African Eagle Resources Regulatory News (AFE)

1 Feb 2008 09:55

African Eagle Resources PLC01 February 2008 AFRICAN EAGLE RESOURCES PLC POSITIVE PRE-FEASIBILITY STUDY FROM MKUSHI COPPER PROJECT, ZAMBIA AND LATEST DRILL RESULTS Highlights • Pre-feasibility Study demonstrates viability of project • Definitive Feasibility Study to be completed in Q4 this year • Interim resource estimate of 10.7Mt at 1.11% copper • Projected total net pre-tax cash flow approx. US$215M • Estimated NPV US$ 60-70M and IRR 35-40% • Capital requirement of US$65-70M • Minimum mine life of 6 years at 1.6 Mt per annum • Open pit contract mining • Mill and float plant delivering 96% recovery to a 28% copper concentrate • New drill results include 1.75% copper over 26m and 2.71% over 9m • Upside potential along strike, at depth and in surrounding area African Eagle's Managing Director Mark Parker said: "The results of this studyare very positive. We look forward to completion of the definitive feasibilitystudy leading to a final production decision later this year. Development ofMkushi will be a turning point in African Eagle's history". African Eagle Resources plc ("African Eagle", "AFE" or "the Company", tickerAIM: AFE, AltX: AEA) today announces that its 49% owned Mkushi Copper JointVenture, has completed a study to assess the viability of developing an open pitcopper mine, processing facility and associated infrastructure at the MkushiCopper Project in Zambia (the "Study"). The Study was undertaken by the JointVenture technical team supported by independent technical consultants whenrequired. The study addressed the geological, mining engineering, metallurgy, mineralprocessing, tailings disposal, environmental impact, infrastructure, utilitiesand manpower aspects of the project in some detail, and conducted a financialanalysis including tests of the sensitivity of the project to such variables ascopper price, input costs, ore grade, ore/waste ratio and mine life. Because the drilling programme is still underway, an interim resource estimateof 10.7Mt at 1.11% copper was used for the Study, based on the drill results toQ3 2007. This estimate was made internally by the Joint Venture technical teamand although not yet independently reviewed, provides confidence that sufficientresources exist to make the project payable. The Study concluded that the project is economically viable at current pricesand the Joint Venture is now committed to prepare a definitive feasibilitystudy, which will include an independently audited resource report fullycompliant to Canadian NI 43-101. The premise of the Study was an open pit mine operated by contractors, feeding1.6Mt of ore per annum to a flotation plant delivering a 28% copper concentrate.The estimated capital cost of the plant and infrastructure is US$61M. On thebasis of the interim resource estimate, the mine would have a minimum life of 6years. At the 2007 average copper price of US$3/lb, the total net pre-tax cashflow would be around US$215M and the estimated NPV and IRR, US$60-70M and 35-40%respectively, at 10% discount rate. In addition to the Study, the Joint Venture has reported new results from itscontinuing drilling programme, which is directed towards defining the copperreserves and resources for the definitive feasibility study due for completionin late 2008. The new results include: €1.75% copper over 26m and 2.71% over 9m from the Munshiwemba Zone €2.05% over 9m from G-Zone €1.93% over 9m and 0.6% over 33m from H-Zone Geological resource Prior to establishment of the JV, AFE's wholly owned Zambian operating Company,Katanga Resources Limited, carried out almost 10,000m of exploration drilling.Subsequently, the JV has carried out an additional 16,000m of diamond drillingand 6,100m of reverse circulation ("RC") drilling, and combined all the drillingand sampling data into a digital database. Based on the results to mid-Q3 2007, the JV commissioned a geologicalinterpretation and evaluation of the orebody by an experienced geologist withappropriate expertise in copper sulphide mineralisation and resources modelling.The interim resource estimate made on this basis was 10.7Mt at 1.11% copper.Although this estimate was made internally by the JV and has not yet beenindependently reviewed, it provides confidence that sufficient resources existto make the project economically viable. Drilling will continue into Q2 2008 andas part of the definitive feasibility study, the partners will prepare auditedresource