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Savannah and Rio Tinto sitting on massive mineral sands resource

The commercials remain broadly similar to the original agreement to bring together the projects, which are next to each other and are effectively component parts of the same deposit.
Savannah and Rio Tinto sitting on massive mineral sands resource
Work on a scoping study will begin soon on the heavy mineral sands deposit.

Savannah Resources PLC (LON:SAV) expects to begin a scoping study immediately on its enlarged heavy minerals sands project in Mozambique having brokered a new deal to combine assets with mining giant Rio Tinto PLC (LON:RIO).

The commercials remain broadly similar to the original agreement to bring together the projects, which are next to each other and are effectively component parts of the same deposit.

To speed up the process, Savannah’s Jangamo property and Rio’s Chilubane and Mutamba areas will go into a consortium company at a later date, likely to be after the grant of a mining licence.

The AIM-listed mine developer will have an initial 10% stake in and operatorship of the merged entity, which will rise to 51% as it achieves certain milestones.

The scoping study, to assess the potential of the projects, is one of those landmarks. It will kick off immediately and is expected to be complete by the first quarter of next year.

Mutamba-Jangamo includes an established 65mln-tonne resource and significant expansion potential. The exploration target is out at between 7-12bn tonnes at a grade ranging from 3% to 4.5% total heavy minerals sands.

In November, a new 3.5bn resource was estimated for two of the deposits – Jangamo and Dongane. They contain an estimated 81mln tonnes of ilmenite, 2.2 mln tonnes of rutile, and 3.8 mln tonnes of zircon.

This mineral resource estimate will form the foundation of the scoping study that will focus on the high-grade areas where there is little or no overburden

It is part of Savannah’s low-cost mining strategy for the project targeting production of around 200mt, said broker Northland.

The tie-up with Rio was first announced last summer. The latest agreement follows consultation with the Ministry of Mineral Resources and Energy of Mozambique.

A “delighted” chief executive David Archer said: “Agreeing an arrangement that enables exploration activities to be conducted on a unified basis across the Mutamba, Dongane and Jangamo projects makes significant commercial sense, effectively combining three areas which are part of the same, continuous mineralisation trend.”

 

Stock is on the move

In the year to date the stock has advanced 186% and is showing no signs of flagging.

“The consortium approach is a major positive development for Savannah Resources that will allow the company to get started on its eagerly awaited initial work programme at the combined Mutamba-Jangamo project,” said Ryan Long, mining analyst at Northland Capital.

In a recent interview with Proactive, CEO Archer said there were three reasons to invest in the company: “Our assets in Mozambique, our assets in Oman and our shareholder base.”

In June, it potentially added a fourth when it was awarded two lithium exploration permits in Finland.

Lithium dimension adds spice

The permits are for two new projects at Somero and Erajarvi.

Work previously completed by the Finnish geological survey showed the presence across this ground of key lithium minerals in 117 individual occurrences, according to Archer.

The projects are at a much earlier stage than Savannah’s other two assets, the Jangamo mineral sands project in Mozambique and a copper project in Oman.

Nevertheless, the addition of lithium to the portfolio adds a new dimension to the company’s future.

Excitement, hype even, over the potential of lithium for battery power and energy storage has made it one of the few metals where prices have been rising strongly.

“Lithium makes enormous sense from a pollution point of view,” he says.

“People do want to get away from internal combustion energies.”

The lithium price has moved from US$8.00 per kilogram (kg) over the past 12 months to a current price of around US$25 per kg, so he’s not alone in spotting the potential.

But for European car makers, battery-powered cars feature heavily in their forward planning manual and having a source nearby will be essential.

That said, Savannah has barely started to scratch the surface of its new licences.

In August, it began an initial exploration programme that is expected to take 8-10 weeks and comprise mapping, surface rock chip and channel sampling that will target pegmatites with known lithium minerals.

Copper production next year is aim

The copper programme in Oman is much further down the development road.

Indeed, Savannah hopes to be in production by the end of 2017.

The focus is on two blocks, 4 and 5, and priorities now are a mineral resource estimate for the previously producing Aarja, Bayda and Lasail mines in Block 4 and a feasibility study of an amalgamated mine development of the deposits within both.

The firm will also apply for mining leases over the deposits.

Drill results encouraging  

Results from the latest drilling in Oman showed more encouraging copper grades with a notable gold credit.

Six diamond drill holes have been completed so far this season: Three at Maqail South (in Block 5) and on Block 4; one at the Dog's Bone and two at Bayda.

A first hole at Maqail South intercepted 2 metres (m) at 6.84% copper and 0.3 grams per tonne (g/t) gold from a depth 47.5m.

At Dogs Bone, on the Aarja target, the intercept was 5.75m at 1.84% copper and 0.8g/t gold from 109.3m.

Savannah has scheduled an updated resource statement for both Maqail South and Mahab 4, where drilling starts shortly, by the end of the year.

Mahab 4 currently has a resource of 1.5Mt at 2.1% copper for 31,500t of contained copper."

Watch: Savannah Resources - One minute pitch

Archer said: “Aarja is shaping up as a moderate-grade, underground deposit that can be readily accessed via the existing portal and decline while Maqail South is being validated as a very attractive, high-grade copper deposit readily mineable via open-cut methods. “

Elsewhere on Block 4, the old Lasail Mine is the largest volcanogenic massive sulphide (VMS) deposit within the Oman ophiolite belt and saw 13mln tonnes at 2% copper mined between 1986 and 1994.

Around this, Savannah has also identified several potential areas, which could present future mining opportunities.

Solid shareholder base

Aside from its mining assets, Archer reckons Savannah’s solid shareholder base is another major plus.

Middle Eastern private investment group Al Marjan is the company’s major backer with a 29.99% stake and supported the group in £1.75mln placing in February.



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