Namibian Copper (ASX: NCO) are developing copper-zinc-silver-gold projects in Africa. Total Inferred copper equivalent resources from Hambok in Eritrea and Ongombo in Namibia are around 1.145 billion pounds with potential to exceed 2 billion pounds.
Namibian Copper moves into the big copper leagues with Hambok acquisition
Namibian Copper’s Hambok project is counted as one of three major VMS / Gold projects in Eritrea including Bisha and Asmara with copper and zinc grades comparable with Bisha. With a Market Cap. of just $11.2 million, Namibian is vastly under-valued on pounds of copper and to the companies that own similar deposits in Eritrea.
Namibian Copper (ASX: NCO) has acquired two prime advanced stage exploration projects that include Mogoraib River (includes Hambok discovery) which is located immediately along strike and to the south of the Bisha gold and copper mine.
Bisha is operated by Nevsun (TSX: NSU), is capitalized at C$779 million and is the largest mining project in Eritrea.
Kerkebet River contains a new high grade gold discovery at Aradaib and is located along strike to the north of Bisha.
Mogoraib River contains the advanced stage Hambok copper-zinc project hosting a near surface JORC compliant Mineral Resource Estimate that includes 550 million pounds of copper and 1.2 billion pounds of zinc.
Capital structure post transaction
Share Price: $0.155
Issued Shares: 150.0m
Market Cap: $23.25m
Cash: A$6.2m
Analysis
Namibian Copper has been able to acquire the Mogoraib River / Hambok project at a very favourable price based on cost per resource tonne. Australian and Chinese companies have been able to close major mining deals in Eritrea and other African nations due to some reticence by some major North American companies.
This has been Namibian Copper’s gain enabling it to acquire the Hambok project. The story becomes even more compelling when considering valuations of other companies operating in Eritrea like Nevsun Market Cap: $779m, Sunridge Gold (CVE:SGC) Market Cap: $72m and South Boulder Mines (ASX: STB) Market Cap: $130m.
A 20,000 metre infill diamond drilling program is underway at Hambok that is evaluating the potential to extract shallow open pittable ore in the short term, and deeper sulphide ore for long term development.
Namibian Copper has entered into a conditional agreement with NGEx Resources (TSX-V: NGQ) to purchase a 100% interest in the Mogoraib River and Kerkebet Exploration Licence areas in Eritrea.
The deal will seek shareholder approval at a General Meeting to be held on the 12th of March, 2012, and confirm NGEx as the largest shareholder in Namibian Copper.
NGEx is a member of the Lundin Group that is a $5 billion dollar conglomerate consisting of 14 companies that has an impressive history of developing junior mining assets over the last three decades.
The Company is also developing the Ongombo Copper and Silver Project in Namibia, which is located along strike from the Weatherly PLC (LSE: WTI) operated Otjihase copper mine. Otjihase is projected to produce 3,366 tonnes of copper in 2011, and 7,000 tonnes in 2012 from total JORC Reserves and Resources of 1.6 billion pounds of copper.
Ongombo has potential to approach the size of the copper resource found at Otjihase and will subjected to a substantial drilling program in mid 2012.
Management
Namibian Copper is headed by Colin Robert Ilkin who serves as Executive Chairman and has been a mining company director for over 25 years and has taken many mining projects through exploration, feasibility, financing and development.
Dr. Demetrius Pohl is a Technical Director and Geochemist who is a Proposed Director. He has specialised knowledge of VMS deposits in north-eastern Africa and Eritrea, and over 40 years of exploration experience across Africa and Australia.
Bob Timmins serves as a Non-Executive Director and is a senior geophysics professional with over 40 years of exploration and management experience in Australia and Africa, with specific knowledge of conducting business in Namibia.
Shareholding and Development Funding
The Company has called a General Meeting to approve the purchase of the Mogoraib River and Kerkbet Exploration Licences for consideration that includes the issuance of 50 million shares, and payment of US$7.5 million to NGEx upon commencement of commercial mining operations at Hambok.
The Company currently holds cash of $1.2 million in its treasury and will issue new shares to raise an additional $5 million to cover an aggressive drilling and exploration program. More funds may be raised from 9.0 million options that have an exercise price of $0.20 and expire in September of 2012, providing up to $1.8 million.
NGEx are divesting Mogoraib River and Kerkbet to focus on their flagship Los Helados copper and gold project in Chile. NGEx will retain a dominant interest in the properties by becoming the largest shareholder in Namibian Copper with an interest of approximately 40% on conclusion of the transaction.
