COMPANIES
ASX:BSE | A$0.32 | US$178m | Buy | TP : A$0.43
Exploration Programme Confirms Resource Additions at Kwale
Base Resources has provided an update on the infill and edge definition drilling programme at the South Dune at its Kwale mineral sands operations in southern Kenya. Exploration was reported to have discovered a discrete area of mineralisation to the east of the South Dune, over an area of 1,000m by 500m. The company confirmed that an updated mineral resource estimate is on track for completion for the September quarter.
COMMENT: Together with the first update on the exploration programme (announced on 2 March 2017), this confirms that the programme has discovered additional mineralisation in a number of locations in close proximity to the existing Kwale operations that could provide a meaningful boost to resources. However, as noted by the company, further work is required, including more information on the mineral assemblage, before the resource can be finalised in the September quarter, as planned. The areas in which additional material has been discovered include:
• the 1,000m by 500m area outlined to the east of the South Dune referred to this announcement. This was reported to have a lower overall total heavy mineral (THM) grade compared with the South Dune, but a higher proportion of high value rutile;
• a 950m by up to 700m extension of the South Dune to the south-west. THM grades were generally similar to those of the South Dune and visually of a similar mineral assemblage;
• a 1,240m by 480m dunal-heavy mineral sand deposit called Mafisini that is a strike extension of the south-western extension of the South Dune. Again, this material appears to be similar to that of the South Dune; and
• dunal material in the North East Sector, to the east of the Central Dune. However, no additional work has been undertaken in this area since January, pending securing access, which the company hopes will be made easier after the planned general election in August.
These results show the potential to add resources at grades similar to the South Dune, where reserve grades are 3.8% HM; should this lead to an extension of the project’s mine life, significant value would be added. For reference, adding one year to the mine life of South Dune adds ~10% upside to our current target price, assuming grades and costs remain constant.
We are maintaining our Buy recommendation and A$0.43 target price, but we note the upside potential these latest results show. For details on the company’s latest financial results, please see: Base Resources — March Quarterly Activities Report, 12 April 2017.
Increasing reserve base would have a significant impact on valuation — At the end of 2016 we estimate that reserves were approximately 100Mt grading 4.5% THM. At the current mining rate of 10Mtpa, this would be sufficient to support the operation for ten years until 2026. However, the company is undertaking the Kwale Phase 2 project studies into the expansion of the mining and mineral concentrator to compensate for the planned decline in grades, with a view to maintaining the production of heavy minerals concentrate and mineral sands products in the future. Although this is the subject of detailed work currently, we suggest that given the current mined grade of around 7% THM and the average grade in the South Dune of 3.8% THM, this could involve an increase in throughput of 75-100% above current levels and a reduction in the mine life to around six years, depending on when the expansion is completed.
Exploration provides upside after having achieved steady-state production — In 2015 an airborne geophysics programme was conducted over the south coast region of Kenya from Mombasa to the Tanzanian border. This identified exploration targets that were subsequently confirmed through ground reconnaissance. In June 2016 Base announced that it had been granted exploration tenure over a significantly expanded land area surrounding its existing Kwale operations, along with plans for its first exploration programme since commencing production. The announcement marked a shift towards extending the mine life at Kwale after having achieved steady-state production.
Reported drill holes similar to South Dune — The drill programme was aimed at exploration, infill drilling and edge definition at the South Dune deposit. The current operation is based on the Central Dune, where the resource grade is 5.5% HM and reserves 5.8% HM. At the South Dune, resource and reserve grades are 3.5% HM and 3.8% respectively.
Newly-identified Mafisini deposit has the potential to extend the mine life — Mafisini is interpreted to be a continuation of mineralisation at the South Dune, separated by a narrow, alluvial lowland. Mineralised intervals occur over a contiguous 1,240m of strike and up to 480m in width. Notable results for Mafisini include the previously reported Line 13 cross-section showing 10.5m at 4.4% HM and 12m at 4.2% HM, both from surface, compared with a grade of 3.8% HM on the South Dune reserve. Other drill hole grades appear to be broadly in line with the South Dune.
South Dune dimensions expanded by exploration — Exploration drilling increased the dimensions of the South Dune deposit, adding 950m to the south end at an average width of 700m. Notable results include the previously-announced Line 7 cross-section, showing 23m at 5.2% HM, 23m at 4.4% HM and 21m at 4.4% HM.
