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East African Gold: First mover in Uganda that offers an exciting and direct route to value creationDecember 10 2012, 11:28am
Uganda-focused East African Gold floats on the AIM later this month with an exciting story and a fairly direct route to value creation.
The investment proposition is a simple one: it has four leads, two drill ready targets and expects to reach a maiden resource within the next 12 months. And in creating this ‘oven ready’ proposition it has spent just over $3mln.
While Ghana and Tanzania are establishing themselves as newly emerging or emerged mining districts Uganda has been left behind.
Partly, this is because the country is deemed, fairly or unfairly, as an agricultural economy.
And while the first round of exploration in the region was taking place in 1970s, the instability wrought by dictatorship of Idi Amin meant it was largely overlooked.
In fact the first whole country geological survey was only completed earlier this year.
This shows that some of the regional gold trends, such as the Twangiza and Geita, bisect Uganda.
This has implications for the fledgling mining industry. It points to the fact big business can and does thrive in this corner of East Africa and that the authorities are capable of nurturing the extractive industries.
In doing so the government has created a framework for growth without over-regulating these international firms.
The lack of a mining sector of any size or scale means those brave enough to invest in Uganda have enjoyed first mover advantage.
For East African Gold, this has meant picking up 26 licences covering 2,093 square kilometres of some of the most prospective ground anywhere in the world, collectively known as the Karamoja Gold Project.
Artisanal mining in the area points to some fairly rich, near surface gold anomalies, as does the discovery of alluvial deposits in the Kaabong rivers in the 1980s.
The company’s own early exploration work has yielded some encouraging results with soil samples grading up to 83.6 grams per tonne of the precious metal.
The work to date – which includes soil geochemistry, grab sampling, ground magnetics and trenching – has helped identify four primary targets. They are: Naikoret, Lopedo, Sokodu and Lois.
The grab samples from Lopedo (one of two drill ready targets; the other is Sokodu) has returned grades from 12 to 83.6 grams per tonne of gold.
The £4-8mln raised from the flotation will allow East African Gold to embark on a fairly aggressive 16,000 metre drill programme testing a five kilometre strike to a vertical depth of 150 metres.
“This should take us to an inferred resource and then an upgrade,” said East African’s chief executive Tom Sawyer.
“The programme has been designed from the word go to NI-43-101 [resource] standard.”
While it is early days, Sawyer’s team has been encouraged thus far by what it has uncovered.
The mineralisation being targeted would lend itself to a fairly substantial, reasonably high-grade open pit, where the gold is cheap and easy to extract.
“The sweet spot is obviously 2mln ounces at over 4 grams per tonne. That would be truly world class,” says Sawyer.
“We don’t think this is out of the question, but I can’t sit here and say it’s definite. Costs should be well below average.”
Social engagement has been a key part of the mandate in Uganda. Specifically, this has meant educating the small, local population, including the artisanal workers, on what the future promises.
Local initiatives have started at the basic level, with the opening of its water boreholes to the community, while exploration programme has created jobs.
Entrepreneurs, meanwhile, have been encouraged to set up as suppliers to East African and have been offered financial assistance to get these new businesses off the ground.
For a project in an as yet undeveloped gold region, the infrastructure is not too bad.
There is a graded road and air strips nearby, and plans for a solar power plant in the project’s vicinity.
Sawyer says the reception in the Square Mile to the story has been a warm one, and he is quietly confident of raising the funds required.
The plan is to add some blue-chip, long-term investors to a very supportive list of pre-IPO backers of the story.
“We are not in this for a big flip. We are in for the long haul,” Sawyer says.
“We want to build a business here. At some point, when we do a feasibility study, we will make the decision whether to change to a production company or bring in a Barrick or AngloGold.”