensive ground magnetic surveys to reveal the underlying
structure and geology. The Company also compiled historical data, including
detailed geological maps and trench results dating from 1956, when rock chip
samples from the trenches over the ultramafic rocks were reported as yielding
up to 1.9% nickel and 10% chromium.
In all, African Eagle has explored a total area of more than 750kmSquared in
the Dutwa project area. The Company holds a 90% interest, with option to
acquire 100%, over the Dutwa laterite deposit itself. In April 2009, African
Eagle signed a Letter of Intent for an option and joint venture over another
nickel laterite at Ngasamo, 5km west of the Dutwa deposit.
Greenstones and granites underlie the project area. The greenstones, of
Archaean Nyanzian age, are mostly metamorphosed volcanic and sedimentary
rocks, with some banded iron formation in the east. Several large ultramafic
bodies occur within the greenstones and the nickel laterites form a blanket
up to 60m thick on top of these.
To investigate the nickel discovery, the Company undertook trial drilling in
June 2008. The results were very encouraging and a 139-hole reverse
circulation (RC) drilling programme was completed to delineate the resource.
African Eagle also undertook a 10-hole diamond drill programme to obtain core
samples for metallurgical testing and density measurements.
In November 2008, African Eagle announced an initial Inferred Mineral
Resource estimate of 31 million tonnes at an average grade of 1.1% nickel and
0.034% cobalt. At a cut-off grade of 0.5% nickel, this gives Dutwa a
contained metal endowment of some 340,000 tonnes of nickel and 11,000 tonnes
of cobalt. The estimate was prepared by independent consultants SRK
Consulting (UK) Ltd in line with the Australasian Code for Reporting of
Mineral Resources and Ore Reserves (the JORC Code). A little additional
drilling and more advanced geostatistics and deposit modelling will be needed
to upgrade the resource to Indicated category.
Ngasamo Hill, 5km west of the Dutwa deposit, is geologically very similar and
holds a laterite deposit of the order of 15 to 20 million tonnes, which would
increase the global resource at Dutwa from the currently defined 31 million
tonnes at 1.1% nickel, to some 45 - 50 million tonnes. Drilling and
metallurgical tests will be needed to confirm the size, grade and
compatibility of Ngasamo. Under its agreement with Ngasamo`s owners, (Safina
a.s. of the Czech Republic and its Tanzanian subsidiary Precious Metals
Refinery Company Ltd), African Eagle can earn an interest of at least 50% and
up to 75% in Ngasamo by carrying out exploration and evaluation work, up to a
feasibility study.
Mintek Laboratories in Johannesburg investigated the mineralogy and
metallurgy of mineralised drill samples from the deposit, including extended
`bottle roll` sulphuric acid leach tests to investigate metal recoveries and
acid consumption. Mintek also carried out mineralogical characterisation by X-
ray diffraction (XRD), scanning electron microscopy (SEM) and polished
section work.
The bottle roll test results showed nickel extractions of 70-90% with an
average of 83%. Cobalt extractions were mostly in the range 70 to 85%. The
acid consumptions, averaging 209kg/t, are very low compared to other Ni
laterite ores worldwide.
The mineralogical investigations show that the laterite is extremely silica-
rich, with low iron and magnesium content, indicating that Dutwa is not a
typical laterite nickel deposit. Mintek believes that much of the nickel and
cobalt occurs in "wad" with manganese content of 20-60%, nickel content of up
to 20% and cobalt content of up to 10%.
The unusual mineralogy of the deposit is highly beneficial, as it results in
lower acid consumption and is expected to give good heap leach permeability
or favourable liquid-solid separation in tank leaching. The concentration of
nickel and cobalt in the manganese wad offers the possibility that mechanical
selection of high-grade material may allow reduced throughput and hence a
lower cost processing plant.
The Company is also investigating other potential nickel laterite deposits in
Tanzania, and has completed a trial programme of RC drilling to test a
laterite at its Zanzui project, 60km to the south of Dutwa. Results included
42m at 1.05% nickel (including 6m at 2.80%) and 33m at 0.91% nickel
(including 9m at 1.41%).
29 July 2009
Sponsor
Nedbank Capital
Date: 29/07/2009 08:00:02 Produced by the JSE SENS Department.
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