African Eagle (LON:AFE) shares climbed 5 percent this morning after it revealed a significant upgrade to the Dutwa project’s nickel resource.
According to research by Matthew McDonald, mining analyst at City broker Seymour Pierce, the stock could go a lot higher. The analyst expects the market to take the news positively and he reiterated his ‘buy’ and 20p a share price target, giving around 60 per cent upside from current levels.
This morning African Eagle reported the first indicated resource for the Dutwa nickel project, as it upgraded almost half the project’s inferred resource. The upgrade sees 46.2 million tonnes of Dutwa’s total 98.6 million tonne resource move up in confidence into the indicated resource category.
McDonald described the upgrade as ‘a giant leap forward’ and he highlighted that it sets the stage for Dutwa’s pre-feasibility study, which is due in the third quarter of 2011.
At Dutwa the current JORC resource is split between two deposits, Wamangola and Ngasamo.
This morning’s upgrade focused on the larger deposit, Wamangola. The deposit now has 46.2 million tonnes at 0.93 percent nickel and 0.03 percent cobalt of indicated resources and 14 million tonnes of inferred resources.
McDonald also highlighted that the majority of Wamangola’s remaining inferred resources should be reclassified into the indicated category sometime in 2011. The analyst also beleives that Ngasamo is due an upgrade soon.
Ngasamo currently has 38.2 million tonnes of inferred resources with 0.97 percent nickel 0.03 percent cobalt.
“The company will likely be requesting Snowden's to upgrade the second deposit at Dutwa (Ngasamo) to the indicated category before the end of Q2.
“With the planned infill and step-out drilling at the Ngasamo deposit nearing completion, we believe this target can be met.”
McDonald adds: “The resource at Ngasamo Hill currently sits at 38.2m tonnes, however any request to Snowden is likely to be coupled with results from the additional southern incline drilling programme, which we think could add a further 8-10 million tonnes to the resource base.”
Meanwhile Fairfax Securities also featured African Eagle in its morning note to clients, with analyst John Meyer looking forward to more news from the feasibility process.
“The pace of work appears to be picking up and we look forward to the results of the processing tests which will give greater confidence in the economics of Dutwa and examine issues in the region such as the logistics for key raw materials e.g. lime stone, as well as shipment routes for product,” Meyer said.
Work on the feasibility study is currently underway and it is expected in the third quarter of 2011.
The resource upgrade is important because - unlike inferred resources - the indicated resource can be used as part of the feasibility study to derive formal mineral reserves.
Reflecting on the progress made so far, African Eagle managing director Mark Parker said: "This resource upgrade is another significant milestone in our Dutwa feasibility study.”
“Snowden has converted a large portion of the Wamangola resource directly to the indicated category and we will only need to do infill drilling in areas of structural complexity such as fault zones and areas around cross-cutting dykes.
“Infill and step-out drilling to delineate the smaller Ngasamo deposit fully is planned in early 2011 and we will then ask Snowden to upgrade from inferred to indicated.”
Parker adds: “Work for the pre-feasibility study is progressing well and we have shipped a large portion of the bulk ore samples from both the Wamangola and Ngasamo deposits to Perth, WA for metallurgical tests."