TIDMCAF
RNS Number : 0019I
China Africa Resources PLC
27 May 2014
China Africa Resources plc
("China Africa Resources" or the "Company")
Berg Aukas Pre Feasibility Study Results
China Africa Resources plc ("CAR") today announces the result of
the Pre feasibility study ("PFS") on Berg Aukas. The PFS has been
calculated on the basis of four different processing options,
details of which are set out below. The PFS report is available on
the company's web site.
Highlights:
-- Berg Aukas shown to be a viable project.
-- Pre-tax Net Present Values (10%) (NPV's) of between US$49
million and US$51 million (best-estimated value), dependent on the
processing option selected.
-- Post tax NPV's of US$29 million on best-estimated value.
-- Pre-tax Internal Rate of Return (IRR) of 25% in real US$ terms.
-- Minxcon stated that under the current economic environment
the Project is robust and have recommended that the project move to
the next decision level.
Pre feasibility study (PFS) overview of results
As a result of the successful 2012 diamond drilling campaign,
and subsequent maiden JORC Mineral Resource Estimate, the Company
has engaged a number of consultants who completed a PFS for the
re-development of the Berg Aukas Zinc-Lead-Vanadium Mine in
northern Namibia. The major contributors to the study are
summarised in the table below:
Company Responsibilities
-------------- ----------------------------------------------------
CSA Global Drill Programme Design and Supervision to
Industry Standards, Including Training and
QAQC.
-------------- ----------------------------------------------------
EV Cameras Video Inspection of No.2 Shaft
-------------- ----------------------------------------------------
TWP Projects Supervision and Reporting of Shaft Inspection
-------------- ----------------------------------------------------
Coffey Mining Maiden JORC Indicated Mineral Resource Estimation
-------------- ----------------------------------------------------
Lund Mining Mining Study, Ore Reserves
-------------- ----------------------------------------------------
Redden Mining Mining Study
-------------- ----------------------------------------------------
Mintek Metallurgical Testwork
-------------- ----------------------------------------------------
Logiman Phase 1 - Supervision of Mintek Testwork
and Preliminary PFD
-------------- ----------------------------------------------------
Logiman Phase 2 - PFS Processing Options and Report
Complication
-------------- ----------------------------------------------------
Skorpion Initial Testwork on ZnO Sample for Amenability
Zinc to Processing at Skorpion Mine, Namibia
-------------- ----------------------------------------------------
Huludao Potential descloizite off-take, testing descloizite
concentrate sample
-------------- ----------------------------------------------------
Louis Dreyfus Product Marketing
-------------- ----------------------------------------------------
Minxcon Financial analysis,
-------------- ----------------------------------------------------
Project Description
The Berg Aukas Mine is located approximately 19km east of the
town of Grootfontein in northern Namibia. The Berg Aukas mine
operated as a low tonnage, high grade producer of zinc, lead and
vanadium between 1958 and 1978, and hoisted an estimated 2.3Mt at
an average grade of 15% Zn, 3.9% Pb and 0.85% V(2) O(5) over this
period. The mine ceased operations in 1978 due to depressed zinc
prices and significant resources remain in situ. The majority of
the remaining resource is located between the 14 and 19 levels
(approximately 400m to 590m below surface where extensive
development is already in place providing good access to the
orebodies.
The mineral rights to the Berg Aukas mine and surrounds are held
by China Africa Resources Namibia (Pty) Ltd (a wholly owned
subsidiary of CAR) under two slightly overlapping mining licenses
(ML), ML-14/2/3/2/1 and ML-14/2/3/2/24B. The mining licences expire
on 31 March 2019 and encompass all known hard rock ore bodies, the
slag dump and the tailings storage facilities and cover an area of
904ha.
Geology and Mineral Resource Estimate
The three major ore bodies are confined to a narrow (<250m
wide) NNE-SSW trending corridor on the northern limb of a syncline.
They have been shown to extend to the keel of the syncline, around
23 Level (750mbs), but have only been significantly developed to
the 19 Level (590mbs).
Mineralisation is predominantly breccia hosted and intimately
related to the extensive cavity system developed from surface to
the lowest levels of the mine. Mineralisation consists of zinc and
lead oxides and sulphides, with minor vanadium rich muds and cavity
infill.
In April 2013 Coffey Mining Pty Ltd (Coffey) completed a maiden
JORC Mineral Resource Estimate (Table 1) based on the CAR 2012
diamond drilling and historical drilling data (Whittaker, 2013).
Mineral Resources are reported inclusive of Ore Reserves.
