African Eagle MD Mark Parker sets record straight on Zambian copper spin-out plans

African Eagle (LON:AFE) is preparing to step up work on its Zambian copper portfolio ahead of an eventual spin-out and IPO of the assets later this year.

However managing director Mark Parker dismissed reports that the AIM-listed mining firm would be splashing out between US$40 and US$50 million into the Mkushi copper project in 2011.

First and foremost African Eagle is firmly focused on the Dutwa nickel project in Tanzania, where it is currently working on a pre-feasibility study which is due in the third quarter of 2011. Meanwhile, any investment in Zambia is likely to be significantly below the sums touted and across a broader range of assets, he added.

“We don’t want to give these assets up, they have excellent potential. So we have been discussing the best way forward,” the African Eagle boss told Proactive Investors. 

“We’ve decided that the best way to get value for our shareholders would be to raise a little bit of new mezzanine finance into the Zambian assets, directly into the projects. This would likely be around the US$5 to US$10 million level at this stage.

“The mezzanine financing is very much at an advanced stage in the pipeline at the moment. We’ve already spoken to several potential investors, so that is very hot at the moment.”

Parker added: “We would hope to complete the IPO before the end of this year. Really as soon as we can put the documentation together, so we are looking at the third quarter, perhaps somewhere around October or November maybe.”

Parker said that the new company will look to raise a ‘reasonable amount’ of capital through the IPO. It is expected to be enough to participate fully in the Mkushi mine development project and to continue its evaluation of its other projects, particularly in the copper belt.

In all, African Eagle holds six copper projects in Zambia. Mkushi is the most advanced, with early-stage production scheduled to start later this year. A feasibility study was completed on the project back in 2008, but it is currently being revised to reflect the improvement in the project’s economics since the credit crunch.

“Quite a lot has changed since the first feasibility study,” Parker said.

He adds: “We would like (Mkushi) to go into production in a staged manner. In other words start with fairly modest production and then scale up.”

At Mkushi, a joint venture with CGA Ratel, African Eagle plans to use some of the initial funding for its contribution towards this start-up mining operation.

“The deposit itself is about 15 million tonnes at just under 1 percent copper, it is a medium size project but quite profitable at today’s prices for sure.”

Two of the other projects are found in the Zambian copper-belt. Parker highlights that both have historic resources and have been drilled by African Eagle in the past.

Parker said that some of the mezzanine cash will be spent on drilling work on these projects, which will allow the company to properly ascertain their resource potential.

It then has three projects outside the copper-belt. Parker describes two of them as ‘grassroots’ projects and the other is the Eagle Eye IOCG - Iron, oxide, copper, gold - in the eastern corner of Zambia.

“We have seven years of operational experience in Zambia. We’re fully set up there. We can hit the ground running, well we’re already running but we just need to start the drills really.”

Chris Davies, African Eagle’s current chief operating officer, is currently handling the Zambian portfolio and he is expected to take the reins as chief executive of the new company once it is spun out. 

We also had a good chat with Davies this afternoon. Next week we will take a much closer look at this exciting but largely overlooked part of the African Eagle portfolio.