African Eagle Resources: shares improve after US$5 million investment from World Bank investor

Shares in African Eagle Resources (LON:AFE) gained as much as 12 per cent in early trading this morning after it announced that World Bank Group member IFC is to subscribe for a 10-per cent equity stake in the firm via an investment of approximately US$5 million (£3.1 million). The new funds will be used primarily to finance the evaluation of African Eagle’s Dutwa nickel project in Tanzania.

City analysts responded positively to the news, which had African Eagle’s share price up 12.2 per cent soon after the market opened. Later in the morning the shares fell back, although they were still higher by more than 3.3 per cent at 6.325 pence each at 11:05am.

IFC is the largest global development finance institution that is focused on private sector development in frontier and emerging markets. IFC is getting involved in the Dutwa project because African Eagle “has shown commitment to responsible environmental and social management”. The organisation will help the miner to implement appropriate measures that will “ensure that the project is developed in line with international best practice”, particularly with regard to environmental and social sustainability, the company said this morning.

“We are delighted that IFC has decided, after careful due diligence, to invest in the Dutwa project, endorsing our view that Dutwa will become a major new mine for Tanzania,” said Euan Worthington, African Eagle’s chairman. “Our management is fully behind the IFC’s criteria for responsible environmental and social management of the Dutwa project and we will welcome IFC as a shareholder. This investment will further de-risk the project by providing further financing towards the feasibility study.”

The proposed IFC investment will be made through an equity subscription agreement with African Eagle. The placing price of 6.8 pence per share values its investment at approximately US$5 million and will result in the issue of around 45.5 million shares.

Broker Shore Capital noted that the IFC will also receive warrants for 22.75 million shares, with a strike price of 150 per cent over the placing price, as well as the right to participate in any future fund raisings in order to maintain its 10-per cent stake. “This is good news for the company: the IFC is a prestigious cornerstone investor and its presence adds credibility to AFE and Dutwa,” added the broker.

Ocean Equities pointed out that the IFC conducts “rigorous due diligence” before making investments, including comprehensive geological and metallurgical reviews. “So a proposal to invest is a stamp of approval for both the asset, and the company as a whole,” it commented. “Moreover, the IFC is a strategic partner of choice that gives host countries confidence that there is sufficient transparency to the projects and operations that it supports.”

Meanwhile, Seymour Pierce – which has a ‘buy’ view of African Eagle’s shares along with a 20 pence target price – described the IFC’s investment as “a big thumbs up” for the firm’s Dutwa project.

On Monday, African Eagle said that it aims to complete the bankable feasibility study for the Dutwa project by the end of 2012.