and reserve statements in accordance with Canadian NI 43-101. Financial Analysis The preliminary financial analysis from the Study indicates that the project islikely to be economically viable and the Joint Venture now intends to prepare adetailed feasibility study. The estimated capital requirements determined by the Study (based primarily onwork carried out by Metplant Engineering Services Pty Ltd) is US$61M, includinga contingency of U$5M. The breakdown of the capital cost estimate is set outbelow. US$MMine 3.3Infrastructure, buildings and Utilities 15.7Process Plant 33.1EPCM 8.8 ------ TOTAL 60.9 Based on these capital requirements, current standard industry costs andproductivity, the resource estimated from results of drilling to mid-Q3 2007 andassuming a copper price of US$3.0/lb, the indicative analysis set out in theStudy suggests that the net pre-tax cash flow from the project will be of theorder of US$215M over an estimated mine life of 6 years. On this basis, at adiscount rate of 10% and taking royalties and taxes into account, the NPV wouldbe US$ 60-70M and the IRR 35-40%. Tenure and Ownership The copper deposits at Mkushi which form the basis of the Study lie withinExploration Licence No. PL114. This is surrounded by a larger ExplorationLicence, No. PL290. Both licences are held by Mkushi Copper Joint VentureCompany ("MCJV") which is a joint venture owned 51% by Seringa Mining Company("Seringa", a wholly owned subsidiary of CGA) and 49% by Katanga ResourcesCompany ("Katanga", African Eagle's wholly-owned Zambian subsidiary). Location The project is located in north central Zambia, some 220 km northeast of thecapital city of Lusaka and 35 km east of the regional township of Kapiri Mposhi.The site is easily accessible via a 20km gravel road leading from the sealedhighway from Lusaka through Kapiri Mposhi towards Tanzania. Plentiful water andelectrical power is available nearby. The site lies at an altitude of 1100m ASL. Geology and history The main Mkushi copper deposit is a shear hosted sub-vertical suite ofmineralisation extending over a distance of 2km, a length of 800m of which isexposed in an existing open pit. The deposit is part of a broader mineralizedbelt extending over more than 12km within the tenements. The deposit, hosted bymetamorphic gneissic rocks and associated with a suite of felsic intrusiverocks, is structurally complex, with evidence of several generations offaulting. The mineralisation pinches and swells along strike and to depth.Copper mineralisation has been intersected to 300m vertical depth. The project is located close to the southern end of the Zambian Copperbelt, butthe style of mineralisation is quite different to that of the stratabounddeposits for which the copper belt is well known. The deposit was developed by an Italian mining company in the 1970s and in its 5years of operation, produced 2.2 million tonnes of ore at a grade of about 0.98%copper. The ore was processed in a small concentration facility (part of whichstill exists on site), to produce 78,000 tonne of copper concentrate at a gradeof 24% copper. The concentrate was sold to smelters within Zambia. Exploration Katanga as the manager and operator of the exploration activities outside thearea of the known resources at Mkushi, has identified a number of prospectivezones with potential for discovery of additional copper deposits. These will beinvestigated using either diamond drilling or RC drilling during the projectdevelopment phase. Mining The JV appointed Zambia-based African Mining Consultants (AMC) to review thegeotechnical conditions within the existing pit on site and develop designparameters on which to base the preliminary open pit design. The AustralianCompany AMC Consultants (AMCC), with involvement from the JV, carried out anoptimization of the in-house geological model and developed a preliminary openpit proposal. AMC advise that the pit slopes could be designed with a final overall angle ofup to 70 degrees, based on tests on drill core. Review of hydrogeological records and recent observations made since theexisting pit was dewatered, suggests that the mine will not make significantwater. The study has assumed an annual production rate of 1.6Mt per annum with an 18month pre-production period. Mining would probably progress from the north tothe south along the strike of the deposit. The study contemplates the use of a mining contractor, operating 60t haul trucksand 100t excavators, on a two shift