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Intention to raise c. US$18 million to fast-track gold production at Pickstone Peerless and fund purchase of Dalny Mine, Zimbabwe
African Consolidated Resources, the AIM listed resources and development company, has signed a conditional agreement with Falcon Gold Zimbabwe Ltd to purchase the Dalny Mine, which is proximal to both its flagship Pickstone-Peerless Gold Project and its Gadzema Gold Project in Zimbabwe, for a net cost of US$8.5 million.
The company intends to raise approximately US$18 million though a mixture of debt and equity in order to bring Pickstone into production, finance the acquisition of Dalny and support general corporate purposes.
The Dalny Agreement is only binding on AFCR when conditions precedent are satisfied, which include, inter alia, completion of due diligence by the Company, now well advanced, and raising the necessary capital.
Highlights:
-Focussed on advancing flagship Pickstone Peerless Gold Project in Zimbabwe into production:
Current JORC Resource of 3.56Moz Au, including an open pittable ore Reserve of 1.02Moz Au
Pre-Feasibility Study (‘PFS’) completed in December 2013 demonstrated robust economics of Pickstone as a standalone project
– Conditional agreement to acquire previously producing Dalny Mine located 56km from Pickstone and 46km from Gadzema
– Dalny has an operational processing plant and ancillary infrastructure, which would provide a central processing plant to treat ore from Pickstone, thus:
Fast tracking gold production: potential to commence before the end of Q4 2014
Eliminating construction risk through the use of existing infrastructure
Lowering upfront CAPEX to US$14.3 million as compared to the PFS estimate of US$27.3 million
– Incorporating Dalny, Company Internal Financial Model generates:
NPV of $76 million over a 19 year mine life
Cash costs and all-in costs of US$701/oz and US$855/oz over life of mine (see Appendix for detailed summary of Company Internal Financial Model)
Model incorporates provision for indigenisation scheme
– Opportunity for Dalny to provide a future platform and secure other regional ore resources, with material scalability and commensurate returns
Intention to raise approximately US$18 million
Roy Pitchford, Chief Executive Officer, said “This is a potential game-changer for AFCR with considerable blue-sky opportunities. We have already identified a high grade, low cost gold resource at Pickstone and I am encouraged by our low-risk profile due to the low cost of production and conservative mining methods. Subject to financing and completion, this acquisition will further enhance the already attractive economics of Pickstone, and strengthen our existing platform so that AFCR can play a meaningful role in the resurgence of the Zimbabwean gold sector.
“I look forward to providing further updates on this exciting opportunity shortly.”
An updated corporate presentation incorporating the proposed Dalny acquisition will shortly be available for download on the Company’s website www.afcrplc.com.
Further Information
The Dalny Agreement:
The following is a summary of the terms of the Dalny Agreement:
· Vendor : Falcon Gold Zimbabwe Ltd, a Zimbabwe Stock Exchange listed company
· Assets acquired: the business of the Dalny Gold Mine including:
o plant, equipment and infrastructure;
o land, buildings and moveable assets;
o mining claims;
· Net cost to AFCR: US$8.5 million (includes payment of current creditors but excludes long term environmental liability)
· Conditions Precedent:
o due diligence to the satisfaction of AFCR;
o raising of minimum of US$12 million by AFCR;
o any necessary regulatory approvals; and
o approval by AFCR shareholders
· Contract:
o binding on vendors
o only binding on AFCR when all conditions precedent satisfied
· Payment on account of US$1 million due by AFCR:
o after completion of due diligence
o repayable by vendor to AFCR and secured by the Dalny Gold Mine in the event that other conditions precedent are not fulfilled
· Initial payment due 18 June 2014, with remaining consideration due 8 July 2014
· Agreement may be varied upon consent of both Falcon and AFCR
The Rationale for the acquisition of Dalny
A unique opportunity to acquire established infrastructure to fast track production and reduce CAPEX:
Located 56km from Pickstone and 46km from Gadzema (which includes the Giant Mine)
Existing Infrastructure includes:
Milling and leaching circuit
Tailings dam
Accommodation
Maintenance facility
Laboratory and offices
Experienced operators available
Reliable electricity supply and water source
Legal right to minerals in place including tailings
Environmental approvals for re-opening mining operations and tailings disposal are required following closure of the mine. Same footprint as before and with no material change in operating procedures.
