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Statement re Dutwa Project Update
21st January 2010
AFRICAN EAGLE RESOURCES plc
DUTWA CONTINUES TO YIELD POSITIVE RESULTS
Pre-feasibility study making good progress
Dear shareholder,
I am delighted to report that the results from our Dutwa nickel project in Tanzania since we completed our strategic review have more than vindicated our decision to concentrate our efforts and resources on our nickel projects. In particular:
- Metallurgical tests have shown Dutwa to be one of the most amenable nickel laterite deposits in the world to low-cost leaching techniques
- The exceptional mineralogy of the deposit appears to be facilitating excellent nickel recovery
- We exercised an option over the adjacent Ngasamo deposit, which we believe could add around 50% to the Dutwa resource
- Our scoping study indicated that the project is likely to be economically viable
- The nickel price has increased to $8.50 per pound today from a low of $4.30 in February
- Early drilling and metallurgical results have shown that Zanzui, 60km south of Dutwa, is a similar and potentially larger nickel deposit
Our plans for the coming months are to:
- Appoint a project metallurgist
- Complete resource drilling at Ngasamo
- Perform comprehensive deposit modelling of Dutwa and Ngasamo
- Publish measured and indicated resources for the deposits
- Conduct further metallurgical tests to determine the best processing options
- Review and refine transport and logistics options
- Conduct resource definition drilling and metallurgical test work at Zanzui
- Divest or farm-out our non-core assets: Zambian copper and Tanzanian gold projects
Focus on Dutwa
The economic viability of any nickel laterite deposit depends on its metallurgy, resource geology and location. The Dutwa scoping study, even though completed before we received the latest metallurgical results, indicated that Dutwa would be profitable, if it were in production today.
Metallurgical tests have shown that the Dutwa ore is unusually, perhaps uniquely, amenable to acid leaching. Acid consumption is very low and the leach reaction is very fast compared to other nickel laterites around the world.
In early December, we reported interim results from column tests, which gave 60% to 70% nickel extraction after just 16 days acid leaching. Now, after 55 days, extraction has risen to around 80% for all three tests. In comparison, at one of the few operating nickel heap leach projects for which published data are available, almost one year of leaching was required to extract 60% of the nickel from trial heaps and 540 days to extract 80%.
We believe this is due to the exceptional mineralogy of the deposit, which comprises more than 50% silica (quartz) and has a very low iron, magnesium and clay content. In fact, Dutwa could best be described as a silica oxide nickel deposit. This contrasts with many other nickel laterite deposits elsewhere in the world, which have much higher iron and clay contents and have to be treated using capital intensive high-pressure acid leaching. We believe that nature has done much of the heavy work for us, removing much of the iron and magnesium from the deposit while leaving the nickel and cobalt largely untouched, thanks to the geological history of East Africa.
These extremely fast leaching kinetics have important profitability implications, especially for the heap leach method, meaning that working capital will not be tied up for many months while the heap reaches full productivity. As our MD, Mark Parker, noted when we announced the interim results, "The fast leaching reaction, low acid consumption and good nickel extraction shown by these tests are extremely positive indicators for the viability and profitability of the project."
Indeed, it seems that we may have identified a whole new province of nickel laterites which are uniquely amenable to low-cost leaching. As well as Dutwa and Ngasamo, we hold the Zanzui project, which has the potential to be twice as large as Dutwa. Our preliminary metallurgical tests showed that Zanzui shares the same fast, low-acid leaching characteristics as Dutwa. Zanzui is only 60km from Dutwa and offers potential economies of scale for the development. We also have our eyes on other deposits in the region.
Last week we received the transport and logistics report, commissioned after the scoping study identified transport as a substantial input cost. The report confirmed that transport costs estimated for the scoping study were reasonable. The report also identified numerous infrastructure improvements underway or planned, including road building and a major upgrade to the railways, which should work to decrease these costs.
We expect shortly to recruit a metallurgist to lead the search for the best processing option, and in due course, to manage the development of the Dutwa mine.
