Dutwa Scoping Study Report

SCOPING STUDY REPORT ON DUTWA NICKEL PROJECT DELIVERED TO AFRICAN EAGLE MANAGEMENT Work started on Feasibility Study * Report conclusions indicate that project would be profitable if operating today * Sensitivity analysis shows significant project upside, based on reasonable economic parameters * African Eagle begins work on feasibility study African Eagle announces that it has now received the full Scoping Study report on the Dutwa Nickel Laterite Project in Tanzania, undertaken by GRD Minproc of Perth, Australia, and confirms that work on the feasibility study is now beginning. African Eagle's Managing Director Mark Parker commented, "Using current metals prices and recent long-term forecast prices, the investment case for the project is very strong. The study indicates that if Dutwa were in production today, it would be making a comfortable profit. The report's conclusions allow the Company to examine further aspects of the project, in particular: * the potential upside at metals prices higher than base case prices * opportunities to improve the "bottom line" still further by cost reductions and revenue optimisation." "In the context of a gold project, at today's metal prices the Dutwa nickel project is approximately equivalent to a nine million ounce gold deposit in "metal in the ground" value terms and our discovery cost to date of US$7.50 per tonne of nickel is equivalent in value terms to a gold discovery cost of about US¢35 per ounce, just 1/70th of the long-term gold industry average of US$25/oz." Following the Company's initial announcement of the "proof of concept" scoping study results on 24 June 2009, the final report now delivered shows the potential upside at metals prices higher than the base case and allows the Company to begin work to improve the "bottom line" by reducing costs and optimising revenues. Recent consensus among a number of analysts is that nickel prices are likely to improve over the long term. For example, in an analysis published on 25 June 2009, BMO Research forecast a long-term price of US$8.50/lb. As a potentially low-cost producer, the upside for the Dutwa project is considerable if nickel prices are above the $7/lb used in the base case. The following table shows the key metrics for several upside cases, including the $8.50 BMO long-term forecast and today's prices of $7.68/lb nickel and $18/lb cobalt (27 July 2009). +-------------------------------------------------------------------+ | Ni price | US$/lb | 8.50 | 7.68 | 7.50 | 7.00 | 6.50 | |------------+--------+-----------+--------+-------+--------+-------| | Co price | US$/lb | 15.00 | 18.00 | 15.00 | 10.00 | 10.00 | |------------+--------+-----------+--------+-------+--------+-------| | Average | $M/yr | 130 | 110 | 100 | 87 | 71 | | EBIT | | | | | | | |------------+--------+-----------+--------+-------+--------+-------| | Pre-tax | % | 28 | 23 | 22 | 18 | 14 | | IRR | | | | | | | |------------+--------+-----------+--------+-------+--------+-------| | Post-tax | % | 24 | 20 | 18 | 15 | 12 | | IRR | | | | | | | |------------+--------+-----------+--------+-------+--------+-------| | Pre-tax | $M | 554 | 390 | 336 | 230 | 117 | | NPV | | | | | | | |------------+--------+-----------+--------+-------+--------+-------| | Post-tax | $M | 367 | 247 | 210 | 130 | 47 | | NPV | | | | | | | |------------+--------+-----------+--------+-------+--------+-------| | Case | | BMO | 27 | | Base | | | | | forecast | July | | case | | +-------------------------------------------------------------------+ +-------------------------------------------------------------------+ | Base case: | Abbreviations: | | | | | Nickel price = US$ 7/lb | EBIT = Earnings before | | ($15,430/tonne) | interest and tax | | Cobalt price = US$ 10/lb | IRR = Internal Rate of | | Discount rate = 10% | Return | | Transport cost = US$100/tonne | NPV = Net Present Value | | (8¢/tonne/km) | DCF = Discounted cash flow | | Tax rate = 30%, fiscal incentives | analysis | | not accounted | | | Royalty = 3% | All numbers stated to 2 | | | significant digits | | The financial modelling was | | | conducted in US dollars with an | | | estimated accuracy of ±30% | | | | | +-------------------------------------------------------------------+ The Study indicates that Dutwa, if it were in production today, would be profitable. Earnings, on an EBIT basis, would be of the order of $110 million per annum on average over the life of mine, giving an internal rate of return around 20%. To provide indicative economics and demonstrate "proof of concept" at this stage, the Study adopted a fairly broad brush approach to many of the costs with GRD Minproc estimating individual capital and operating costs to ± 30%, based on their considerable experience with nickel laterites. These variables will be determined with more accuracy and confidence during the forthcoming feasibility work. The Study identified several key areas where further testwork and detailed study are especially likely to result in improvements to the "bottom line" or to important gains in confidence. These areas include: * Improved global deposit model and the potential for early "high-grading". The Ngasamo resource will be drilled and incorporated into a more sophisticated global resource model and mining plan. From this, it will be possible to establish whether richer ore can be mined first, giving increased early cash-flow and an improved NPV. * Ore beneficiation and project scale. The capital and operating costs of the plant would be reduced if mechanical beneficiation of the ore prior to leaching yields a smaller tonnage of richer material for processing through the plant. * Advanced leaching testwork. Column and vat leach tests at bench and pilot scale will determine the best operating conditions to optimise