Classification Cut-off Grade Tonnes Average Grade Average Grade Average Grade
(Zn%) (Zn%) (Pb%) (V(2) O(5) %)
---------------- -------------- ---------- -------------- -------------- ---------------
Indicated 2.0 1,339,600 14.74 3.69 0.329
---------------- -------------- ---------- -------------- -------------- ---------------
2.5 1,303,880 15.09 3.76 0.330
---------------- -------------- ---------- -------------- -------------- ---------------
3.0 1,264,800 15.47 3.84 0.331
-------------- ---------- -------------- -------------- ---------------
3.5 1,217,930 15.94 3.95 0.333
---------------- -------------- ---------- -------------- -------------- ---------------
Table 1: Coffey 2013 Mineral Resource Estimate (Whittaker,
2013)
JORC Compliant Ore Reserve Estimate
Classification Cut-off Grade Tonnes Average Grade Average Grade Average Grade
(ZnEq%) Mt (Zn%) (Pb%) (V(2) O(5) %)
---------------- -------------- ------- -------------- -------------- ---------------
Probable 5% 1.691 11.16 2.76 0.23
---------------- -------------- ------- -------------- -------------- ---------------
Table 2: Lund Mining 2013 Ore Reserve Estimate (Lund, 2013)
The Zinc equivalent is based on the combined zinc and lead
content only at USD 2,000/tonne for both zinc and lead. While
silver is not included in the ore reserve estimate due to
insufficient data to be estimated in the Mineral Resource, the
average Ag grade in the ore reserve blocks is 8.7g/t.
This is the reserve conversion of the Coffey Mineral Resource
and does not include the material from the historic resource
outside the Coffey model. This has been accounted for separately as
mineral inventory within the life of mine (LOM).
Mining
Currently it is envisioned that the mining rate will ramp up to
250,000 tonnes per annum (tpa) hoisted by Year 3 of the operation.
This is considered feasible as during the final six months of
operation in 1978 the mine was hoisting at an annual rate of
258,000 tpa. After gravity pre-concentration the plant is expected
to mill and process approximately 80,000tpa.
The average LOM Ore Reserve grades, including dilution and after
applying appropriate modifying factors, are expected to be
approximately 11.16% Zn, 2.76% Pb, 0.23% V(2) O(5) and 8.7 g/t
Ag.
Processing
Metallurgical testwork was undertaken by Mintek in Johannesburg,
under the supervision of Logiman.
The testwork regime is focused on replicating and improving the
successful sequential floatation process flow sheet used when the
mine was in operation. In addition, considerable effort is being
made to improve the pre-milling concentration of the ore using
gravity separation. The PFS evaluated four processing options:
Option 1: Construction of a crusher, gravity pre-concentration
plant, mill and flotation processing plant on site - the
'historical flowsheet'.
Option 2A: Construction of a crusher and gravity pre-concentration plant on site, with the pre-concentrate product trucked to an existing concentrator facility at Tsumeb (approx. 80km by road), and rehabilitation of parts of the Tsumeb concentrator.
Option 2B: Construction of a crusher and gravity
pre-concentration plant on site. Direct sale of the pre-concentrate
product.
Option 3: Trucking all ore to Tsumeb, construction of a gravity
pre-concentration plant at Tsumeb, crusher, mill and flotation
section rehabilitated at Tsumeb concentrator.
Gravity separation testwork results from Mintek indicate that a
high zinc grade pre-milling product can be achieved using gravity
separation alone (shaking tables and Dense Media Separation (DMS))
at 30% Zn and 10% Pb, with recoveries of 87% and 86% respectively.
Significantly, over 90% of high gangue acid consuming material (Mg,
Ca and CO3) is rejected using the gravity separation. A preliminary
costing exercise for this has been undertaken by Logiman as Option
2B.
The flotation testwork undertaken by Mintek has demonstrated
that the historical five-stage sequential flotation is verifiable
and achievable. In addition, significant improvements have been
made in the overall Zn and Pb grades to their respective primary
sulphide concentrates (Table 3), and significant reductions in Zn
reporting to the slimes and Pb reporting to the V(2) O(5)
concentrate (Table 4).
