Armadale Capital notes that the HoA with African Mining Services (AMS), the contract mining subsidiary of mining services company Ausdrill, is aimed at forming a joint venture to develop and operate the Mpokoto gold project in the Katanga province, in the Democratic Republic of Congo (DRC).
Under the HOA, which will be progressed to a more detailed joint venture agreement between the parties on completion of the due diligence process, AMS could earn an initial 25% interest in Armadale’s subsidiary Kisenge – the parent of the DRC entities that own Mpokoto and will be the joint venture vehicle for this transaction – by providing funding and services to Mpokoto in two ‘earn-in’ phases.
Provided AMS completes its ‘earn-in’ obligations, the effect of the HOA and subsequent joint venture is that Mpokoto will be fully funded to commercial gold production, which is targeted for late 2017.
AMS, which is an experienced mining group with a track record of successfully developing mining projects in Africa, will mobilise its geological team to conduct a detailed on site review in the coming weeks with a goal of fast tracking Mpokoto towards production.
Armadale pointed out that AMS is a completely different and unrelated entity to Africa Mining Contracting Services (A-MCS), which has to date been in funding negotiations with Armadale.
With a joint venture partner in place to manage activity at Mpokoto, Armadale believes it is able to focus on the high grade Mahenge Liandu graphite project in Tanzania (Mahenge Liandu) where drilling has recently commenced to support the development of an initial JORC compliant resource in the near future.
HOA key terms and stages
As per the HOA, there will be an exclusive due diligence period of up to 90-days, during which AMS will have management input and be generally responsible for all project-related expenses, as well as undertake due diligence in relation to Mpokoto, Kisenge and the local DRC entities which own and manage the project.
Should AMS elect to proceed with the creation of the joint venture following its due diligence investigations, the initial ‘earn-in’ Phase 1 will commence, in respect of which, AMS will have the right to earn a 25% interest in Kisenge by providing funding and project-related services to the value of US$1.25 million.
AMS may withdraw from the proposed joint venture prior to the completion of Phase 1, in which case it must give Armadale two-months notice, ensure the minimum expenditure conditions applicable to the project have been met.
Upon completion of Phase 1, AMS must elect within 30 days whether to proceed with Phase 2.
The second ‘earn-in’ phase (Phase 2) with then apply, if AMS wishes to proceed, and Armadale does not source third-party funding for Mpokoto, pursuant to which AMS could earn a further 60% interest in Kisenge (total aggregate interest 85%) by funding the project through to commercial production.
The definitive feasibility study (DFS) estimated this cost at $25 million to include all associated expenditure and managing the conduct of activities to reach the production stage.
Phase 1 will focus on optimising the DFS, with a focus on reducing capital costs, accelerating the timeline to production and expanding the existing JORC resource, while Phase 2 will focus on the construction and bringing Mpokoto into commercial production.
As a consequence of forming this joint venture, Armadale will have no further operational or funding responsibilities in relation to Mpokoto, other than retaining at least a 15% interest in Kisenge.
As part of this re-focused strategy and with the changing emphasis of Armadale, Peter Marks and Justin Lewis have decided to step down as directors of the company with immediate effect to which they have both given such committed service.
The company anticipates adding to the board in the near future.
William Frewen, chairman of Armadale, says: “This is a significant agreement for the future of Mpokoto, bringing on board a very experienced mining partner with knowledge of the DRC and, crucially, access to funding.
“With an established resource, a nine-year mine life at 25 000 ozpa and favourable economics, we have proven Mpokoto’s commercial viability. AMS has the requisite skill set and experience to advance Mpokoto into production and ultimately realise the value of the project,” says Frewen.
Mpokoto has an established resource of 678 000 oz of gold from 14.58 m t of ore at 1.45 g/t gold to produce about 25 000 ozpa over a nine-year mine life.