nickel extraction, including acid concentration, residence time and temperature. * Reagent cost reductions. The cost of reagents, notably sulphur and lime, will be a significant component of operating costs and profitability will increase considerably if these costs are minimised. Transport is a substantial part of the reagent costs and ways to minimise this will be investigated, as will the availability of more local sources, particularly of lime. * More sophisticated fiscal and economic modelling. Tanzania offers a number of tax incentives for exploration and mine development, which were not fully accounted in the Study economic model. While the Company is raising funds to address these activities and studies in order to progress the project towards feasibility, it has already committed some of its current cash reserve to start the work with further metallurgical testing having commenced on drill core samples at Mintek laboratories in South Africa. The Company will also start resource drilling at Ngasamo in September. Technical terms A glossary of technical terms used by African Eagle in this announcement and other published material may be found at www.africaneagle.co.uk/p/glossary.asp For further information: Mark Parker Managing Director African Eagle +44 20 7248 6059 +44 77 5640 6899 Nicola Marrin Seymour Pierce Limited, London Nominated Adviser + 44 20 7107 8000 Charmane Russell Russell & Associates, Johannesburg + 27 11 8803924 +27 82 8928052 Ed Portman / Leesa Peters Conduit PR, London +44 20 7429 6607 +44 77 3336 3501 About African Eagle African Eagle is a diversified mineral exploration and development company operating in eastern and central Africa. The Company's principal advanced assets are the Dutwa nickel laterite discovery in Tanzania, where the Company completed a scoping study in June 2009, and its 49% interest in the Mkushi Copper Mines joint venture project in Zambia, for which a draft feasibility study was completed in Q4 2008. African Eagle is evaluating a second promising nickel laterite deposit at Zanzui in Tanzania and has defined a JORC gold resource estimated at half a million ounces at its Miyabi gold project in Tanzania. The Company holds a well-balanced portfolio of promising earlier stage gold, copper, platinum and uranium projects, including the Ndola and Mokambo projects in the Zambian Copperbelt and the Igurubi gold project in Tanzania. Zambia, Tanzania and Mozambique, the sites of African Eagle's projects, are all countries which have highly prospective geology, relatively low above-ground risks and track records of successful major investments in the metals and minerals industries. In December 2008, African Eagle resolved to prioritise the Dutwa project, because the Board believes that, of all the Company's projects, it offered the greatest potential to add value. To take its other discoveries into production, African Eagle is seeking industry partners with records of successful mine development, by means of joint ventures, farm-ins, spin-outs or other mechanisms. About the Dutwa Project African Eagle has discovered a significant nickel laterite deposit in the Dutwa project area in the Lake Victoria Goldfield. Within Tanzania, the project is favourably situated 100km east of the railhead at Mwanza and close to the main Mwanza-Nairobi trunk road, a major power line and the shore of Lake Victoria. Since the discovery of the Dutwa nickel deposit in June 2008, African Eagle has explored the project very quickly and cost-effectively, including resource drilling and an independent resource estimate; laboratory metallurgical and mineralogical tests which revealed that the deposit could be processed efficiently by sulphuric acid leaching. On 24 June 2009, the Company announced the results of its "proof of concept" scoping study. The study, by GRD Minproc of Perth, Western Australia, indicated that the project can be economically viable, and African Eagle has now begun work towards a definitive feasibility study. For the study, GRD Minproc reviewed information provided by African Eagle relating to the geology, resources, setting, mineralogy and metallurgy of the deposit, and the infrastructure in Tanzania and neighbouring countries, combining this information with its own internal data and experience, to develop and calculate the economics of ten alternative mining and process plant options. Costs were estimated in US dollars, to an accuracy of ±30%. The economic modelling was an iterative process, feeding back into the mining plans and the process designs. GRD Minproc used Whittle mine modelling to optimise the mining plan and cut-off grade for each process option, based on the deposit model and JORC compliant resource of 31 million tonnes at 1.1% nickel and 0.034% cobalt produced by SRK in November 2008. GRD Minproc added a 50% upside, to take into account the nearby Ngasamo laterite, which adds a potential 15-20 million additional tonnes. The study showed that the optimum process option is likely to be atmospheric tank leach, but the project may also be viable using heap leaching. High-pressure acid leach with direct solvent extraction of the nickel is also potentially economically feasible. The financial modelling showed that at today's nickel prices, the project can be expected to generate a net cash-flow (EBIT) of US$ 53 million to 130 million per year over a mine life of 15 to 20 years, depending on the processing method. The detailed results are set out in the table below. The study also shows a good investment case for the project, with a post-tax internal rate of return (IRR) of 15% and a net present value (NPV) of US$110 million, using a base case of a 10% discount rate of 10%, a US$7/lb nickel price, with the best processing option (AL/MSP). The pre-tax NPV is US$200 million. The cost