Logiman MB 2013 Historical Comments
------------- ------------------ ------------- -----------------------
Concentrate Zn% Pb% Zn% Pb%
------------- -------- -------- ------ ----- -----------------------
Significantly improved
Zn Sulphide 66.5 1.4 54.3 4.6 Zn grade
------------- -------- -------- ------ ----- -----------------------
Significantly improved
Pb Sulphide 20.0 70.8 17.7 52.3 Pb grade
------------- -------- -------- ------ ----- -----------------------
Zn Oxide 47.7 1.0 44.1 2.0
------------- -------- -------- ------ ----- -----------------------
Pb Oxide 8.8 58.1 10.2 57.5
------------- -------- -------- ------ ----- -----------------------
V(2) O(5) 7.1 39.7 17.4 42.6 Reduced Zn grade
------------- -------- -------- ------ ----- -----------------------
Slimes 15.5 2.2 20.0 Reduced Zn grade
------------- -------- -------- ------ ----- -----------------------
Table 3: 2013 Concentrate Grades (From MB) vs Historical
Production (Historical Production Based on Final Three Years of
Production)
Logiman MB 2013 Historical Comments
------------- -------------------------------- -------------------------------- -----------------------------
Concentrate % Zn Recovered % Pb Recovered % Zn Recovered % Pb Recovered
------------- --------------- --------------- --------------- --------------- -----------------------------
Increase in Zn reporting
Zn Sulphide 28.0 2.3 16.6 4.5 to conc
------------- --------------- --------------- --------------- --------------- -----------------------------
Increase in Pb reporting
Pb Sulphide 4.2 56.9 2.2 20.4 to conc
------------- --------------- --------------- --------------- --------------- -----------------------------
Increase in Zn reporting
Zn Oxide 56.6 4.8 37.1 6.6 to conc
------------- --------------- --------------- --------------- --------------- -----------------------------
Increase in Pb reporting
Pb Oxide 0.4 9.7 0.1 1.9 to conc
------------- --------------- --------------- --------------- --------------- -----------------------------
Decrease in Zn & Pb in
V(2) O(5) 0.7 14.9 4.5 35.2 conc
------------- --------------- --------------- --------------- --------------- -----------------------------
Significant decrease
Slimes 1.7 0.9 30.0 0.0 in Zn to slimes
------------- --------------- --------------- --------------- --------------- -----------------------------
Recovered 91.6 89.5 90.5 68.6 Sig increase in Pb recovered
------------- --------------- --------------- --------------- --------------- -----------------------------
Table 4: Percentage of Metals Recovered In The Various
Concentrates from MB (Historical Production Based on Final Three
Years of Production)
Overall the 2013 testwork programme demonstrated that it is
feasible to improve on the historical concentrate grades,
especially the most significant Zn concentrates, and also to
improve the recoveries of both Zn and Pb metals reporting to the
major Zn and Pb concentrates. Significantly the amount of Zn metal
reporting to the Zn slimes has been reduced from approximately 30%
historically to less than 2%, mainly as a result of improved
gravity separation.
Infrastructure
The existing electrical substation close to the mine site was
initially constructed for the mining operation in the 1970's. The
substation is now the major substation for Grootfontein and
surrounding areas. After initial discussions with Nampower it is
expected that up to 3MW will be available at the mine site,
including the 750kVA currently used by Namwater in its pumping
operations.
Process water will be readily available from the dewatering of
the underground workings. Currently NamWater (the parastatal water
supply company) maintains a water pumping station in the No.2 Shaft
for the supply of water regionally. The mine dewatering will
generate far more water than will be used by mining or any of the
processing options.
Environmental and Permitting
If the project proceeds to development a new Environmental
Clearance Certificate (ECC) will be required. This will require
submission of an Environmental Impact Assessment (EIA) and
Environmental Management Plan (EMP) to the Ministry of Environment
and Tourism. It is expected that there will be considerable local
support for the project to proceed and that during operation the
considerable environmental legacies from previous mining operations
will be rehabilitated and/or retreated.
Product Marketing
The mine produces five products as summarised in the previous
table 5. zinc sulphide, lead oxide and sulphide concentrates are
readily saleable to most smelters with standard treatment charges
applicable.
The zinc oxide concentrate in its current form is of most
interest to smelter/refineries that use solvent extraction prior to
eletrowinning (SX-EW) in their process.
The descloizite (V(2) O(5) ) concentrate has a limited market,
with Huludao smelter in China being the only potential client
identified. Unfortunately the annual production of this type of
concentrate from Berg Aukas is insufficient to warrant the
reactivation of Huludao's (currently dormant) vanadium recovery
circuit. This may change in the future but for the purposes of this
study it has been assumed that the descloizite concentrate is
treated as a lead oxide concentrate with no credit for the vanadium
content.
