AFRICAN EAGLE RESOURCES plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
African Eagle Resources plc ("African Eagle" or "the Company", ticker AIM: AFE, AltX: AEA) today announces its preliminary results for the year ended 31 December 2010. The Company's annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The information in this preliminary announcement has been extracted from the audited financial statements for the year ended 31 December 2010 and as such, does not contain all of the information required to be disclosed in the financial statements prepared in accordance with IFRS. The Company will publish its full Annual Report and Financial Statements to shareholders in May 2011.
Highlights from 2010 and early 2011:
- Dutwa resource upgrade:
- Total Dutwa JORC resource 98.6Mt at 0.93% nickel
- 46.2Mt at 0.93% nickel and 0.03% cobalt in the JORC indicated category
- 917,000 tonnes contained nickel
- Pre-feasibility study on track for Q3 2011, leading into a bankable feasibility study
- New economic model including full Whittle optimisation:
- Confirms that Dutwa is likely to be economically viable
- Post-tax NPV of US$870 million at a nickel price of US$10/lb
- Cash costs estimated at around US$3.37/lb
- Indicates tank leaching would give the best return
- Zanzui complex targeting 20Mt at up to 1% nickel
- Oversubscribed private placing in January 2011 raised �3.7 million
- Successful September 2010 placing raised �3.3 million
- Divestment of non-core assets to focus on Dutwa Project continues:
- Farm-in signed on Miyabi Gold Project with BrightStar Resources
- Interest in Igurubi Gold Project sold for shares subject to due diligence
- Uranium division vended in to Jacana Resources
Mark Parker, Managing Director of African Eagle, commented:
"The significant resource upgrades and improved economics achieved at our Dutwa project during the year greatly helped to de-risk the project. These achievements and others drove up the share price by 208% during 2010. The Board believes that the Company is still significantly undervalued against its nickel resources and plans to unlock this potential by delivering on its 2011 commitments"
CHAIRMAN'S STATEMENT
Dear Shareholder
I am very pleased to report that 2010 was the year in which the investment community began to recognise the value of our Company, as I predicted in my Statement a year ago. The reasons for this included de-risking of our world class Dutwa nickel project in Tanzania, firmer commodity prices and signing up our new joint broker, Ocean Equities Limited. Ocean Equities has introduced some major institutional investors to our share register, whom I am pleased to welcome to African Eagle.
We are now well into the pre-feasibility study of the Dutwa nickel project, which we expect to complete by the end of Q3 this year before moving into a bankable feasibility study.
Dutwa economics
A key component of the Dutwa feasibility study will be the financial model of the project, which has been built for us by independent consultant Simulus, of Perth, Western Australia using inputs from Snowden Mining Industry Consultants and AMEC Minproc. The new model has allowed us to update the mid-2009 scoping study economics. It has given us the ability to test the economic impacts of different strategies, such as heap versus tank leaching, different rates of throughput, choices of financing structure and options for the source and transport of reagents. In March 2011, Snowden delivered a Whittle pit optimisation report which further confirmed the economic viability of the project.
The table below shows the results of the latest financial model for both tank and heap leaching at a yearly throughput of 3Mt of ore, for nickel prices of US$8 and US$10 per pound. The nickel price as I write is over US$11.50/lb and I will leave you to estimate what value that could generate.
| 3Mtpa throughput |
|
Heap Leach |
Tank Leach |
| Nickel price |
US$/lb |
$10 |
$8 |
$10 |
$8 |
| NPV10 post-tax |
US$M |
705 |
260 |
870 |
385 |
| IRR post-tax |
% |
26 |
17 |
29 |
20 |
| Cash costs |
US$/lb |
3.56 |
3.56 |
3.37 |
3.37 |
Increasing the throughput to 5Mtpa would improve the project returns, but logistical challenges will make 3Mtpa a more realistic production target until proposed infrastructure developments within Tanzania allow the operation to be scaled up.
The predicted cash costs of around US$3.37/lb place Dutwa around the median of the global nickel production curve. This cash cost includes US$1.60/lb leaching reagent costs and US$1.00/lb for transporting the reagents and end product. We are working hard to find ways to minimise these component costs.
The inputs to the financial model will be improved as the feasibility study advances. At this stage, we should regard the results at the level of advanced scoping study, but confidence will increase as more information becomes available. The next big milestone will be completion of the bulk metallurgical tests now being undertaken by three specialist laboratories in Perth, Western Australia to determine which process route will provide the optimum financial return.
We are pleased that our partner on the Dutwa project, SAFINA of the Czech Republic, has agreed to finance its share of the pre-feasibility and bankable feasibility studies and estimate that on completion of the bankable feasibility study, African Eagle will hold between 76% and 80% and SAFINA will hold between 24% and 20%, respectively, of the equity in the Dutwa project.
Zanzui and other regional targets
The Zanzui complex, which lies 60km southwest of Dutwa, is a roughly circular layered mafic-ultramafic intrusive with a diameter of around 12km that covers an area of more than 140km2. Drill results from 2009 and 2010 allowed our geologists to calculate an exploration target of at least 20Mt at 0.91% nickel equivalent in laterite ore, though this is not yet defined to JORC resource standard. Numerical interpretation of our VTEM geophysical survey suggests that there are other thick laterite targets yet to be tested and bedrock conductors which may prove to be nickel sulphides. Anomalous gold and platinum samples have also been found.