per day basis, six days a week. Local labourwould be used extensively, with the mining contractors training local operators.Indicative costs, based on the preliminary pit designs, have been obtained fromZambian South African and Australian contractors. Metallurgy The JV commissioned AMMTEC Laboratories in Perth to conduct a metallurgical testprogramme on 196kg of sample, which was made up by quartering core from a totalof 12 diamond drill holes, representing three depth zones and covering theentire mineralized zone. A consultant metallurgist with 40 years experience inAustralia and overseas oversaw the collection of appropriate drill core samplesand supervised the test programme. The results of the programme indicate a potential 96% recovery of copper usingconventional copper sulphide flotation technology, yielding a concentratecontaining 28% copper. The samples tested, which are believed to berepresentative, do not have significant levels of any onerous minerals and theconcentrate is therefore unlikely to be liable to any smelter penalties. Ore Processing Metplant Engineering Pty Ltd, which has relevant experience in sulphidedevelopments, was commissioned to design and cost the process plant. Thefacility proposed by Metplant will comprise primary crushing followed by singlestage autogenous milling and a standard flotation circuit followed by pressurefilter drying, to recover a concentrate from the run-of-mine ore. Theconcentrate will be trucked about 200km to nearby smelters in Zambia for sale. Tailings Disposal D. Cooper and Associates planned and supervised the tailings disposalinvestigation and testwork. Process plant tailings would be sent to anappropriately designed and constructed impoundment located nearby to theprocessing facility. The proposed tailings dam is designed to allow surplus water to be recovered andreturned for use in the process plant. Environmental Impact Assessment The JV commissioned AMC to carry out a baseline study and to produce anenvironmental brief setting out the guidelines for a full environmental impactassessment to be conducted as part of the feasibility study. The investigationdid not discover any significant issues that may affect any development at theproject area. The existing tailings dump is eroding and requires remedialaction, but the JV has received confirmation from the regulatory body that theprevious operators, not the current Joint Venture, are responsible for anyremediation. The JV is considering enclosing the existing tailings within a newdevelopment so as to mitigate any possible remedial action. Infrastructure and Utilities Process water can be abstracted either directly from the nearby Lumsemfwa Riveror from a dam to be constructed on the Lumsemfwa or one of its tributaries. Afinal decision will be made as part of the feasibility study. Potable water could be sourced from the nearby river and treated to anacceptable standard. Electrical power can be sourced from either an existing National Grid powerline, located 300m north of the planned open pit or from the nearby Lumsemfwahydrostation. Power in Zambia is presently charged at US$0.34 per kW. It is proposed to upgrade the existing gravel road to allow for all year roundaccess of people and materials. Domestic suppliers of consumables, presently supplying the requirements of theZambian Copperbelt, would likely be contracted to deliver into appropriatelydesigned and constructed buildings established onsite at Mkushi. Zambian Taxation The Finance Minister of Zambia recently announced his intention to introduce anew windfall tax regime for copper mines, scaled on the incremental copper pricefrom 25% for prices between $2.5 and $3/lb to 75% for prices above $3.50/lb. Healso announced a reduction in the depreciation allowance. The proposed new taxregime will be included in the financial analysis for the definitive feasibilitystudy. New Drill Results Prior to the JV's involvement in the project, Katanga carried out almost 10,000mof exploration drilling. Subsequently, CGA carried out an additional 16,000m ofdiamond drilling and 6,100m of reverse circulation ("RC") drilling. Significant assay results from the final quarter of 2007 are indicated in thefollowing table. The results are encouraging and have extended the resourcepotential of the three principal mineralisation zones H, L and G Zones. Thepromising results from L Zone, including 14m at 1.23%Cu and 9m at 1.93m fromMH080, highlight the potential of L zone at depth