Process Pant and Infrastructure Capital Cost Estimate
Logiman (Part 3) has costed the capital requirements for the
various options based on indicative quotes for the major items and
factoring other costs where appropriate (Table 13).
These costs are considered to be +/- 30%.
Item Option Option Option Option
1 2A 2B 3
----------------------------------- ------- ------- ------- -------
DIRECT FIELD COSTS (USDm)
-----------------------------------------------------------------------
PROCESSING
----------------------------------- ------- ------- ------- -------
Civils 0.80 0.76 0.46 0.62
----------------------------------- ------- ------- ------- -------
Structural 0.72 0.69 0.51 0.73
----------------------------------- ------- ------- ------- -------
Mechanical 11.59 12.18 4.78 9.17
----------------------------------- ------- ------- ------- -------
Electrical 1.99 2.85 2.04 1.94
----------------------------------- ------- ------- ------- -------
Instrumentation 0.17 0.17 0.08 0.17
----------------------------------- ------- ------- ------- -------
Transport 0.20 0.20 0.15 0.20
----------------------------------- ------- ------- ------- -------
Valves 0.30 0.30 0.20 0.30
----------------------------------- ------- ------- ------- -------
Piping 0.50 0.50 0.30 0.50
----------------------------------- ------- ------- ------- -------
Non-Processing Items 0.45 0.31 0.30 0.19
----------------------------------- ------- ------- ------- -------
Mobile Equipment 0.50 0.50 0.50 0.50
----------------------------------- ------- ------- ------- -------
Startup & Commissioning Spares 0.43 0.43 0.20 0.40
----------------------------------- ------- ------- ------- -------
P&G 4.75 5.18 2.47 5.39
----------------------------------- ------- ------- ------- -------
Total Processing Pre-Production
Capex (USDm) 22.40 24.07 11.99 20.11
----------------------------------- ------- ------- ------- -------
INDIRECT FIELD COSTS (USDm)
-----------------------------------------------------------------------
EPCM 3.36 3.61 2.37 4.04
----------------------------------- ------- ------- ------- -------
Total Indirect Costs (USDm) 3.36 3.61 2.37 4.04
----------------------------------- ------- ------- ------- -------
TOTAL (USDm)
-----------------------------------------------------------------------
Total Pre-Production Capex (USDm) 25.76 27.68 14.36 24.15
----------------------------------- ------- ------- ------- -------
Table 13: Summary of Processing Capital Costs
The sustaining capex has again been calculated at 4% of the
mining opex per year.
Option 1: All processing takes places on site and Nampower
supplies 3MW of electrical power at Berg Aukas, with the remaining
requirements supplied by generators on site. Sufficient generator
power will be available to run critical systems (mainly dewatering
and hoisting) in event of a power failure.
Option 2A: The gravity separation takes place on site, with
trucking of the pre-concentrate to a refurbished Tsumeb
concentrator. Nampower supplies 3MW to the site, with the remaining
requirements supplied by generators. Sufficient generator power
will be available to run critical systems in event of a power
failure. Nampower supplies all power to the rehabilitated Tsumeb
Concentrator.
Option 2B: Gravity separation on site with the sale of the
gravity separation product. All power supplied by Nampower with
sufficient generator capacity on site to run critical systems in
the event of a power failure.
Option 3: All ore trucked to Tsumeb with the processing at a
rehabilitated concentrator. Nampower supplies 3MW to site,
sufficient for all needs, and that there is standby generator
capacity in case of power failure for critical systems such as
dewatering and hoisting.
Basis of Valuation of the Mining Assets
In generating the Financial Model and deriving the valuations,
the following was completed:-
-- A Cash Flow Model with an effective date of November 2013.
-- The free cash flow to equity holder ("FCFE") was set up in calendar years.
-- A discount rate of 10% was applied as per the in-house model.
-- The impact of mineral royalties has been included.
-- Sensitivity analyses have been performed to ascertain the
impact of discount factors, commodity prices, total working costs
and capital expenditure.
-- Capitalised expenses of USD2 million prior to start-up was included.
-- A total of 10 years' production life and 11 years' project life was calculated.
-- For tax purposes, assets other than freehold property are written off over three years.
Economic Input Parameters
Spot Prices
The commodity prices displayed in Table 8 (sourced from the
in-house model) were used in the DCF. Price forecasts are
illustrated against the current price levels and highs and lows
forecast prices, which were sourced from analysts as reported in
Consensus Economics Inc.
