African Eagle’s Davies unveils Zambian investment plan as company prepares to do the splits

African Eagle (LON:AFE) is doing the splits in October or November this year. 

The plan is to spin out the Zambian copper assets, allowing the management to maintain its laser focus on the Dutwa nickel project in Tanzania.

There it is working on a pre-feasibility study that’s expected to be completed by the third quarter of 2011. 

Indeed on Tuesday it revealed the results of an optimisation study on the project’s mine plan which indicated that the project is likely to be economically viable – based on a conservative model.

But as most of the group’s attention has centred on Dutwa over the past few years, its interests in Zambia have been on the back-burner somewhat. 

Now African Eagle has decided to step up work on these assets ahead of an eventual spin-out and separate listing of the operation later this year.

Chief executive Mark Parker told Proactive Investors: “We don’t want to give these assets up, they have excellent potential. So we have been discussing the best way forward.”

First of all it will raise ‘mezzanine’ private equity funding into the copper projects. Parker said that advanced talks were already underway and they are likely to raise between US$5 and US$10 million at this stage. 

It plans to put this money to work quickly to add value to the Zambian copper portfolio before the demerger. 

Parker said that the new company, which will be headed up by African Eagle’s current chief operating officer Chris Davies, will raise a ‘reasonable amount’ of capital through a separate stock market listing.

It will be enough to participate fully in the near-production Mkushi mine development and to continue its evaluation of its other projects.

In all, African Eagle holds six copper projects in Zambia. Mkushi is the most advanced, with early-stage production scheduled to start later this year.

Davies is very bullish about this exciting but largely overlooked part of the African Eagle portfolio. 

“The big thing now is to get some private equity into the company and get some real work done,” he said.

“We’ve got the teams in Zambia all ready, we’ve got the geologists, the vehicles and the office in Lusaka. In fact my guys have all been in the field and I was out there for a month recently.

“We’ve already got lots of drill ready targets, so the idea is to kick-start exploration as soon as we can. Add a bit more value, then IPO the new company later this year.”

Adding Value before the IPO

Davies said that at least US$5 million will be raised in the initial funding and most of the new capital will be put to work on three of the more advanced projects in Zambia – Mkushi, Mokambo and Ndola.

From the new Zambian cash-pot Davies also intends to fund the group’s participation in the Mkushi mine development, where joint venture partner CGA Ratel is currently working on a budget as part of an ongoing feasibility study.

He has earmarked around US$200,000 for exploration work outside Mkushi’s main deposit. Meanwhile about US$1 million each has also been earmarked for exploration at Mokambo and Ndola.

Some early stage exploration work might be commissioned on the other earlier projects but Davies stressed that the main thrust will be on Mkushi, Mokambo and Ndola.

“We will drill all three projects this year, possibly starting as early as April after the worst of the rainy season has passed.”

Obviously Davies’ plans are contingent on the exploration success, but he reckons there is a lot of scope to add value with the initial private equity funding. Davies adds: “If things shape up as we hope, there is a lot of drilling we can do with this money.”

One foot in the Zambian Copper Belt

The portfolio can be split between projects that are inside the prime mining real estate on the Zambian copper-belt and those in ‘older rocks’ outside the copper-belt.

Aside from the Mkushi joint venture – which is outside, due south – the group’s two key exploration projects Mokambo and Ndola are both in the copper-belt.

Davies describes the projects as highly prospective areas in ‘prime copper belt’ territory.

“This is a really good geological address,” Davies adds. “These areas in Zambia were explored in the fifties and sixties by big private mining companies but in those days they were after high grade sulphide deposits and they were discarded.

“The concept of mining low grade, high tonnage deposits like Lumwana and treating oxide ore simply did not exist back then.”

“The point is that drilling was done back then but results weren’t of interest then, but are very relevant now.”

Mkushi: Initial mining expected to start this year

Mkushi hosts a historic underground mine that dates back to the 1920s as well as a more recent open pit that operated between 1966 and 1973. 

The project’s porphyry-like system is nothing like the Zambian copper-belt to the north – which hosts the other two key projects – but the group’s most advanced project is found here in the older basement rocks.

The company has already drilled 30,000 metres at Mkushi, most of which were done while under a joint venture with CGA Ratel – who are earning their 51 percent stake by funding a feasibility study.

However the draft feasibility study, completed in late 2008, was unsuccessful due to economic constraints brought on by the global financial crisis.

“Back then the copper price was terrible and the world was thundering into recession, yet the steel and fuel prices used in the study were sky-high from the previous boom,” Davies said.

“So we couldn’t sign-off on Mkushi’s feasibility.”

He adds: “Since then we’ve done more drilling and our partners are preparing a new feasibility study. Copper prices are much better now.”

Davies highlights that the Mkushi resource has been remodelled and the new feasibility study has looked at alternative mine plans and processing options.

Crucially the joint venture has had a mining licence at Mushi for over two years. Both partners and the Zambian government are keen to get production underway, Davies said.

He explained that first of all the existing open pit will be de-watered down to the -30 metres level. Then the partners will begin a start-up mining operation which at first will stockpile ore.

“This will initially be a start-up mining operation and we will pro-rata fund that. At the same time we will do more drilling to augment the resource. If all that looks good, this initial mining phase will be followed up by a much bigger development next year.”

