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Baobab Resources PLC (BAO)

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Thursday 24 May, 2012

Baobab Resources PLC

Ruoni Flats Drilling Update

RNS Number : 0141E
Baobab Resources PLC
24 May 2012



24 MAY 2012


Baobab Resources Plc ('Baobab' or the 'Company') the mineral exploration and development company with a portfolio of assets in Mozambique, is pleased to provide an update on drilling at the Tete pig iron, vanadium and titanium project.

IFC (International Finance Corporation) hold a 15% participatory interest in the Tete Project with Baobab owning the remaining 85%.


•       Drilling programmes in the Ruoni prospect area are nearing conclusion with more than 7,500m of diamond and reverse circulation (RC) drilling completed to date.

•       Drilling at Ruoni Flats, where a 120Mt to 260Mt Exploration Target has been estimated by consultant Coffey Mining, has intersected a heavily mineralised package, up to 100m thick, that clearly represents the down-dip continuations to the Ruoni North and Tenge resource blocks.

•       Resource upgrade drilling is on-going at Chitongue Grande, Ruoni North and Ruoni South resource blocks.

•       2011 RC drilling of the down-dip portions of the 159Mt Tenge resource block terminated in mineralisation due to excessive water. Recently completed diamond twin holes have penetrated deeper through the sequence and demonstrate that the mineralised package is substantially thicker than that modelled in the resource estimate.

Commenting today, Ben James, Baobab's Managing Director, said: "Baobab is very pleased with progress made in the field, particularly at Ruoni Flats where drilling is outlining a potentially substantial addition to the resource inventory. An expanded resource in the Tenge/Ruoni area will enable the Company to credibly consider larger scale production scenarios, the technical and commercial merits of which will be further clarified as the results of the marketing study and high level financial simulations are finalised. Baobab looks forward to presenting the drill hole analytical results as they become available.

"The pre-feasibility study is progressing on schedule. The beneficiation test work is nearing completion, on the back of which the process engineering can get underway. The environmental impact assessment, plant and infrastructure option studies and marketing report are all well underway. In parallel to the technical programmes, the Company is advancing corporate initiatives to ensure the project's successful development.

"I encourage investors to download a copy of this announcement from the Company's website as it includes a cross-section through the Ruoni Flats / Tenge prospects that illustrates the scale and continuity of the deposit.



To date an aggregate total of c.3,000m diamond and c.4,700m RC has been completed since drilling commenced on 27 February 2012. The purpose of the drilling programme is twofold: to upgrade confidence in the Chitongue Grande, Ruoni North and Ruoni South resource blocks from inferred to indicated categories; and to define a new  resource block in the Ruoni Flats prospect area where consultant, Coffey Mining, estimated an Exploration Target of 120Mt to 260Mt (please refer to RNS dated 29 March 2012 for details).

Drilling at Ruoni Flats has intersected a heavily mineralised package that clearly represents the down-dip continuations to the Ruoni North and Tenge resource blocks. The package varies in thickness from c.80m to c.100m and typically includes minor intercalations of non-mineralised gangue material. Depth to top of mineralisation commences from c.175m in the north and east, deepening to up to 294m in the southwest.

Two diamond twin holes have also been completed at the Tenge resource block. 2011 RC drilling of the down-dip portions of the 159Mt Tenge resource terminated in mineralisation due to excessive water. The diamond twin holes have penetrated deeper through the sequence and demonstrate that the mineralised package in the deeper portions of the block is substantially thicker than that modelled in the resource estimate.

Drill samples are composited to 0.5m or 1m intervals on site before being sent to ACT-UIS laboratories in Tete, Mozambique for crushing and splitting. Representative samples are then despatch to ALS Chemex laboratories in Perth, Western Australia for further compositing (maximum composite length of 6m), Davis Tube Recovery (DTR) and X-ray Fluorescence Spectrometry (XRF) analysis. The Company will announce results as they come to hand.

A copy of this RNS, including a drill hole location plan and cross-section through the Ruoni Flats/Tenge prospects, is available for download from the Company's website at:




Baobab Resources PLC

Ben James: Managing Director                         Tel: +61 8 9430 7151

Jeremy Dowler: Chairman                                  Tel: +44 1372 450529


Grant Thornton Corporate Finance

Gerry Beaney / David Hignell                            Tel: +44 20 7383 5100


Shore Capital

Jerry Keen / Toby Gibbs                                      Tel: +44 20 7468 7964


Fortbridge Consulting

Matt Beale                                                            Tel: +44 7966 389 196








The project is located in the richly endowed Tete province of Mozambique. The province hosts some of the largest undeveloped coal reserves on the planet and, with estimates pointing towards the area producing up to 20% of the world's coking coal within the coming decade, is fast-tracking to become a mining and industrial hub of global significance.    

Immediately south of Baobab's tenure, and sharing the Company's licence boundaries, are c.15Bt of coking and thermal coal resources being brought into production by two of the world's largest mining houses, Rio Tinto and Vale, along with premier steel producers, Tata Steel, Nippon Steel, Jindal Steel and Posco. Other operators in the area include AIM listed companies Beacon Hill Resources plc, Ncondezi Coal Company plc and Eurasian Natural Resources Corporation plc (ENRC).