Table 8: Macro-Economic Forecasts and Commodity Prices over the
LoM (Real Terms)
Commodities Unit LoM Current(1) Low(2) High(2)
-------------------- ----------- ------- ----------- ------- --------
Silver USD/oz. 20 19.87 16 25
-------------------- ----------- ------- ----------- ------- --------
Zinc USD/tonne 2,000 2,065 1,900 2,975
-------------------- ----------- ------- ----------- ------- --------
Lead USD/tonne 2,000 2,100 1,984 2,700
-------------------- ----------- ------- ----------- ------- --------
Vanadium Pentoxide USD/tonne 13,000 14,550
-------------------- ----------- ------- ----------- ------- --------
Notes:
1. As at 14 May 2014.
2. Consensus Economics Inc.
Payability
The PFS investigated two different concentrate scenarios each of
which attract a range of payabilities for the commodities at a
discount to spot prices. The zinc oxide in its current form has a
limited market and the obvious treatment route is through the
Skorpion refinery, owned by Vedanta, at Rosh Pinah in Southern
Namibia. The Skorpion refinery is a Solvent extraction and
electrowinning ("SX/EW") operation and should not be affected by
any deleterious elements.
In 2012 Skorpion conducted initial test work on Berg Aukas
samples collected from the waste dump and concluded that the low
Gangue Acid Consuming ("GAC") material would be amenable to
processing at their facility (David-Howoses, 2012). Further test
work carried out by Skorpion on the zinc oxide concentrate bulk
sample produced by Mintek in 2013 confirmed the suitability of
treating the zinc oxide concentrate at Skorpion refinery and
subsequently Skorpion provided indicative treatment terms.
The descloizite (V(2) O(5) ) concentrate also has a limited
market, with Huludao in China being the only potential client.
Currently, the financial analysis assumes that the descloizite
concentrate is treated as a lead oxide concentrate with no credit
for the vanadium content.
DMS Concentrates
For the concentrates upgraded to DMS concentrates only, a
significant discount adjustment is made to the price.
Table 9: Payability of Metal in DMS Concentrates
Commodities Payability
------------- -----------
Zn 50%
------------- -----------
Pb 35%
------------- -----------
V(2) O(5) 35%
------------- -----------
Ag 35%
------------- -----------
Source: China Africa Resources PFS Study.
Float Concentrates
Based on the current mass balance the potential concentrate
grades are as follows:-
Table 10: Grades in Float Concentrates
Concentrate Concentrate Grade
------------- -----------------------------------
Zn % Pb % V(2) O(5) % Ag ppm
------------- ----- ----- ------------ -------
Zn Sulphide 66.5 1.4 0.3 50
------------- ----- ----- ------------ -------
Pb Sulphide 20.7 70.8 0.4 165
------------- ----- ----- ------------ -------
Zn Oxide 47.7 1.0 0.2 75
------------- ----- ----- ------------ -------
Pb Oxide 9.1 58.1 0.6 175
------------- ----- ----- ------------ -------
V(2) O(5) 7.1 38.6 13.0 0
------------- ----- ----- ------------ -------
Source: Mintek Testwork.
Indicative Treatment and Refining Charges (TC/RCs) for the lead
sulphide and oxide and zinc sulphide concentrates for the PFS were
sourced from Louis Dreyfus.
Table 11: Indicative Zinc Sulphide Treatment and Refining
Charges
Items Units Charges
---------------------- --------------------------- --------
Zn content % Payable 85%
---------------------- --------------------------- --------
Minimum Zn deduction Units 8
---------------------- --------------------------- --------
Ag content % Payable 90%
---------------------- --------------------------- --------
Ag deduction Grams 50
---------------------- --------------------------- --------
Zinc TC/RC USD per tonne concentrate 170
---------------------- --------------------------- --------
Ag RC USD/ oz 1.5
---------------------- --------------------------- --------
Source: China Africa Resources PFS.
Zinc smelters normally pay for silver credits, but not for lead
content.
Table 12: Indicative Lead Sulphide Treatment and Refining
Charges
Items Units Charges
---------------------- --------------------------- --------
Pb content % Payable 95%
---------------------- --------------------------- --------
Minimum Pb deduction Units 3
---------------------- --------------------------- --------
Zn content % Payable 10%
---------------------- --------------------------- --------
Ag content % Payable 90%
---------------------- --------------------------- --------
Ag deduction Grams 50
---------------------- --------------------------- --------
Pb TC/RC USD per tonne concentrate 170
---------------------- --------------------------- --------
Ag RC USD per oz 1.5
---------------------- --------------------------- --------
Source: China Africa Resources PFS.