Mogoraib River 
The Mogoraib River Licence area covers 235 square kilometres and contains the Hambok Project which is an advanced stage copper and zinc volcanogenic massive sulphide ”VMS” Project hosting a near surface JORC compliant Inferred Resource of 28 million tonnes grading 0.9% Cu, 1.9% Zn, and 6.3 g/t Ag, at a 0.75% Zn cut off. The resource contains 550 million pounds of copper, 1.2 billion pounds of zinc and 5.6 million ounces of silver.
Hambok is contiguous with and situated 15 kilometres from the Nevsun (TSX: NSU) operated Bisha gold mine. Bisha is a large precious and base metal-rich VMS deposit that contains 0.43 million ounces of gold, 11.5 million ounces of silver, 821 million pounds of copper, and 1.4 billion pounds of zinc. The deposit is configured in three distinct layered zones that include a 35 metre thick surface oxide zone, overlying a 30 metre thick copper enriched supergene zone that progresses at depth into a primary sulphide zone containing both zinc and copper, which is open at depth.
Bisha produced 379,000 ounces of gold in its first year of operations and projects 190,000 to 210,000 in 2012 from open pit operations. Nevsun has reported issues with the over estimation of available oxide ore resources to feed the process plant, and this provides an opening for potential sale of near surface oxides from Hambok to keep the oxide circuit fully supplied and running beyond 2012.
NGEx currently holds 100% ownership in both Mogoraib and Kerebet through a subsidiary company known as Sanu Resources which also owns a complete Eritrean database including extensive geological, geochemical, and ground geophysical data for both base metals and gold.
Sanu has an exploration office that is located in the Eritrean capital of Asmara that is staffed with and experienced management and local exploration team, and maintains an exploration base and core sheds within the project area. NGEx has agreed to transfer all of these assets to Namibian Copper on completion of the agreement.
Sanu Resources is currently completing a 20,000 metre diamond drilling infill program at Hambok that is aimed at upgrading both the resource status and grade of mineralisation. This will be followed by metallurgical studies and completion of a Preliminary Feasibility Study prior to the end of 2013.
This drilling program will also evaluate potential for near surface oxide ore of the type that is found at Bisha. This ore might be suitable for near term treatment at the Bisha oxide circuit in the event of any production shortfall, or to extend the economic life of the process plant as Bisha switches over to processing deeper sulphide ore.
A recent airborne VTEM/magnetic survey has defined at least 18 drill-ready targets that are located within Mogoraib River Licence for an ongoing exploration and drilling effort aimed at defining further ore resources.
Previous drilling at Hambok outlined mineralisation within fine grained pyrite lenses with variable amounts of copper sulphides and sphalerite. The sulphide body strikes north by northeast over a distance of approximately 1 kilometre, and dips 60 to 70 degrees to the east and has a mineralised vertical extent of over 400 metres.
The mineralisation has simple mineralogy with low iron sphalerite, chalcopyrite, pyrite and no deleterious elements, and is relatively coarse grained, which typically means easy liberation of economic minerals. Grades and mineralogy are very similar to the primary sulfide zone at the Bisha Deposit where feasibility studies predict about 85% recoveries from primary ore. The mineralisation is hosted by competent metamorphic rocks, and dilution is unlikely to be a problem.
Hambok is located within the same Arabian-Nubian shield that hosts the Jabal Sayid deposit containing 1.2 billion pounds of copper that is being developed by Barrick (NYSE: ABX) as an open pittable resource at a cost of $400 million. Equinox Resources acquired Jabal Sayid in 2010 for A$1.2 billion prior to the Barrick acquisition.
The development of Bisha and Jabal Sayid highlight the exploration upside within the shield and potential for Namibian Copper to develop into a significant producer of base and precious metals.
Kerkbet River
The Kerkbet River Exploration Licence is located 50 kilometres to the north of Bisha and contains discoveries at Koken which consists of a string of gossans that are exposed at surface over a strike length of 4.5 kilometres; and at Aradaib where a “Bisha style” high grade gold discovery has been outlined over a strike length of approximately 300 metres. Highlights include ARD-03 with 13.3 metres at 3.3% Cu, 5.6% Zn, 1.8 g/t Au, 33 g/t Ag, and including 1 metre at 5.23% Cu, 0.26% Zn, 7.07 g/t Au and 133 g/t Ag.
Sanu completed high resolution electromagnetic VTEM, magnetic and radiometric surveys over the licence area that defined several moderate to strong EM anomalies in areas of deep overburden and helped to better define the potentially mineralised trend at both Koken and Aradaib.
