Woodbois Regulatory News (WBI)

13 Jan 2010 07:00



13 January 2010

Obtala Resources plc

Acquisition of Sierra Leone Hard Rock Limited

Obtala Resources plc ("Obtala") (AIM:OBT) which invests in and develops mineral assets is pleased to announce that it has signed an agreement to acquire the total issued share capital of Sierra Leone Hard Rock Limited ("SLHR") from African Minerals Limited ("the Acquisition") in consideration for the issue of 21,170,422 new Ordinary Shares in Obtala equivalent to 9.9% of its enlarged issued share capital following completion. Completion of the Acquisition and Admission of the new Ordinary Shares is expected on 18 January 2010. 

Background to SLHR

SLHR was a subsidiary of African Minerals Limited ("AML") prior the Acquisition. SLHR was incorporated in Bermuda on 5 March 2007 and is the sole owner of Sierra Leone Hard Rock (SL) Limited ("SLHR SL"), a subsidiary company incorporated in Sierra Leone on 5 March 2007. 

 SLHR SL is the sole holder of the following:

four mining licences, covering an area of 162.40km2 

seven exploration licences, covering an area of 2,590.75km2  

Plant, machinery and equipment 

The mining and exploration licences ("Mineral Licences" or "ML's") have been issued by the Ministry of Natural Resources, Republic of Sierra Leone, Africa. Obtala is due to receive confirmation from the Ministry (or the Commissioner for Minerals in Sierra Leone) that there are no prior claims or disputes in relation to the ML's. Also, the terms of the Acquisition warrant that such consent is received. 

Diamond mining and exploration in Sierra Leone

Sierra Leone has a long history of alluvial diamond mining, dating back to 1930, with the discovery of diamonds in the Gbobora drainage system in southeast Sierra Leone by the British Geological Survey, with alluvial mining starting in 1932. Since then it is estimated that over 50MCts have been produced in Sierra Leone. The country is among the top 10 diamond producing nations in the world and a major producer of gem-quality diamonds. 

AML commenced exploration activities in 2004 and commissioned the Konoma Mine 2Mtpa Dense Media Separation (DMS) plant, in June 2006. Up to the end of 2007, approximately 30,000 carats were recovered from over 40,000 stones at an average value per carat of US$408. 

Other Relevant Information

Mr Frank Scolaro, Executive Chairman of Obtala, served as Non Executive Director of AML from 21 July 2005 to 23 July 2007, where he developed a thorough understanding of the assets being purchased. The Directors of Obtala hold no shares in AML with Frank Scolaro holding 100,000 options.

Licence Details

The Konoma Project, where the four mining licences are held, and serves as the headquarters for the company's diamond mining and prospecting activities, is located in north-eastern Sierra Leone, approximately 220km east of Freetown, the capital city, and 58km northwest of Koidu. The project extends along the Lower Bafi River east of the confluence with the Sewa River and west of the Moinde River.

Mining Strategy

The four mining licences as noted above will be the focus of immediate work.

Obtala has recruited senior management with a view to re-commencing cost efficient alluvial mining operations with immediate effect, with sales and a positive revenue stream expected in Q2 2010. The initial objective will be to mine known areas of identified mineral resources and to continue bulk sampling in advance of production mining to increase the current resource. It is expected that production activities will start in ML003/06, which is located closest to the main established site infrastructure and also at ML002/06 where bulk sampling in late 2007 identified a high grade palaeochannel at Small Bakidu. 

One of the senior appointments made is Paul Davies, who is a diamond geologist, employed as the General Manager, with 30 years experience in mining and exploration throughout Africa, with 18 of those years working in the diamond industry. Paul has managed exploration teams that have discovered over 200 kimberlites. Most recently he has spent the last 10 years managing alluvial DMS operations, mine grade control departments and successful exploration projects in Angola. Rudi Saaiman is a Mine Manager with 10 years in alluvial mining operating experience in western and southern Africa, most recently in the DRC where he was the Operations Manager for a Canadian listed diamond miner. Rudi will be leading the day to day operation of the DMS plant, fleet maintenance and diamond security. Best practice security systems and production optimisation techniques will be implemented and continuously monitored.

The Board of Obtala believes that SLHR holds substantial project upside potential, in a recovering diamond market. The Kono Project Area has diamondiferous kimberlite dykes with potential surface strike lengths of several tens of kilometres. Should these kimberlite bodies be the source of the diamonds in the Bafe River then the grade could be very high. The mining of such bodies would be simple and relatively inexpensive.