Lead smelters normally pay for silver and zinc credits and do
not receive a zinc TC/RC for zinc in the lead concentrates.
Table 13: Indicative Lead Oxide Treatment and Refining
Charges
Items Units Charges
---------------------- --------------------------- --------
Pb content % Payable 95%
---------------------- --------------------------- --------
Minimum Pb deduction Units 3
---------------------- --------------------------- --------
Zn content % Payable 10%
---------------------- --------------------------- --------
Ag content % Payable 90%
---------------------- --------------------------- --------
Ag deduction Grams 50
---------------------- --------------------------- --------
Pb TC/RC USD per tonne concentrate 230
---------------------- --------------------------- --------
Ag RC USD per oz 1.5
---------------------- --------------------------- --------
Source: China Africa Resources PFS.
Silver RC is based on USD/oz payable.
Indicative Zinc Oxide concentrate TC/RCs were obtained from
Skorpion (Vedanta):-
-- EITHER 85% payable & 25-30 cents per lb production costs for finished metal; and
-- OR 60% payable and no further deductions.
The financial analysis has used the latter for simplicity as
there is no material difference between the two options.
Table 14: Overall Payability
Project Duration Overall Payability
------------------------------- ------ -------------------
Zinc Sulphide Zinc 57%
------------------------------- ------ -------------------
Zinc Oxide Zinc 60%
------------------------------- ------ -------------------
Lead Sulphide Lead 67%
------------------------------- ------ -------------------
Lead Oxide Lead 55%
------------------------------- ------ -------------------
V(2) O(5) Treated at Pb Oxide Lead 5.48%
------------------------------- ------ -------------------
Source: China Africa Resources PFS.
Transport/Shipping
Table 15: Road Distances
From To Distance
------------ ------------ ---------
Berg Aukas Tsumeb 80 km
------------ ------------ ---------
Berg Aukas Walvis Bay 650 km
------------ ------------ ---------
Berg Aukas Rosh Pinah 1,350 km
------------ ------------ ---------
Source: China Africa Resources PFS.
The expected cost of trucking ore or pre-concentrate to Tsumeb
from Berg Aukas is USD 12.50/tonne; this is based on the experience
of Weatherly International at its Namibian operations at Otjihase
and Matchless Mines. Based on the current concentrate transport
costs from Otjihase to Walvis Bay, the estimated cost of
concentrate transport from Tsumeb/Berg Aukas to Walvis Bay is USD
30/wet metric tonne ("WMT"), and to Rosh Pinah USD 60/WMT. Other
realisation costs are based on WTI experience in Namibia (Table
16).
Table 16: Realisation Charges
Item Unit Amount
------------------------------------- --------- -------
Moisture Content % 10
------------------------------------- --------- -------
Concentrate BA/Tsumeb to Walvis Bay USD/WMT 30
------------------------------------- --------- -------
FOB/Handling USD/WMT 45
------------------------------------- --------- -------
Ocean Freight USD/WMT 30
------------------------------------- --------- -------
Insurance USD/WMT 2
------------------------------------- --------- -------
Concentrate to Skorpion USD/WMT 60
------------------------------------- --------- -------
Source: China Africa Resources PFS.
Taxes and Royalties
This section highlights the salient tax issues in Namibia as
they may apply to CAR Namibia. Mining companies in Namibia,
excluding those mining diamonds and petroleum, pay tax at a flat
rate of 37.5%. Further detailed tax advice should be confirmed with
the Namibian tax counsel as applicable. Value added tax ("VAT") is
fully reclaimable, on a two-month cycle. Tax and royalties to the
following amounts are expected to be paid:
Table 17: Tax and Royalties Payable over LOM (Real terms)
Item Unit Option 1 Option 2A Option 2 Option3
B
----------- ------------- --------- ---------- --------- --------
Tax USD million 40.347 41.777 21.584 37.424
----------- ------------- --------- ---------- --------- --------
Royalties USD million 8.805 8.805 5.747 8.805
----------- ------------- --------- ---------- --------- --------
Timing of Deductions and Income
As a general rule, taxable profits and receipts are included for
purposes of taxation in the tax year in which the taxpayer delivers
the goods or renders the services giving rise to the income.
Similarly, expenses are generally deducted on an accruals basis in
the year during which the obligation to pay arises. The amount
payable for customs duties varies but no duties are payable if
imported from South Africa.
Deductions and Allowances
According to the Namibian tax law:
-- The cost of machinery, motor vehicles, utensils, articles,
ships and aircraft may be deducted in three equal annual amounts,
starting in the year of acquisition.
