Adds broker comments......
African Eagle Resources (LON:AFE) revealed it is continuing to make promising advances with exploration of its key Dutwa nickel venture in Tanzania, with latest results reinforcing its positive views on the economic aspects of the project.
In an update on developments with work aimed at improving its understanding of Dutwa, the company says mineralogical analysis by the London Natural History Museum has identified the mineral species which hold most of the nickel within the deposit.
African Eagle's managing director Mark Parker says the ongoing work is part of the company’s effort to get to grips with the detail of Dutwa ore processing.
Understanding the mineralogy of Dutwa is crucial in developing efficient ore treatment and processing.
He says: “The financial modelling to date has shown that the project is economically viable, but we believe that many opportunities exist to reduce operating and capital costs by smart adaptations of the processing flow sheet.
“These new results are promising in that they show that there is potential to upgrade much of the nickel into a fine-grain fraction which requires no grinding and might be processed in a smaller plant in the early years, with benefits to the bottom line."
Another cost-cutting measure the company is investigating is the use of ore from the higher magnesium parts of the deposit in place of limestone acid neutralisation. This would reduce the amount of limestone needed, which would also cut transport costs for a key reagent.
Testwork is currently underway on material from the first batch of bulk ore samples (BOS1) to quantify these and other potentially advantageous routes for treatment and processing.
Drilling is now complete for Bulk Ore Sample 2 and results from its analysis will contribute to the detailed plant design and costing for the definitive feasibility study, as well as generate product samples for off-takers.
Results of the testwork on BOS1 will form a key element of the pre-feasibility study, which is expected to be completed before the end of the year.
The company’s intention is to deliver a definitive feasibility study (DFS) on Dutwa by the end of the fourth quarter of 2012. Several elements of the DFS are already underway in parallel with the pre-feasibility work, including the environmental and social impact assessment.
African Eagle says Dutwa is a “unique” nickel project with a JORC resource of 99 million tonnes at 0.93% Ni, easily mined from two hilltop deposits and amenable to simple, low acid consumption atmospheric leaching, leading to world class economics.
Financial modelling indicates a net present value for a 3 million tonnes per annum project of $870 million at today's nickel price of $10/lb, with cash operating costs of approximately $3.40/lb and a projected capital payback of between three and five years.
Analyst Matthew McDonald, of broker Seymour Pierce, which rates the stock a "buy" targeting a price of 20 pence (current price: 7.63 pence) noted the arrival of a new drill rig, designed to operate on steep slopes.
"The arrival of the rig will allow the drilling of an area of the deposit, which has previously been inaccessible and has the potential for resource expansion of up to 10Mt (an increase of approximately 10 percent on its current resource base). The company reiterated that it expects to complete its PFS before the end of the year," he said.
The analyst reckons the stock is undervalued.