Based on the Company’s Internal Financial Model, the Dalny acquisition would result in:
Ability to truck ore from Pickstone and Gadzema
Upfront CAPEX and working capital for Pickstone reduced as compared with PFS announced 4 December 2013 (US$14.3m vs US$27.3m)
Plant construction risk eliminated
Potential for first gold production in 4-6 months
Payback time on upfront CAPEX and working capital significantly reduced compared with PFS (15 months vs 50 months)
IRR improved compared with PFS (73% vs 56%)
Potential to double production by installing AFCR’s purchased mill stored in Europe
Additional exploration upside potential:
Falcon Gold Zimbabwe Ltd owns 2,325 claims at Dalny with a strike length of 12km of mineralisation
Historical production up to 2006 was 2.44Moz Au from 10.2Mt of ore treated at a grade of 7.42g/t
Reserve and Resource figures:
Underground Mineral Reserve Estimate of 61Koz (417kt grading at 4.6g/t)*
Underground Mineral Resource Estimate of 325koz (1.8mt grading at 5.7g/t)*
Tailings Mineral Proven Reserve Estimate of 146koz (6.8mt grading at 0.7g/t)*
*Source: New Dawn: June 2012 43-101 (Canadian) Ore Reserve and Resource Statement – minor depletion ahead of care and maintenance in August 2013
Significant long term upside potential:
open pit, tailings and major underground development for Dalny ore
opportunity to secure regional gold resources and increased economics of scale
History of Dalny:
The Dalny Mine has been put into care and maintenance by Falcon since 30 August 2013 predominantly due to operational and labour issues and in the year to 30 September 2013 the Dalny division of Falcon (the Division) incurred a loss before tax of US$11.3 million, but, since the shut down of the mine, the Division has greatly reduced its operating loss. The Board does not consider that the past results of the Division are representative of future operations as AFCR is not currently proposing to reopen the Dalny Mine itself in the near to medium term, but use the existing processing plant and mining equipment to process ore from AFCR’s existing Pickstone mine.
The Mining Plan for Pickstone using Dalny:
Subject to the acquisition of Dalny, the Company has adopted a revised mining plan, which entails mining ore at Pickstone at the rate of 20,000tpm (the ‘Mining Plan’) and trucking it to Dalny for processing, from which a financial model has been derived (‘Company Internal Financial Model’). The Pickstone ore body is well understood as a result of previous studies, the latest of which was the Reserve and Resource estimation announced by the Company on 4 March 2014.
The Company, which has employed persons with senior technical skills, has developed the Mining Plan internally with the assistance of Minxcon Pty (Ltd) who have prepared a mining strategy review which has assisted in assessing the optimum cut-off grade. Minxcon has also reviewed the Dalny processing plant and equipment, which has confirmed the adequacy of the Dalny plant and equipment for the purposes of the Mining Plan. This has confirmed the CAPEX requirement at Dalny as being well within the range of the Company Internal Financial Model.
Under the Mining Plan, initial works at Pickstone and Dalny to prepare for mining and processing are projected to take two months from completion of funding, with mining starting in the third month, processing in the fourth month and gold production in the fifth.
The milling capacity at Dalny is 20,000tpm and the tankage facility is 60,000tpm. If the Company’s purchased ball mill currently stored in Europe were brought to Dalny, production could be doubled. The Board therefore considers the Mining Plan to be conservative.
Headline figures for the Company Internal Financial Model showing comparatives with the PFS announced on 4 December 2013 and on the assumption of a gold price of US$1,300/oz over life of mine are as follows.