-- An initial allowance of 20% of construction cost is permitted
for commercial buildings in the year the buildings are first used.
An allowance of 4% is permitted in each of the following 20 years.
For industrial buildings of a registered manufacturer, an initial
allowance of 20% and an annual allowance of 8% are allowed. No
allowance is granted for employee housing.
-- Prospecting and development expenses incurred in mining
operations are not subject to the tax depreciation rules described
above. In general, prospecting expenses may be deducted in the year
production begins.
-- Costs incurred on infrastructure may be deducted over three
years, starting in the year production begins.
-- All companies may carry forward unused losses indefinitely to
offset taxable income in future years. Losses may not be carried
back.
-- Companies that carry on mining operations may offset
current-year and prior-year trading losses from mining against
other trade income and vice versa. However, such losses must be
apportioned on a pro-rata basis between mining and other trade
income to determine taxable income from each source in the current
year.
The Berg Aukas Project has an unredeemed loss of USD2 million
for tax purposes. This figure was considered in the tax
calculation.
Mining Royalties
Namibia applies a 3% mining royalty. The result is shown as a
decrease in net income and thus a decrease in income tax
liability.
Discount Rate
A company has different sources of finance, namely common stock,
retained earnings, preferred stock and debt. Free cash flow is
based on either free cash flow to the firm ("FCFF") or free cash
flow to equity ("FCFE"). FCFF is the cash flow available to all the
firm's suppliers of capital once the firm pays all operating
expenses (including taxes) and expenditures needed to sustain the
firm's productive capacity. The expenditures include what is needed
to purchase fixed assets and working capital, such as inventory.
FCFE is the cash flow available to the firm's common stockholders
once operating expenses (including taxes), expenditures needed to
sustain the firm's productive capacity, and payments to (and
receipts from) debt holders are accounted for.
The cashflow was shown at 100% equity, hence the cash flow is
shown as the FCFE. A discount rate of 10% was applied to the
in-house model. Using this discount rate and Capital Asset Pricing
Model ("CAPM") Minxcon illustrates the potential Beta or Project
risk assumed for the Project in the calculation by:-
-- Calculating from the 10% real discount rate used;
-- converting to a nominal discount rate;
-- using the 30 years US Government Bond as risk-free rate - 3.40%;
-- using a market risk premium of 5%, a rate generally
considered as being the investor's expectation for investing in
equity rather than a risk-free government bond; and
-- reflecting a Beta of 1.87, which Minxcon believes is fair for this Project.
Table 18: Berg Aukas Cost of Equity
Cost of Equity Rate
------------------------------------ -------
Risk-free rate (US Long Bond rate) 3.40%
------------------------------------ -------
Risk premium of market 5.00%
------------------------------------ -------
Base beta (Project Premium) 1.87
------------------------------------ -------
Nominal Cost of equity (CAPM) 12.75%
------------------------------------ -------
Real Cost of Equity (CAPM) 10.00%
------------------------------------ -------
Discounted Cash Flow Analysis
Minxcon's in-house Discounted Cash Flow ("DCF") model was used
to illustrate the FCFE net present value ("NPV") for the operation
in real terms. The NPV is derived from post-royalties and tax,
pre-debt real cash flows, using the techno-economic parameters,
commodity price and macro-economic projections
This valuation is based on a free cash flow and measures the
economic viability of the orebody to demonstrate if the extraction
of the Mineral Reserve is viable and justifiable under a defined
set of realistically assumed modifying factors. The model is based
on calendar years running from January to December. The peak
funding requirement for the annual model (See Option 1) is expected
in 2015 for all the scenarios.
Pre-tax NPV and IRR's for the four scenarios are shown below
Table 19: Pre-Tax NPV's and IRR's (Real Terms - Pre-Tax)
Item Unit Option 1 Option 2A Option 2B Option 3
----------- ------------- --------- ---------- ---------- ---------
IRR (%) 31.53% 31.43% 25.27% 30.58%
-------------------------- --------- ---------- ---------- ---------
NPV @ 0% USD million 111 115 61 103
----------- ------------- --------- ---------- ---------- ---------
NPV @ 3% USD million 88 91 47 81
----------- ------------- --------- ---------- ---------- ---------
NPV @ 5% USD million 75 77 40 69
----------- ------------- --------- ---------- ---------- ---------
NPV @ 10% USD million 49 51 24 45
----------- ------------- --------- ---------- ---------- ---------
Table 20displays the NPV of the four scenarios in constant money
terms at various discount rates. A best-estimated value calculated
at a real discount rate of 10% is either Option 1 or 2A. This is
also reflected in the IRR of 25% for these two options.
