Statement re Dutwa Project Update
(Thomson Reuters ONE) - AFRICAN EAGLE RESOURCES plc DUTWA CONTINUES TO YIELD POSITIVE RESULTS Pre-feasibility study making good progressDear shareholder,I am delighted to report that the results from our Dutwa nickel project inTanzania since we completed our strategic review have more than vindicated ourdecision to concentrate our efforts and resources on our nickel projects. Inparticular: * 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 depositOur 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 projectsFocus on DutwaThe economic viability of any nickel laterite deposit depends on its metallurgy,resource geology and location. The Dutwa scoping study, even though completedbefore we received the latest metallurgical results, indicated that Dutwa wouldbe profitable, if it were in production today.Metallurgical tests have shown that the Dutwa ore is unusually, perhapsuniquely, amenable to acid leaching. Acid consumption is very low and the leachreaction is very fast compared to other nickel laterites around the world.In early December, we reported interim results from column tests, which gave60% to 70% nickel extraction after just 16 days acid leaching. Now, after 55days, extraction has risen to around 80% for all three tests. In comparison, atone of the few operating nickel heap leach projects for which published data areavailable, almost one year of leaching was required to extract 60% of the nickelfrom trial heaps and 540 days to extract 80%.We believe this is due to the exceptional mineralogy of the deposit, whichcomprises more than 50% silica (quartz) and has a very low iron, magnesium andclay content. In fact, Dutwa could best be described as a silica oxide nickeldeposit. This contrasts with many other nickel laterite deposits elsewhere inthe world, which have much higher iron and clay contents and have to be treatedusing capital intensive high-pressure acid leaching. We believe that nature hasdone much of the heavy work for us, removing much of the iron and magnesium fromthe deposit while leaving the nickel and cobalt largely untouched, thanks to thegeological history of East Africa.These extremely fast leaching kinetics have important profitabilityimplications, especially for the heap leach method, meaning that working capitalwill not be tied up for many months while the heap reaches full productivity. Asour MD, Mark Parker, noted when we announced the interim results, "The fastleaching reaction, low acid consumption and good nickel extraction shown bythese tests are extremely positive indicators for the viability andprofitability of the project."Indeed, it seems that we may have identified a whole new province of nickellaterites which are uniquely amenable to low-cost leaching. As well as Dutwa andNgasamo, we hold the Zanzui project, which has the potential to be twice aslarge as Dutwa. Our preliminary metallurgical tests showed that Zanzui sharesthe same fast, low-acid leaching characteristics as Dutwa. Zanzui is only 60kmfrom Dutwa and offers potential economies of scale for the development. We alsohave our eyes on other deposits in the region.Last week we received the transport and logistics report, commissioned after thescoping study identified transport as a substantial input cost. The reportconfirmed that transport costs estimated for the scoping study were reasonable.The report also identified numerous infrastructure improvements underway orplanned, including road building and a major upgrade to the railways, whichshould work to decrease these costs.We expect shortly to recruit a metallurgist to lead the search for the bestprocessing option, and in due course, to manage the development of the Dutwamine.Corporate developmentsHaving weathered the storm of the global financial crisis, African Eagle wasable to raise new capital last August. We were very keen to give as many privateshareholders as possible the opportunity to take part in the capital raising,whilst keeping costs to a minimum. To do so, we successfully worked through araft of complex rules and regulations in Europe, although we were not able toextend the Offer into South Africa. The Open Offer to shareholders wasoversubscribed, and together with a small Placing to institutional investors, weraised £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 toseveral interested parties and investigating different ways to achieve thatvalue. We are confident that we will announce agreements in due course.Euan WorthingtonChairmanQualified PersonInformation 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 27 years' relevant experience in mineralexploration, and is a Qualified Person under AIM rules. Mr Davies consents tothe inclusion of the information in the form and context in which it appears.Technical termsA glossary of technical terms used by African Eagle in this announcement andother published material may be found atwww.africaneagle.co.uk/p/glossary.aspFor 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 2097Nicola MarrinSeymour Pierce Limited, LondonNominated Adviser+44 20 7107 8000Charmane RussellRussell & Associates, Johannesburg+27 11 8803924+27 82 8928052Ed Portman / Leesa PetersConduit PR, London+44 20 7429 6607+44 77 3336 3501About African EagleAfrican Eagle is a diversified mineral exploration and development companyoperating in eastern and central Africa. The Company's principal advanced assetsare the Dutwa nickel laterite discovery in Tanzania, where the Company completeda scoping study in June 2009, and its 49% interest in the Mkushi Copper Minesjoint venture project in Zambia, for which a draft feasibility study wascompleted in Q4 2008.African Eagle is evaluating a second promising nickel laterite deposit at Zanzuiin Tanzania and has defined a JORC gold resource estimated at half a millionounces at its Miyabi gold project in Tanzania. The Company holds a well-balancedportfolio of promising earlier stage gold, copper, platinum and uraniumprojects, including the Ndola and Mokambo projects in the Zambian Copperbelt andthe Igurubi gold project in Tanzania.Zambia, Tanzania and Mozambique, the sites of African Eagle's projects, are allcountries which have highly prospective geology, relatively low above-groundrisks and track records of successful major investments in the metals andminerals 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 thegreatest potential to add value. To take its other discoveries into production,African Eagle is seeking industry partners with records of successful minedevelopment, by means of joint ventures, farm-ins, spin-outs or othermechanisms.About the Dutwa ProjectAfrican Eagle has discovered a significant nickel laterite deposit in the Dutwaproject area in the Lake Victoria Goldfield. Within Tanzania, the project