Gulf Industrials (ASX: GLF), formally Gulf Resources, is a resource development company that creates value for shareholders through the identification, acquisition and valorisation of resource focused projects, with a particular emphasis on regions where Gulf maintains relationships that provide a strategic advantage.
With a team of experienced engineering, project management, legal, financial and resource specialists, Gulf fosters and seeks to develop projects of major significance to both the company and the countries in which Gulf operates.
Gulf Resources snares world class vermiculite deposit and mine from Rio Tinto
Gulf Resources Ltd (ASX:GLF) has announced that the company has signed a Sale and Purchase Agreement with Rio Tinto International Holdings Ltd (“Rio Tinto”) for the 100% acquisition of the Namekara Mining Operation in Eastern Uganda.
The Namekara Mining Operation is located near the towns of Mbale and Tororo, approximately 190kms east of the Ugandan capital, Kampala.
Main Points
- Namekara is considered one of the largest high grade vermiculite mineral deposits in the world and
is capable of supporting a low cost, long life operation.
- Excellent local infrastructure and within 10kms of main international railway line.
- Assistance from Rio Tinto during handover, initial months of operation and in securing off-take agreements.
The Sale includes the following:
- Tenements, both exploration and mining, which contain the world class Namekara Vermiculite Deposit;
- Processing and power plant;
- Mine office and all associated infrastructure and equipment;
- Vermiculite from Namekara has few impurities, excellent qualities and is widely known to the world
vermiculite market.
Chairman of Gulf Resources, Mr Scott Reid said, “Acquisition of the Namekara project from Rio Tinto fits with our strategy to seek early cash flow opportunities”.
Mr Andrew Johnstone, Gulf’s Chief Operations Officer further commented, “The Namekara operation is capable of producing export quality vermiculite products with substantial profit margins due to the low cost nature of the operation, and excellent existing infrastructure”.
The company said the signing of a Sale and Purchase Agreement for the acquisition of the Namekara Mining Operation in Eastern Uganda is a significant achievement for Gulf as it secures an operation with the capability of producing a near term cash flow.
Gulf intends to inject USD$500,000 working capital into the operation over the next 12 months to bring the operation to a sustained production rate of 8,000 tonnes per annum of vermiculite product, as agreed to in the Sale and Purchase Agreement. Gulf plans to expand the operation to achieve 25,000 tonnes per annum by 2012.
Whilst the specific terms of the agreement are confidential, the cash consideration component of USD$1,000,000 can be paid on a deferred basis until 31 March 2012. The Sale and Purchase Agreement is subject to conditions usual to a transaction of this nature, including regulatory approvals.
Gulf Resources has an experienced engineering, project management, legal and financial team, including resource specialists, on hand to manage the transition phase and bring the operation into a steady state of production.
The Namekara Mining Operation and Vermiculite Mineralization
The Namekara mining operation is situated in Eastern Uganda near the towns of Mbale and Tororo close to the Kenyan border. The project can be accessed by road from Kampala via sealed highway (190km) or by flying to Kisumu in Kenya and driving across the border into Uganda.
Gulf intends to optimise the existing plant during transition to achieve a sustainable throughput of 8,000 tonnes per annum of vermiculite product. The existing mine/pit is effectively a free digging operation. It is a low cost, very long life operation.
The Namekara mineralization was first documented in the 1950s, but it wasn’t until 2002 that initial test production commenced with a small scale operation that produced 16,000 tonnes of ore between 2002 and 2006. Under Rio Tinto’s stewardship a substantial amount of work was completed including drilling over 64 holes for resource definition, pit optimisation and design, plant redesign, transport and
infrastructure studies and market research.
The Namekara vermiculite deposit extends from near surface to a depth of 45 to 55m covering an area of 1 x 5km of which only a small portion has been exploited. The vermiculite is easily dug using standard mechanical excavating equipment.
World Vermiculite Market
The global vermiculite market is estimated by the United States Geological Survey (USGS) to be 800,000 tonnes, with production from Southern Africa accounting for approximately 39% of this amount.
Uganda Country Profile
The Republic of Uganda is a landlocked country in East Africa. It is bordered by Kenya, Sudan, the
Democratic Republic of the Congo, Rwanda, and on the south by Tanzania. The southern part of the country includes a substantial portion of Lake Victoria, within which it shares borders with Kenya and Tanzania. Uganda has a well developed road and rail network connecting it to all surrounding countries, most importantly to the Indian Ocean ports of Mombasa in Kenya and Dar es Salaam in Tanzania. The country has a pleasant climate despite its equatorial position largely due to its overall higher altitude. Uganda also receives adequate annual rain fall for all its needs. According to the census of 2002, the population of Uganda was just over 24 million people.
Proactive Investors Comment
This looks to be a very sweet deal for Gulf. For a junior company, obtaining a world-class, low cost, long life mineral asset and mine capable of providing Gulf with near term significant profit margins and hence cash flows as early as 2009/10 is a coup. For Rio Tinto, it was a non-core business, but this provided an opportunity for Gulf to snare a prize asset. Production can be steadily ratched up each year boosting cash flows and Gulf earnings. Liquidity in the stock can be tight but in time, the current valuation of Gulf may appear to be very modest.