Davies adds: “Originally the feasibility study, two years ago, looked at mining two million tonnes per annum to produce 15 or 16,000 tonnes of copper.

“What we’re looking at now is the possibility of a smaller open pit, with a decline to access higher grade ore. That would have a much lower capital cost. Instead of mining 2 million tonnes a year we might be looking at 750,000 tonnes a year but accessing a higher grade of material.”

Davies also highlighted that Mkushi is very straightforward in terms of its metallurgy. He reckons that its ‘very clean’ chalcopyrite is pretty easy to turn into a 30 percent copper concentrate.

According to Davies the project also benefits from a ‘fantastic location’ with good power sources and smelters nearby.

Additionally with 40 other targets lined up for further testing at some point in the future, Davies reckons Mkushi offers ‘tremendous exploration potential’. Indeed he believes that with economies of scale even a modest find – about 5 million tonnes at 1 percent copper – within 5 to 10 kilometres could be a worthwhile as a satellite mine.

Ndola:  Multiple targets earmarked for drilling

Davies already has a few target areas picked out from the company’s extensive previous exploration at Ndola – including Misindu, Ndola East and Ndola South.

African Eagle has already drilled at Misindu. Although just one deep hole was drilled previously, this cut around 20 metres at 0.75 percent copper.

Davies said: “Its only one hole, but that is a bloody good start. What we need to do now is drill the rest of the anomaly to see what is really there. 

“It could potentially be a high tonnage if low grade target, like Frontier.”

For Ndola East African Eagle has so far been modelling historic data, from deep holes that were drilled in the sixties where previous explorers hit low grade copper mineralisation. 

Davies reckons Ndola East has a deep underground target that could host around 100 million tonnes of sulphide ore grading perhaps 0.9 percent copper. He also highlights that the up-dip portion of Ndola East has never been drilled and he thinks there’s a chance it may contain oxide copper ore.

Davies said that exploration so far at Ndola South has identified three ‘copper-in-soil’ targets. However he did explain that this area, which has never been properly explored before now, is understood to have a more complicated structure than the rest of Ndola.

Overall Davies reckons Ndola could provide the new company with a chance to accelerate a wholly-owned project into pre-feasibility.

He said: “At Ndola we need to drill our soil geochemical targets, but if we get good intersections we can follow up with more drilling and go into pre-feasibility quite quickly.

“We just need to do a bit more to firm-up the targets first.”

Mokambo: More potential for accelerated development

Mokambo is 60 kilometres north of Ndola and only 12 kilometres from Glencore’s large Mopani / Mufulira mine which is being ramped up to produce 870,000 tons of copper concentrate a year following a recent expansion programme.

African Eagle has previously drilled 12 holes at Mokambo, however the area has yet to be systematically explored.

“This is another area where we need to do more drilling. It has some very good targets, and looks rather like Konkola North, being developed by South Africa’s African Rainbow Minerals and Vale” Davies said.

“If it shapes up after a bit more drilling, it is the sort of project that could be accelerated and brought up to pre-feasibility quite quickly.”

Outside the copper belt

While most of the country’s mining activity is focused within the copper belt, with several major mining groups included BHP Billiton (LON:BLT), Vedanta (LON:VED), Glencore and First Quantum Minerals (TSE:FM) all active in the area. But as Mkushi shows there is more to Zambia’s mining than just the copper belt.

“Zambia has got excellent infrastructure and an investment friendly mining code, they understand mining and are very keen to get investors in.”

“As a nation it is approaching record production, reaching levels last seen in the nineteen sixties. It is a testament to how much has been invested in Zambia’s mining industry in recent years.

“But there are huge areas of Zambia that are prospective for copper, not just the copper belt.”

African Eagle has three other exploration projects outside the Zambian copper belt. 

At the Lunga project in central Zambia – which is near a particularly active BHP-Blackthorn exploration joint venture project – the company has yet to do any drilling, but has carried out lots of mapping and geochemical surveys, which defined copper-gold anomalies. Davies reckons this could be an IOCG system. Here Davies would like to carry out an airborne electromagnetic survey which would be followed by drilling.

Elsewhere it also has another IOCG project in eastern Zambia. African Eagle has already defined a modest resource at the Eagle Eye IOCG.

Davies believes the project has potential as a small scale oxide mine, with a SX-EW plant. In fact the company has already signed an MOU with a locally based businessman who is keen to get Eagle Eye into production.

The project also includes another exploration target, but Davies said he would be looking to partner-up this project.

Finally the sixth project Kampumba – which was briefly explored by Anglo American back in the nineteen-sixties – is a 20 kilometre continuous copper in-soil anomaly. Part of this was drilled back in 2007, with disappointing results, but recent geological work has located other promising sections.

Davies said that more geophysical work is needed to define the drill targets.


Up until now most of African Eagle’s focus and valuation has quite rightly been centred on the impressive Dutwa nickel project. But it is clear that its wider portfolio has much more potential and this new Zambian strategy may present an interesting proposition for investors – according to a note yesterday by Seymour Pierce’s mining analyst Matthew McDonald the stock could be worth 20 pence a share.

We look forward to seeing how Chris Davies’ plans shape up over the coming months.

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