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UPDATE: Baobab Resources targets higher production after Tete resource upgrade

Tonnage was in line with its expectations while the grades for iron and vanadium were at the top end, said broker Shore Capital.

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Baobab Resources (LON:BAO) shares jumped by 15% today after a major upgrade to resources at the site of its pig iron project at Tete in Mozambique.

The new JORC-compliant estimate for Tete is 665 million tonnes (Mt), up 38% on the previous resource estimate and of which 490Mt is defined at the main Tenge/Ruoni Flats deposits.

Ben James, Baobab's managing director, said the increase in the resource at Ruoni Flats means that it is now able realistically to consider significantly larger production options.

Baobab is currently undertaking a preliminary feasibility study at Tete that will assess a series of scenarios at production rates of one million tonnes per annum (Mtpa), 2Mtpa and 4Mtpa.

At 4Mtpa, Tete would be the world's largest single producer of pig iron.

James added that the new 490Mt Tenge/Ruoni resource base is sufficient on its own to underpin a 4Mtpa pig iron operation over a life of mine of about 35 years.

Following the latest upgrade Ruoni Flats itself now has an 183Mt Inferred Resource at a head grade of 37% iron (Fe) and an average concentrate grade of 61.4% Fe, 0.9% V2O5 (vanadium) and 9.4% TiO2 (titanium) at a mass recovery of 41.7%.

The result from Ruoni Flats was in the middle of the exploration target range specified by independent consultant Coffey Mining, which was responsible for the latest resource estimate.

Baobab carried out 16,300 metres of drilling during the 2012 season, which included resource upgrade drilling at the Ruoni North, Ruoni South and Tenge resource blocks.

An updated Indicated Resource is expected to be finalised during January 2013, while the pre-feasibility study (PFS) on Tete is scheduled to be completed this year and published in February.

"Importantly, the 490Mt Tenge/Ruoni footprint is just 3km2 [square kilometres], with much of the Tenge block forming significant topographic relief. The resultant short haulage distances and low stripping ratios will have a tangible impact on mining costs."

House broker Shore Capital added the tonnage was in line with its expectations while the grades for iron and vanadium were at the top end.

Baobab’s favourable characteristics clearly distinguish it from the mass of wannabe African iron ore producers, Shore added. 

The Tete pre feasibility study (PFS) is fully-funded, it said, while the broker’s projected pig iron cash costs are already at the bottom end of the curve before ferrovanadium credits. 

Shore said Baobab shares trade well below its 100p net present value estimate, which makes no provision for volume and/or mine life expansion, potential titania by-products or Baobab’s other assets.

Shares rose to 1.4p to 10.9p.

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