and are the target of ongoingdrilling. Additional copper mineralisation has been located in the hanging wallto both L and H Zones and this will be further targeted in the ongoing drillingprogrammes. The results from the Mtuga Prospect, 3km southwest of the maindeposit, are of low order but warrant further geological assessment to assist inplanning of follow up exploration. SIGNIFICANT DIAMOND DRILL RESULTS HOLE NO PROSPECT FROM WIDTH Cu %MH078 L ZONE 126 3 1.31MH078 L ZONE 138 5 1.49MH080 L ZONE 111 22 0.46MH080 L ZONE 153 14 0.95MH080 L ZONE 229 14 1.23MH080 L ZONE 247 9 1.93MH081 L ZONE 109 10 1.07MH081A L ZONE 113 9 0.96MH081A L ZONE 249 9 1.08MH082 L ZONE 117 2 2.75MH083 H ZONE 28 3 2.95MH083 H ZONE 47 6 0.88MH083 H ZONE 64 2 2.1MH083 H ZONE 85 1 1.61MH084 L ZONE 137 7 1.26MH084 L ZONE 206 1 3.95MH085 H ZONE 25 5 1.03MH086 H ZONE 72 33 0.6MH086 H ZONE 109 9 0.9MH086 H ZONE 219 8 0.85MMT005 MTUGA 62 10 0.74MMU046 G ZONE 7 5 1.45MMU047 G ZONE 87 9 2.05MMU047 G ZONE 103 6 0.98MMU049 MUNSHIWEMBA 34 4 0.98MMU050 MUNSHIWEMBA 17 3 1.99MMU050 MUNSHIWEMBA 31 26 1.75MMU051 MUNSHIWEMBA 48 9 2.71 John ParkChairmanAfrican Eagle Resources plc 1 February 2008 Qualified PersonThe Study from which much of this report was abstracted was prepared under thesupervision of Mr Geoff.G.Jones, F.Aus.I.M.M.CP Mng, who is acting as theQualified Person for the JV Mr Jones is a fellow of the Australasian Instituteof Mining and Metallurgy (AusIMM), and a consultant to the JV technical team.Information of a technical nature in this report is based on informationcompiled by, or under the supervision of, and approved by Mr Geoff G Jones andMr Simon Plunkett. Mr Plunkett is a Professional member of the AustralianInstitute of Geoscientists and is the on site manager of the project Thedrilling results were assayed by Genalysis Laboratory Services Pty Ltd in Perth,Western Australia. Both Mr Jones and Mr Plunkett have sufficient experience relevant to the styleof mineralisation and type of deposit under consideration to be recognised asCompetent Persons as defined in the 2004 Edition of the 'Australasian Code forReporting of Exploration Results, Mineral Resources and Ore Resources'. Mr Jonesand Mr Plunkett consent to the inclusion in the report of the matters based ontheir information in the form and context in which it appears.Information in this report relating to exploration results is based on datareviewed by Mr Christopher Davies BSc, MSc, DIC, FSEG, FAusIMM, OperationsDirector for African Eagle, who is a Fellow of the Australasian Institute ofMining and Metallurgy, has more than 26 years relevant experience in mineralexploration and is a Qualified Person under AIM rules. Mr Davies consents to theinclusion of the information in the form and context in which it appears.For further information, see the Company's web site www.africaneagle.co.uk orcontact one of the following: Mark ParkerManaging Director+44 20 7248 6059+44 77 5640 6899 Nicola MarrinSeymour Pierce+44 20 7107 8000 Ed Portman/ Leesa PetersConduit PR+44 20 7429 6607 / +44 (0) 7733 635 01 James DuncanRussell & Associates, Johannesburg+ 27 11 8803924 / +27 82 8928052 About African Eagle African Eagle is a diversified mineral exploration and development companyoperating in eastern and central Africa. The Company's principal advancedprojects are the Mkushi Copper Mines project in Zambia and the Miyabi goldproject in Tanzania, which are being fast-tracked towards production. TheCompany also holds a large well-balanced portfolio of promising earlier stagegold and base metal projects, including the Ndola copper project and the EagleEye iron-oxide copper gold project. Zambia, Tanzania and Mozambique, the sites of African Eagle's projects, are allcountries which have highly prospective geology, relatively low abovegroundrisks and track records of successful major investments in the metals andminerals industries. African Eagle specialises in project generation and exploration. To take itsdiscoveries into production, it seeks to sign up industry partners with recordsof successful mine development. These joint ventures and, in time, the revenuefrom advanced projects, will finance future exploration and new discoveries.Technical termsA glossary of technical terms used by African Eagle in this announcement andother published material may be found at www.africaneagle.co.uk/african-eagle-projects-glossary.html This information is provided by RNS The company news service from the London Stock Exchange