Exploration Strategy

Since initiating exploration in 2004, AML has undertaken extensive integrated, multi-discipline exploration programmes including techniques such as 

remote imagery analysis;

high resolution airborne magnetic surveys;

digital elevation modelling;

ground penetrating radar;

reconnaissance stream sediment sampling;

follow-up strip line sampling;

exploratory drilling/pitting; and 

bulk sampling.

A review and re-interpretation of the extensive and detailed historical database will commence during Q1 2010, with limited ground follow-up occurring while the main focus of the company's attention is the re-commencement of production mining and bulk sampling on the Konoma Project together with the development of a production schedule. Once mining is underway and revenue is being generated through diamond sales, exploration of the 2,590.75km2 will begin, initially in and around the mine operations area and also at Lake Popei, south of Konoma.

On the Sewa River project, south of Konoma, previous exploration identified a broad band, 7km to 12km in width, of kimberlitic dykes that extends across the licences. Ten kimberlite targets remain to be drilled and a significant discovery of the Lake Popei kimberlite dyke was made in 2007. The Lake Popei dyke is a northeast trending feature with a strike of more than two kilometres, which has been intersected in preliminary RC drilling and is a priority target for future drilling exercises. The dyke occurrences on the Sewa project correspond with indicator mineral trails and high yield gravels reported by studies conducted in the late 1960's and are considered by Sierra Leone Hard Rock Limited to have contributed diamonds to the alluvial deposits. 

In addition to the Lake Popei discovery, additional kimberlite features have been identified in the Kamakwie area, and to the southeast of the Kono Project an extension of the Koidu kimberlite dyke swarm has been identified.

The exploration work carried out by SLHR to date has yielded valuable information with regards to the gravel deposits in the river channels and terraces. The background information to follow up on this is available, and pursuing an efficient and specific programme will allow Obtala to test the diamond bearing potential of these extensive gravels.

Plant, Machinery and Equipment

The Konoma operation has a fully operational 2Mtpa dense medium separation (DMS) plant, a smaller mobile 5tph DMS sampling plant, a mining fleet, light vehicles, laboratory equipment and main camp. 

Value of the assets

The carrying value of gross assets acquired under the Acquisition agreement as consolidated in the last reported interim financial statements for AML at 30 June 2009 amounted to US$27.66m (£17.29m) and the carrying value of net assets after set off of liabilities and provisions amounted to US$23.71m (£14.82m).

Principal SLHR SL asset values at 30 June 2009 included above are as follows:

Intangible mining and exploration assets US$20.29m (£12.68m)

Plant , machinery and equipment US$5.42m (£3.38m)

Updated carrying values as at the date of acquisition are not expected to be materially different to those noted above other than in respect of a reduction attributable to depreciation and amortisation charges during the second half of the year.

Income and expenses attributable to SLHR

Income and expenses attributable to SLHR SL in the last reported interim financial statements of the company for the 6 month period ended 30 June 2009 were as follows: 

For the year ended 31 December 2008 the loss before tax attributable to the diamond operations of SLHR was US$12.78m.

Consideration

The Consideration for the Acquisition will be satisfied by the allotment and issue by Obtala of 21,170,422 new Ordinary Shares of 1 pence each ("Consideration Shares") credited as fully paid and equating to 9.9% of the entire issued share capital of Obtala. The Consideration Shares will be issued at 20.125 pence per share (being the closing mid market price on the 12 January 2010), which is equal to a total consideration value of £4,260,547. 

AML will enter into a lock-in agreement with Obtala whereby they agree not to dispose of any of the Consideration Shares for a period of 12 months. 

The company will apply for the new ordinary shares to be admitted to trading on AIM with effect from 18 January 2010. Following the issue of the new ordinary shares the company will have 213,842,645 Ordinary Shares of 1 pence each in issue. 

Frank Scolaro, Chairman of Obtala, commented that "Obtala Resources has acquired a quality portfolio of diamond assets in SLHR and I am personally excited to re-direct my attentions to Sierra Leone. The Board believe that focused, organised and low cost production of alluvials in West Africa can be successfully carried out to achieve a sustainable and profitable operation. Obtala has appointed senior management and will recommence alluvial operations immediately, complemented by an initial exploration focus on the Lake Popei kimberlite pipe, with the objective of increasing profitability and enhancing value of the overall portfolio of projects. Moreover, we would wish to emphasis that Obtala will engage with local people in-country and hold the wellbeing and development of Sierra Leone and its people with the utmost respect and high regard."

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