Corporate developments
Having weathered the storm of the global financial crisis, African Eagle was able to raise new capital last August. We were very keen to give as many private shareholders as possible the opportunity to take part in the capital raising, whilst keeping costs to a minimum. To do so, we successfully worked through a raft of complex rules and regulations in Europe, although we were not able to extend the Offer into South Africa. The Open Offer to shareholders was oversubscribed, and together with a small Placing to institutional investors, we raised £3.37 million, before costs.
Currently, our efforts to divest our "non-core" assets are also making progress. As we seek to gain the best value for shareholders, we have been talking to several interested parties and investigating different ways to achieve that value. We are confident that we will announce agreements in due course.
Euan Worthington
Chairman
Qualified Person
Information in this report relating to exploration results is based on data reviewed by Mr Christopher Davies BSc, MSc, DIC, FSEG, FAusIMM, Operations Director for African Eagle, who is a Fellow of the Australasian Institute of Mining and Metallurgy, has more than 27 years' relevant experience in mineral exploration, and is a Qualified Person under AIM rules. Mr Davies consents to the inclusion of the information in the form and context in which it appears.
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 | Euan Worthington |
| Managing Director | Chairman |
| African Eagle Resources plc | |
| +44 20 7248 6059 | +44 20 7248 6059 |
| +44 77 5640 6899 | +44 77 5386 2097 |
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.
The Company holds a 90% interest, with option to acquire 100%, over the Dutwa laterite deposit and in 2009, signed a Letter of Intent for an option and joint venture over another nickel laterite at Ngasamo, 5km west. In all, African Eagle has explored a total area of more than 750km² in the project area.
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.
The Study indicates that Dutwa, if it were in production today, would be profitable. Earnings, on an EBIT basis over the life of mine, would be of the order of $2.3 billion, giving an internal rate of return around 25%.
As a potentially low-cost producer, the upside for the Dutwa project is considerable if nickel prices are above the $7/lb used in the base case. The following table shows the key metrics for several upside cases.
| Ni price | US$/lb | 9.00 | 8.50 | 8.00 | 7.50 | 7.00 | 6.50 |
| Life of mine EBIT | $M | 2,600 | 2,300 | 2,000 | 1,800 | 1,500 | 1,200 |
| Pre-tax IRR | % | 31 | 27 | 24 | 21 | 17 | 13 |
| Post-tax IRR | % | 27 | 24 | 21 | 18 | 15 | 11 |
| Pre-tax NPV | $M | 640 | 530 | 420 | 310 | 200 | 90 |
| Post-tax NPV | $M | 430 | 350 | 270 | 190 | 110 | 30 |
|
Base case:
Nickel price = US$ 7/lb ($15,430/tonne)
The financial modelling was conducted in US dollars with an estimated accuracy of ±30%
|
Abbreviations:
EBIT = Earnings before interest and tax All numbers stated to 2 significant digits
|
The Study adopted a fairly broad brush approach to many of the costs, to demonstrate "proof of concept" and provide indicative economics. GRD Minproc estimated 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.
In August, the Company raised £3.3M additional capital through a Placing and Offer, to address these issues and progress the project towards feasibility. Further metallurgical testing has commenced on drill core samples at Mintek laboratories in South Africa and the Company has started infill drilling at Dutwa and resource drilling at Ngasamo.
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.
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.
Subsequently, laboratory column and tank leach tests have confirmed the low acid consumption and shown that the leaching reaction proceeds extremely fast. The column tests gave 60% to 70% nickel extraction after just 16 days and more than 80% after 55 days, In comparison, at Caldag in Turkey, operator European Nickel plc reports that almost one year of leaching was required to extract 60% of the nickel from trial heaps and 540 days to extract 80%.
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%).
UK Office & Registered Address : 2nd Floor, 6-7 Queen Street, London, EC4N 1SP, UK,
+44 20 72 48 60 59 Fax +44 20 76 91 77 45 e-mail info@africaneagle.co.uk
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