of reagents, especially sulphur and lime, will be a major component of operating costs and sensitivity analysis shows that returns can be considerably increased if these costs can be minimised. Also, as anticipated, transport costs will form a significant contribution to operating costs and the Company will investigate ways to minimise them. The base case used transport costs of US$0.08 per tonne per km; the NPV rises to $210 million (post-tax) or US$350 million (pre-tax) and the IRR increases to 15.5% if the transport costs can be reduced by 25% and an 8% discount rate is used. The study demonstrated that further feasibility studies are now justified and the Company has commenced work on these. The initial work will be directed towards investigating ways to reduce costs and increase revenues, together with drilling the adjacent Ngasamo deposit, improving the resource model and refining the metallurgical information. A start has already been made on the additional metallurgical test work at Mintek Laboratories in South Africa, including column and tank leach tests, sizing analysis and physical test work to establish more definitively the optimum processing routes. African Eagle acquired the Dutwa project for its gold potential, but the Company's exploration team quickly recognised that there was significant nickel laterite potential. There is very little outcrop, so the Company conducted extensive ground magnetic surveys to reveal the underlying structure and geology. The Company also compiled historical data, including detailed geological maps and trench results dating from 1956, when rock chip samples from the trenches over the ultramafic rocks were reported as yielding up to 1.9% nickel and 10% chromium. In all, African Eagle has explored a total area of more than 750km² in the Dutwa project area. The Company holds a 90% interest, with option to acquire 100%, over the Dutwa laterite deposit itself. In April 2009, African Eagle signed a Letter of Intent for an option and joint venture over another nickel laterite at Ngasamo, 5km west of the Dutwa deposit. Greenstones and granites underlie the project area. The greenstones, of Archaean Nyanzian age, are mostly metamorphosed volcanic and sedimentary rocks, with some banded iron formation in the east. Several large ultramafic bodies occur within the greenstones and the nickel laterites form a blanket up to 60m thick on top of these. To investigate the nickel discovery, the Company undertook trial drilling in June 2008. The results were very encouraging and a 139-hole reverse circulation (RC) drilling programme was completed to delineate the resource. African Eagle also undertook a 10-hole diamond drill programme to obtain core samples for metallurgical testing and density measurements. In November 2008, African Eagle announced an initial Inferred Mineral Resource estimate of 31 million tonnes at an average grade of 1.1% nickel and 0.034% cobalt. At a cut-off grade of 0.5% nickel, this gives Dutwa a contained metal endowment of some 340,000 tonnes of nickel and 11,000 tonnes of cobalt. The estimate was prepared by independent consultants SRK Consulting (UK) Ltd in line with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code). A little additional drilling and more advanced geostatistics and deposit modelling will be needed to upgrade the resource to Indicated category. Ngasamo Hill, 5km west of the Dutwa deposit, is geologically very similar and holds a laterite deposit of the order of 15 to 20 million tonnes, which would increase the global resource at Dutwa from the currently defined 31 million tonnes at 1.1% nickel, to some 45 - 50 million tonnes. Drilling and metallurgical tests will be needed to confirm the size, grade and compatibility of Ngasamo. Under its agreement with Ngasamo's owners, (Safina a.s. of the Czech Republic and its Tanzanian subsidiary Precious Metals Refinery Company Ltd), African Eagle can earn an interest of at least 50% and up to 75% in Ngasamo by carrying out exploration and evaluation work, up to a feasibility study. Mintek Laboratories in Johannesburg investigated the mineralogy and metallurgy of mineralised drill samples from the deposit, including extended 'bottle roll' sulphuric acid leach tests to investigate metal recoveries and acid consumption. Mintek also carried out mineralogical characterisation by X-ray diffraction (XRD), scanning electron microscopy (SEM) and polished section work. The bottle roll test results showed nickel extractions of 70-90% with an average of 83%. Cobalt extractions were mostly in the range 70 to 85%. The acid consumptions, averaging 209kg/t, are very low compared to other Ni laterite ores worldwide. The mineralogical investigations show that the laterite is extremely silica-rich, with low iron and magnesium content, indicating that Dutwa is not a typical laterite nickel deposit. Mintek believes that much of the nickel and cobalt occurs in "wad" with manganese content of 20-60%, nickel content of up to 20% and cobalt content of up to 10%. The unusual mineralogy of the deposit is highly beneficial, as it results in lower acid consumption and is expected to give good heap leach permeability or favourable liquid-solid separation in tank leaching. The concentration of nickel and cobalt in the manganese wad offers the possibility that mechanical selection of high-grade material may allow reduced throughput and hence a lower cost processing plant. The Company is also investigating other potential nickel laterite deposits in Tanzania, and has completed a trial programme of RC drilling to test a laterite at its Zanzui project, 60km to the south of Dutwa. Results included 42m at 1.05% nickel (including 6m at 2.80%) and 33m at 0.91% nickel (including 9m at 1.41%). ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.