Low tariff hydro-electric power is readily available from the 2,075 megawatt Cahora Bassa dam. Studies are underway to expand the dam's capacity by an additional 1,300 megawatts. A new 1,500 megawatt scheme at Mphanda N'kuwa, also on the Zambezi, is in advanced planning stages and due to commence production in 2015. The Company believes that it will be able to negotiate tariff rates at a third, if not a quarter, of typical power generation costs in Australia or west Africa which will have a significant impact on future operating costs.

The railway connecting Tete with the port of Beira is being refurbished, as is the port. The deep water port of Nacala and railway linking the port with the interior is also being refurbished under the auspices of a consortium including the Mozambique government, Vale and the World Bank. An order of magnitude study has been completed on a dedicated heavy haulage railway to a Greenfields port located within 500km of Tete.

The Tete Project straddles the central portion of the Tete Mafic Complex and contains two areas of titano-magnetite / ilmenite mineralisation; the Singore area to the south and the Massamba Group in the north. The Massamba Group is composed of a series of three prospects (Chitongue Grande, Chimbala and South Zone) forming an 8km long trend and the 3.5km long Tenge / Ruoni prospect to the east.

IFC (International Finance Corporation) hold a 15% participatory interest in the project with Baobab owning the remaining 85%. The Company announced on 6 February that IFC has supported the 2012 pre-feasibility study (PFS) through a pro-rata contribution of approximately US$1.9m.

Building on the successful exploration programmes of 2009 and 2010, Baobab accelerated activities in 2011 to achieve two key milestones; to define a minimum resource base of 300Mt on which a Scoping Study could be finalised. The Company completed an aggressive c.40,000m drilling campaign that resulted in the expansion of the global resource base to of 482Mt (please refer to RNS dated 5 March 2012 for a summary of resources).

The Scoping Study, completed by independent consultants and applying conventional beneficiation and smelting technologies, assessed two production scenarios:

•       Scenario 'A': base-case production of 3Mtpa titano-magnetite concentrate and 0.5Mtpa ilmenite concentrate products for export. Initial capital expenditure (capex) estimate of US$448m.

•       Scenario 'B': capitalising on the Project's access to low tariff hydro-electric power and strategic proximity to thermal coal reserves to add further value on site through the mine-mouth smelting of 1Mtpa pig iron. Initial capex estimate of US$690m.

While the base-case model for scenario 'A' demonstrated viable Project fundamentals, the optimisations and financial modelling of Scenario 'B' at a 10% discount rate provided compelling economics with pre-tax net present value (NPV10) and internal rate of return (IRR) figures of US$1.4b and 34% respectively. The estimated average annual net cash flow after capex over the modelled 25 year mine life is US$275m.

The Scoping Study results show very clearly the 'value add' from the plans for on-site smelting of pig iron and underlines the strategic advantages of the Project's unique geography with respect to infrastructure and complementary resources. Producing a higher value, high demand product will not only broaden the market base, but also mitigate the requirement to compete for rail and port access.

The vanadium potential remains to be modelled and could add further to the value of this project. Reduced input costs through long-term domestic coal contracts and on-site power co-generation also need to be assessed, while the expanding resource base at Tenge/Ruoni, underpinning a meaningful +30 year mine life, allows scope for ramping up production.

For a detailed summary of the Scoping Study, please refer to RNS dated 29 November 2011.



A detailed Pre-Feasibility Study (PFS) work programme is underway. The Company has signed contracts with leading mining, engineering and environmental consultancies to complete the various aspects of the study.

The PFS is being coordinated out of Australia by Baobab's Project Manager, Christian Kunze. Mr. Kunze has a Master's Degree in Mechanical Engineering / Business Administration and 20 years international management experience in iron ore project development, plant engineering and steel manufacture. He has worked for industry specialists including Siemens VAI and ProMet Engineers, and has a well-established network of professional associates in Africa, USA, Europe, Asia and Australia. Mr. Kunze's specific strength lies in a combined technical and commercial understanding of projects.

The mineral processing component of the study is being supervised by consultant, Dr. John Clout. Dr. Clout is a leader in iron ore petrography, metallurgy, beneficiation, downstream processing and marketing. He was the Head of Resource Strategy at FMG in which role he was instrumental in the success of the company. He is an ex-CSIRO manager and has advised on mineral processing to companies including Rio Tinto, BlueScope, OneSteel, Robe River, Hancock and WISCO.  John holds the position of Adjunct Professor in Mineral Processing at the School of Mechanical and Chemical Engineering, University of Western Australia.

Coffey Mining has been selected to complete the resource, mining and environmental aspects of the PFS. Coffey has more than 50 years' experience as specialist mining consultants operating in over 60 countries across the globe and has contributed to iron ore feasibility studies for clients including FMG, Atlas Iron, Robe River, BHP Billiton, Gibson Iron, OneSteel, Hancock Prospecting, Grange Resources, Brockman Resources and Midwest Cooperation.

SNC-Lavalin has been selected as the engineering and infrastructure consultant. SNC-Lavalin is one of the largest engineering and construction groups in the world, consistently ranked in the top ten international design firms by Engineering News Record. As a provider of engineering, procurement, construction and project management services SNC-Lavalin has the capacity to take the Tete project from feasibility level through to project execution. Recently executed studies relating to the beneficiation of magnetite and heavy mineral sands projects include FMG's North Star Magnetite Project, Zammin Ferrous' Valentines Magnetite Project and Grand Cote Mineral Sands Project.


This information is provided by RNS
The company news service from the London Stock Exchange