isfavourably situated 100km east of the railhead at Mwanza and close to the mainMwanza-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 Dutwalaterite deposit and in 2009, signed a Letter of Intent for an option and jointventure over another nickel laterite at Ngasamo, 5km west. In all, African Eaglehas 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 hasexplored the project very quickly and cost-effectively, including resourcedrilling and an independent resource estimate; laboratory metallurgical andmineralogical tests which revealed that the deposit could be processedefficiently by sulphuric acid leaching. On 24 June 2009, the Company announcedthe results of its "proof of concept" scoping study. The study, by GRD Minprocof Perth, Western Australia, indicated that the project can be economicallyviable, and African Eagle has now begun work towards a definitive feasibilitystudy.The Study indicates that Dutwa, if it were in production today, would beprofitable. Earnings, on an EBIT basis over the life of mine, would be of theorder of $2.3 billion, giving an internal rate of return around 25%.As a potentially low-cost producer, the upside for the Dutwa project isconsiderable if nickel prices are above the $7/lb used in the base case. Thefollowing table shows the key metrics for several upside cases. Ni price US$/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 $M 430 350 270 190 110 30 Base case: Abbreviations: Nickel price = US$ 7/lb ($15,430/tonne) EBIT = Earnings before interest and tax Cobalt price = US$ 10/lb IRR = Internal Rate of Return Discount rate = 10% NPV = Net Present Value Transport cost = US$100/tonne DCF = Discounted cash flow analysis (8¢/tonne/km) Tax rate = 30%, fiscal incentives 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 adopted a fairly broad brush approach to many of the costs, todemonstrate "proof of concept" and provide indicative economics. GRD Minprocestimated individual capital and operating costs to ± 30%, based on theirconsiderable experience with nickel laterites. These variables will bedetermined with more accuracy and confidence during the forthcoming feasibilitywork.The Study identified several key areas where further testwork and detailed studyare especially likely to result in improvements to the "bottom line" or toimportant 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 andOffer, to address these issues and progress the project towards feasibility. Further metallurgical testing has commenced on drill core samples at Minteklaboratories in South Africa and the Company has started infill drilling atDutwa and resource drilling at Ngasamo.African Eagle acquired the Dutwa project for its gold potential, but theCompany's exploration team quickly recognised that there was significant nickellaterite potential. There is very little outcrop, so the Company conductedextensive ground magnetic surveys to reveal the underlying structure andgeology. The Company also compiled historical data, including detailedgeological maps and trench results dating from 1956, when rock chip samples fromthe trenches over the ultramafic rocks were reported as yielding up to 1.9%nickel.Greenstones and granites underlie the project area. The greenstones, of ArchaeanNyanzian age, are mostly metamorphosed volcanic and sedimentary rocks, with somebanded iron formation in the east. Several large ultramafic bodies occur withinthe greenstones and the nickel laterites form a blanket up to 60m thick on topof these.To investigate the nickel discovery, the Company undertook trial drilling inJune 2008. The results were very encouraging and a 139-hole reverse circulation(RC) drilling programme was completed to delineate the resource. African Eaglealso undertook a 10-hole diamond drill programme to obtain core samples formetallurgical testing and density measurements.In November 2008, African Eagle announced an initial Inferred Mineral Resourceestimate 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 metalendowment of some 340,000 tonnes of nickel and 11,000 tonnes of cobalt. Theestimate was prepared by independent consultants SRK Consulting (UK) Ltd in linewith the Australasian Code for Reporting of Mineral Resources and Ore Reserves(the JORC Code). A little additional drilling and more advanced geostatisticsand deposit modelling will be needed to upgrade the resource to Indicatedcategory.Ngasamo Hill, 5km west of the Dutwa deposit, is geologically very similar andholds a laterite deposit of the order of 15 to 20 million tonnes, which wouldincrease the global resource at Dutwa from the currently defined 31 milliontonnes at 1.1% nickel, to some 45 - 50 million tonnes. Drilling andmetallurgical tests will be needed to confirm the size, grade and compatibilityof Ngasamo. Under its agreement with Ngasamo's owners, (Safina a.s. of theCzech Republic and its Tanzanian subsidiary Precious Metals Refinery CompanyLtd), African Eagle can earn an interest of at least 50% and up to 75% inNgasamo by carrying out exploration and evaluation work, up to a feasibilitystudy.Mintek Laboratories in Johannesburg investigated the mineralogy and metallurgyof 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 averageof 83%. Cobalt extractions were mostly in the range 70 to 85%. The acidconsumptions, averaging 209kg/t, are very low compared to other Ni laterite oresworldwide.Subsequently, laboratory column and tank leach tests have confirmed the low acidconsumption and shown that the leaching reaction proceeds extremely fast. Thecolumn tests gave 60% to 70% nickel extraction after just 16 days and more than80% after 55 days, In comparison, at Caldag in Turkey, operator EuropeanNickel 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 extremelysilica-rich, with low iron and magnesium content, indicating that Dutwa is not atypical laterite nickel deposit. Mintek believes that much of the nickel andcobalt occurs in "wad" with manganese content of 20-60%, nickel content of up to20% and cobalt content of up to 10%.The unusual mineralogy of the deposit is highly beneficial, as it results inlower acid consumption and is expected to give good heap leach permeability orfavourable liquid-solid separation in tank leaching. The concentration of nickeland cobalt in the manganese wad offers the possibility that mechanical selectionof high-grade material may allow reduced throughput and hence a lower costprocessing plant.The Company is also investigating other potential nickel laterite deposits inTanzania, and has completed a trial programme of RC drilling to test a lateriteat its Zanzui project, 60km to the south of Dutwa. Results included 42m at1.05% nickel (including 6m at 2.80%) and 33m at 0.91% nickel (including 9m at1.41%).[HUG#1375495]
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