We have identified other regional targets, including one 20km to the east of our Dutwa project, where a nickel in soil anomaly occurs over an area with no rock outcrop. This anomaly will be drill tested during Q4 2011.
Legacy projects
African Eagle is divesting its interests in its non-core assets in order to focus on the Dutwa project and make the transition from an explorer to a nickel producer. A key objective in this process is to maximise the value of these assets.
Aside from its nickel projects, African Eagle's Board believes that the Company's most valuable asset is its copper portfolio in Zambia. Progress to divest this portfolio has been slower than planned, because the Board has not been prepared to split this asset and give it away cheaply. As the copper price continues to reach new records, I believe that we have been fully justified in holding on for the best value.
Our copper division represents a fully integrated copper exploration and development company in one of the great copper producing regions of the world, and the Board believes that the portfolio has greatest value if maintained as one entity. Therefore, the Board has appointed Chris Davies, our Operations Director, as CEO designate and mandated him to raise private equity and implement an accelerated work programme ahead of listing shares in a new copper company later this year. We are pleased that Michael Mundashi, a senior Zambian attorney, has agreed to join the Board of the new company, especially as we are considering a dual listing on the Lusaka Stock Exchange.
The improved copper price has also allowed us, with our joint venture partner Ratel Group Limited, to begin to develop the Mkushi Copper Mine. A staged development of the project is planned, with an initial start-up operation using heap leaching or alternative processing methods. Ratel is updating the 2008 feasibility study with the aim of building up to a larger scale operation in the latter part of 2012. The funding of our interest in Mkushi will be through equity directly into the copper division so will not deflect resources away from Dutwa.
In November, African Eagle vended its uranium projects in Mozambique, Tanzania and Zambia, subject to due diligence, for shares and cash into Jacana Resources Limited, a private Australian group. Jacana expects to list its shares in Australia later this year, at which time we can expect to benefit from participation in a focussed uranium explorer.
In April 2010, the Company agreed terms with ASX-listed Peak Resources Limited to dispose of the Igurubi gold project in Tanzania for cash and shares.. Peak is currently awaiting receipt of the licence from the Tanzanian authorities, a pre-condition of the agreement, before issuing shares to African Eagle. The delay in the process is not uncommon and we expect the licence to be issued shortly.
Following Macquarie Harbour Mining Limited's decision to relinquish its joint venture agreement on Miyabi, the Company has signed a farm-in agreement with BrightStar Resources Limited, a company listed on the ASX (Ticker: BUT).
Corporate
In September 2010, with our shares at 3.75p, we raised �3.3 million before expenses through a placing with institutions and private client brokers. In January 2011, we took advantage of the strong demand for our shares and the headroom that you authorised at our last Annual General Meeting, to place a further 23.86 million shares at 15.5p for a gross �3.7 million. These extra funds have given us the ability to carry out further drilling and detailed metallurgical testwork at Dutwa while maintaining the momentum of the pre-feasibility study.
To enhance our investor relations efforts, we signed up Ocean Equities as joint broker in September 2010 and, in February 2011, appointed Canaccord Genuity Limited as our new nominated adviser and joint broker.
The year ahead
We have much to look forward to in the year ahead, with improvements and refinement to the Dutwa nickel project, regional exploration, the IPO of our copper division and news from other non-core assets. We recognise that the interest that investors have shown in us over the past few months is only the start and we believe that the Company remains undervalued compared to many of its peers. Our market capitalisation today is still only a fraction of the NPV of Dutwa plus the value of our other assets. Together with Ocean Equities and Canaccord Genuity Limited, the Board, management and employees of African Eagle will continue to strive to maximise shareholder value and reduce that valuation gap.
I would like to thank all our employees for their hard work and commitment during the year. I would also like to commend our Managing Director, Mark Parker who has been very pragmatic and unselfish in recognising that his particular skills are in exploration and not best suited to bringing Dutwa into production. Consequently, the Board has begun the search for a new CEO. Mark, who founded the Company in 1996, remains a committed shareholder. He will stay on the Board as a director but will focus his efforts on business development and identifying other regional nickel targets.
I am sure that we can continue to add value in 2011 and close the wide gap between our market capitalisation and the underlying value of our assets.
Euan Worthington
Chairman
Please continue to the Company's website to view the full financial tables from the preliminary results at www.africaneagle.co.uk/n/news.asp
For further information, see the Company's website www.africaneagle.co.uk or contact one of the following:
Bevan Metcalf - Finance Director /
Euan Worthington - Chairman
African Eagle Resources plc, London
+44 20 7248 6059
+44 7753 862 097
Andrew Chubb / Bhavesh Patel
Canaccord Genuity Limited
+44 20 7050 6500
Guy Wilkes
Ocean Equities Limited, London
+ 44 20 7786 4370
Charmane Russell / Marion Brower
Russell & Associates, Johannesburg
+27 11 8803924
+27 82 8928052
About African Eagle
Since discovering a major nickel oxide deposit at Dutwa in Tanzania, African Eagle is in transition from an explorer into a nickel company. The Company completed a positive scoping study on the Dutwa deposit in July 2009 and is now working towards a feasibility study.
In addition to Dutwa, African Eagle is also evaluating a second promising nickel oxide at Zanzui, which is located 60 km from Dutwa. The Company holds a 49% interest in the Mkushi Copper Mines joint venture in Zambia, for which a draft feasibility study was completed in Q4 2008. It also holds a half million ounce gold resource at the Miyabi project in Tanzania, and a portfolio of gold and base metal exploration assets, including two projects in the Zambian Copperbelt.