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African Eagle's drill results exceeded expectations says broker

Published: 06:24 05 Sep 2012 EDT

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Latest drill results from African Eagle’s (LON:AFE) Dutwa project in Tanzania exceeded expectations and confirmed higher grades that should boost the mine in its early years, according to Ocean Equities.

The drilling increased the overall contained nickel at Ngasmo, one of the two hills that make up Dutwa, by 13 per cent and brought most of the resource into the indicated resource category. 

Ocean said that the closer drill spacing required for indicated resources had supported a higher average ore grade – now at 0.91 per cent.

African Eagle had indicated it had found areas of higher grade ore at both the Ngasamo and Wamangola deposits.

The higher grade areas have positive long-term benefits for the project as early development of the zones will lead to improved front-end profitability of the mine project, said the broker.

Ocean adds that while the outlook for nickel prices is relatively weak in the near-term, African Eagle may offset this by through front-loading the mining schedule with the higher grade ores at Ngasamo and Wamangola, the other hill at Dutwa.

A nickel price in excess of $16,000/t (once the current price trough comes to an end) should make Dutwa to be economically viable adds the broker.

It sees the catalysts for the shares over the next few months as a Wamangola resource update, which is also expected to see most of the inferred resource move into the indicated resource category.

From that, the company can calculate a reserve estimate on which it can build a mine plan.

Another crucial piece of news will be the metallurgical test results says Ocean, which it adds cannot be underestimated in their importance.

“They will demonstrate the commercial viability of the project based on the ore type. Development of the project would then largely consist of assembling off-the-shelf processing kit that is widely used throughout Tanzania but not at nickel mines.”

On financing, Ocean says African Eagle’s aim will be to minimise dilution to current shareholders without compromising operational effectiveness. 

The broker expects an update that will broadly outline its strategy to overcome the current weakness in the nickel market and its effect on its development plans for Dutwa.

African Eagle is currently preparing a full bankable feasibility study on Dutwa, which is expected to be published in the first quarter of 2013.

The company said today there could more resources not yet defined at Ngasmo and an extension of the drill programme has already been carried out with its joint venture partner, PMRC of Tanzania.

The further drilling at Ngasmo will not affect the timing of that or the development plan for Dutwa, it said.

Shares in African Eagle rose by 1 per cent to 3.04 pence.

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