NE Sector shows longer-term potential, but has been suspended pending resolution of access issues — Only four drill holes with mineralised intercepts were reported for the NE Sector, so the story is still developing. The company intersected a surface zone where 2 of 3 drill holes were low-grade and narrow, as well as a deeper mineralised zone sitting ~20m below surface with higher grades. Base has yet to complete most of the proposed drilling; this has been put on hold due to community issues. The company believes these have arisen as a result of increased political posturing ahead of the August 2017 general election in Kenya. Base intends to re-engage with the community after the election to obtain informed consent and access the target drill sites.
South Dune infill and edge definition — As this report shows, edge-definition drilling along the eastern margin of the South Dune has discovered discrete lower-grade mineralisation east of the 5km-long South Dune, with mineralisation over an area measuring 1,000m by 500m.
Target price — We are maintaining our Buy rating and target price of A$0.43. We note, however, that the South Dune continues to extend and Mafisini offers additional resource potential. An extension of mine life beyond 2024 could potentially add significant value.
ASX:ANL | A$0.04 | US$38m | Speculative Buy
Raises A$25m at A$0.05/share from Cornerstone Investor
Amani Gold has announced that it has signed a non-binding MOU with Luck Winner Investments Ltd (LW) to raise A$25m through the issue of 500m shares at A$0.05/share and 250m options (exercisable at A$0.07/share for two years). Subject to completion, LW would have a 28% interest in Amani and the right to nominate board members. The proceeds are to be used to fund work towards the completion of pre-feasibility and feasibility study work at Kebigada, exploration work on the broader Giro Project area in general and, subject to the completion of its acquisition, exploration on the adjoining Tendao Project.
LW is a Hong Kong investment company whose two key shareholders are Mr Yu Quiming and Mr Fu Sheng, both of whom have a long involvement in the mining industry.
The transaction remains subject to the completion of due diligence by LW (it has already undertaken a site visit) before 25 May 2017 and also to the approval of Amani shareholders.
COMMENT: Given the substantial scale and 25% premium associated with this proposed placement, we obviously consider it to be a very positive development. However, we note that it remains subject to due diligence by LW, which is to be completed within just over two weeks.
Assuming the satisfactory completion of this and that shareholder approvals are granted, we consider that the introduction of a supportive cornerstone investor is a positive development for the company and will allow it to commit fully to the ongoing exploration and study work at the Giro Project and also the adjacent Tendao Project, the acquisition of which remains subject to ongoing due diligence by Amani.
We look forward to the completion of the maiden resource estimate for the project before the end of 2Q17. We have previously suggested that the company could have outlined a resource of approximately 2Moz at a grade of around 2.0 g/t. We continue to recommend the company as a Speculative Buy.
Giro Gold Project background — Amani is focused on advancing its 55%-owned Giro Gold Project. The majority of activity on the licence has focused on the Kebigada Zone, where drilling of a 2km by 900m soil anomaly has outlined mineralisation over 1,400m by 400m to depths of more than 150m. A number of other targets, including areas of historical mining, have been outlined by soil sampling and some followed up by drilling. Most significantly, at Douze Match, in the north of the licence area, initial drilling returned some spectacular high-grade results, although follow-up drilling has so far not lived up to earlier results. The focus on the Giro Project has now returned to the completion of the maiden resource at the Kebigada Zone, and also the completion of target generation across the project area.
Infill drilling being completed to allow completion of maiden resource statement — The RC infill drilling programme (of around 4,750m in 38 holes) is designed to confirm the continuity of mineralisation on section and along-strike by reducing line spacing from typically 100m to 50m over the main mineralised zone. Infilling commenced in mid-February on the recommendation of the resource consultant in order to define the high-grade structures more accurately and increase confidence in the resource model. This is aimed to provide improved separation of the high- and lower-grade material in the model and give a better reflection of grade and tonnage at different cut-off grades. A diamond drilling programme (3,500m; 10 hole) is also being undertaken, half of which is to confirm the continuity of mineralisation to depths of over 200m vertically. On completion of the infilling programme, a 3,500m shallow scout RC drilling programme will commence to follow up a number of high-grade soil anomalies near the Kebigada Zone to test their potential to become satellite deposits.
Amani’s current market cap is A$50m/US$38m — The company has 1,257m shares outstanding, with 434m options exercisable at A$0.05/share until July 2017 and 52m options exercisable at prices from A$0.05/share to A$0.10/share expiring from November 2019 to December 2020. The company also has 9m performance rights outstanding. After cash outflows during the March quarter of A$2.6m, cash at the end of the period were A$3.4m.