Table 20: NPV at Various Discount Rates (Real Term - Post
Tax)
NPV @ Different Discount Rates Unit Option 1 Option 2A Option 2B Option 3
-------------------------------- ------------- --------- ---------- ---------- ---------
NPV @ 0% USD million 71 73 40 66
-------------------------------- ------------- --------- ---------- ---------- ---------
NPV @ 3% USD million 55 57 30 51
-------------------------------- ------------- --------- ---------- ---------- ---------
NPV @ 5% USD million 46 47 24 42
-------------------------------- ------------- --------- ---------- ---------- ---------
NPV @ 10% USD million 29 29 13 26
-------------------------------- ------------- --------- ---------- ---------- ---------
Table 21 illustrates the profitability ratios of the
Project.
Table 21: Profitability Ratios
Item Option 1 Option 2A Option 2B Option 3
-------------------- --------- ---------- ---------- ---------
IRR (%) 25.08% 24.98% 19.96% 24.31%
-------------------- --------- ---------- ---------- ---------
LoM 10 10 10 10
-------------------- --------- ---------- ---------- ---------
PV of Income Flow 99 102 63 94
-------------------- --------- ---------- ---------- ---------
PV of Investment 47 49 36 45
-------------------- --------- ---------- ---------- ---------
Benefit-Cost Ratio 2.11 2.10 1.73 2.06
-------------------- --------- ---------- ---------- ---------
Capital Gain 111% 110% 73% 106%
-------------------- --------- ---------- ---------- ---------
Average Payback 3.77 3.77 4.29 3.82
-------------------- --------- ---------- ---------- ---------
Next Steps
The Company's board will review the PFS in detail at their next
board meeting planned for June and a further update will be
supplied thereafter.
Abbreviations used
amsl Above Mean Sea Level
CAR China Africa Resources Ltd
CARN China Africa Resources Namibia (Pty) Ltd
COB Central Ore Body
COG Cut-Off Grade
CPR Competent Persons Report
CRM Certified Reference Material
DMS Dense Media Separation
ECC Environmental Clearance Certificate
EIA Environmental Impact Assessment
EMP Environmental Management Plan
GAC Gangue Acid Consuming
HWOH Hanging Wall Ore Horizon
ILZSG International Lead Zinc Study Group
JORC Joint Ore Reserves Committee 2012 Australasian Code
for Reporting of Exploration Results, Mineral Resources
and Ore Reserves
LME London Metal Exchange
LOM Life Of Mine
Ma Million Years
MET Ministry of Environment and Tourism
MME Ministry of Mines and Energy
ML Mining Licence
Mt Million Tonnes
Mbs Metres Below Surface
MRE Mineral Resource Estimate
NOH Northern Ore Horizon
PFS Pre Feasibility Study
QAQC Quality Assurance Quality Control
SWACO South West Africa Company
tpa Tonnes Per Annum
tpm Tonnes Per Month
TSF Tailings Storage Facility
USD United States Dollars
USDm Millions of United States Dollars
ZnEq Zinc Equivalent
Competent Persons Statement
The contents of the announcement have been reviewed and approved
by the following competent person:
Johan Odendaal (Director, Minxcon): B.Sc. (Geol), B.Sc. Hons
(Min. Econ.), M.Sc. (Min. Eng.), Pr. Sci. Nat. Reg. No. 400024/04,
FSAIMM Reg. No. 702615, MGSSA No. 965119, MAusIMM Reg. No. 220813,
IAS
Johan has over 25 years' experience in the mining and financial
industry. This includes 7 years as an independent mining consultant
specialising in the valuation of mining projects and 12 years as a
mining analyst at two major stockbroking firms.
About Minxcon
Minxcon is a multi-faceted South African advisory company
offering a wide range of exploration, resource, mining,
metallurgical, financial valuation and advisory services to both
local and international companies. Minxcon has the critical mass to
advise mining and exploration companies on all mining disciplines
and to assist such companies in undertaking new projects - from
initial target generation stage right through to final mine
closure.
Further information and detail on Minxcon clients can be
accessed at www.minxcon.co.za
For further information contact:
Rod Webster, Chief Executive Officer Weatherly International +44
(0)207 917 2989
Max Herbert, Company Secretary
Samantha Harrison / James Biddle RFC Ambrian Limited +44 (0)203
440 6800
Nominated Advisor
This information is provided by RNS
The company news service from the London Stock Exchange
END
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