The Company completed follow up ground reconnaissance that included mapping and trenching on the best VTEM targets, and has identified drill targets for testing in upcoming drill programs.
Ongombo Copper Project, Namibia 
The Ongombo Project is a copper and silver resource that was previously defined by more than 100 diamond drill holes that resulted in the outlining of four individual ore shoots that contain a JORC compliant Inferred Resource of 7.25 million tonnes at 1.7% copper, and 8 g/t silver, for a contained 270 million pounds of copper, and over 1.8 million ounces of silver.
Additional exploration potential along the four ore shoot systems has been estimated at 17 to 23 million tonnes grading 1.6 to 1.8% copper. Mineralisation remains open down dip and along strike, with known ore shoots widening and increasing in grade at depth. Additional potential may also exist from the presence of parallel ore bodies down-dip.
Infrastructure
Ongombo is situated in central Namibia, and is 22 kilometres northeast of the Otjihase copper mine, and 45 kilometres northeast of the capital Windhoek. The property is close to a rail connection that runs to the recently refurbished Tsumeb copper smelter and port at Walvis Bay. Namibia has a population of approximately 2.1 million English speaking people with excellent infrastructure, stable government, and a well established mining code.
The mineralisation at Ongombo is very similar to that found at Otjihase, where the main mineralised shoot extends for 9 kilometres, and has historical copper recoveries in the range of 91 – 92.5%. Weatherly reports net cash costs of US$4,707 per tonne or US$2.14 per pound of copper produced at the mine.
A geophysical and drilling program of some 20 holes for 5,000 metres is planned at Ongombo and will cover the four shoots at a cost of approximately $1 million with drilling expected to start in April of this year.
Copper
For copper, the future equation comes down to supply-demand fundamentals. Many commodity houses are forecasting a supply deficit for 2012. For instance, stockpiles in Asia as tracked by the London Metal Exchange (LME) are at a two-year low and heading lower, which is likely because China is buying and stockpiling copper again. The broader LME stocks are at a one-year low and also heading lower. This a good sign for copper with replacement of current supply copper not keeping up with demand in 2012/13.
Analysis
Namibian Copper has agreed to purchase the resource at Hambok for a consideration of $7.5 million in shares and deferred payment of $7.5 million in cash, for a total of $15 million.
Namibian Copper was able to snare Hambok, which contains 550 million pounds of copper and 1.2 billion pounds of zinc for 875 million pounds of copper equivalent resource, valued at $0.008 per pound of JORC Inferred Resource.
Similar copper projects have been acquired for $0.04 - $0.06 per pound, implying significant share price accretion for Namibian Copper as investors begin to digest the deal.
The Hambok resource has near term potential to grow in size at depth, along strike, and to develop low cost open pittable oxide ore for treatment at Bisha as a replacement for a shortfall in oxide resources recently reported by Nevsun. The Bisha resource hosts a significant amount of near surface open pittable oxide ore that may re-occur at Hambok.
Additional exploration funds will be utilised to advance, Kerkbet, Koken and Ongombo along with a number of newly defined targets.
Drilling at Ongombo has potential to grow a resource that approaches 1 billion pounds of copper based on current inferred resources and potential exploration tonnage. Processing of copper concentrates from this project could be delivered to the nearby Tsumeb custom smelter operated by Dundee Precious Metals (TSX: DPM).
Total Inferred copper equivalent resources from both Hambok and Ongombo are around 1.145 billion pounds and have potential to reach or exceed 2 billion pounds over the course of the ongoing exploration programs that are already underway. Drilling for gold at Kerkebet will provide additional exploration sizzle.
Namibian Copper’s Hambok project is counted as one of three major VMS / Gold projects in Eritrea including Bisha and Asmara. Hambok has copper and zinc grades comparable with Bisha. Namibian Copper, with a Market Capitalisation of just $11.2 million is vastly under-rated and under-valued relative to the companies that own similar deposits in Eritrea. On comparisons with these other listed companies, Namibian Copper stands to be re-rated significantly in the months ahead.
By acquiring Hambok, Namibian Copper has gained control not just of a copper zinc project but an advanced and significant (in size) project with resource upside potential. The acquisition looks to be one of the most outstanding we have seen in recent times.
The possibility of a gold cap at Hambok would likely improve later mining economics and any news on this front would add further zing to the share price.
Basis of estimate for Hambok copper equivalent is to convert 4.25 pounds of zinc to 1 pound of copper based on current copper and zinc pricing.
