Acquisition of Nickel Sulphide Project in Uganda

22 February 2022                                

Blencowe Resources Plc

("Blencowe" or the "Company")

Blencowe Acquires Nickel Sulphide Project in Uganda

Blencowe Acquires Right to Earn-into Highly Prospective Akelikongo Nickel Sulphide and Copper Project ("Project") located near to existing Orom-Cross Project in Northern Uganda

Akelikongo further enhances emerging portfolio of Battery Metals Minerals

Highlights

·   Acquisition represents a very exciting opportunity for Blencowe to add a highly prospective nickel sulphide project to its existing world class Orom-Cross graphite project in Uganda

·    The Project was previously jointly owned by Rio Tinto and ASX listed Sipa Resources within a JV until May 2020.

·    US$15 million previously spent by JV partners on nickel and copper exploration.

·    19,000m of diamond, RC and RAB drilling completed.

·    Continuous mineralisation over 800m strike within massive sulphides already established.

·   Further airborne electromagnetic (EM) and downhole EM work has been planned to further test the identified anomalies as well as proximal targets.

·    Phase 1 work funded from existing cash resources.

·   Akelikongo is located approximately 100kms from the existing Orom-Cross graphite project which has potential for significant operational synergies.

·    Addition of a highly prospective nickel sulphide project into widely predicted and emerging nickel supply shortfalls is considered highly advantageous for Blencowe's portfolio.

Strategy to Enhance Battery Metals Portfolio

Blencowe Resources Plc (LSE: BRES) is pleased to announce the addition of a highly prospective nickel sulphide and copper project ("Akelikongo" or the "Project") to complement its existing high-grade graphite project in Uganda. 

This Project underlines Blencowe's ambition to become a diversified producer of high-quality source materials for the battery metals industry into the future, mining these within a safe jurisdiction from which to successfully develop long term resource assets.

Nickel is another critical input within the lithium-ion ("Li-ion") battery, being an essential metal within the cathode.  The most common Li-ion batteries are a Nickel Cobalt Aluminium (NCA) which uses ~80% nickel, and the Nickel Manganese Cobalt (NMC) which uses ~33% nickel (however newer formulations of the NMC are using up to ~80% nickel).  A single Tesla battery uses approximately 30kgs of battery grade nickel in addition to 50kgs of graphite.

Although both oxide and sulphide ores can be converted into class 1 nickel for use in batteries, processing of sulphide ores, as found at Akelikongo, is technologically much easier and cheaper.  Nickel laterites (oxides) are the more dominant ore type in most recent major nickel discoveries and sulphides are much rarer.  Processing nickel laterite ore into battery grade nickel sulphate can be achieved using a high-pressure acid leach process ("HPAC") but the economic feasibility of this remains questionable, as aside from high operating costs it comes with environmental concerns.  This makes nickel sulphide deposits increasingly more valuable ahead.

Cameron Pearce, Blencowe's Executive Chairman commented;

"Akelikongo represents a very exciting and low cost entry for Blencowe to add a highly prospective nickel sulphide project to our existing advanced graphite project at Orom Cross.  Nickel is one of the most sought after metals at the moment and demand is set to soar even higher over the next decade.

The structure of the transaction means we are acquiring a nickel discovery with historic spend of US$15 million for just $1.5 million in deferred share consideration, instead ensuring our cash is deployed in advancing the asset and unlocking incremental value.

We believe graphite and nickel have many synergies at a higher level as both are key Li-ion battery metals and both will be in significant demand by battery producers for electric vehicles ("EVs") moving forward, hence the opportunity to develop two such projects in tandem is very appealing.  Furthermore, we can see a number of synergies at the operational level based on the two projects being located near to one another."

He added "The EV market is continuing its rapid expansion and we are seeing huge investments being made by substantial companies at various different levels within the full EV product cycle as they move to gain lost ground on the market leaders.  We have seen significant prices rise in all battery metals in 2021 and this is forecast to continue ahead.  We are also seeing a philosophical trend towards less reliance on China as the dominant source of most EV components, and a paradigm shift where manufacturers are prepared to offer incentives to move further up the supply chain to secure critical offtake. 

All this bodes well for Blencowe as we continue to position ourselves ahead as a major supplier of key battery metals".

Akelikongo Project

Akelikongo is considered a highly prospective early-stage nickel sulphide exploration project located in Northern Uganda, near to the town of Kitgum which is the regional centre near to where Blencowe's existing Orom Cross graphite project is located.  The two projects are highly synergistic in terms of their proximity and operations will be from the current Blencowe office in Kitgum. 

Akelikongo has 112 sq km of granted exploration license and the project comes with considerable data from previous work conducted by the vendors within their Joint Venture.

A Joint Venture agreement was formed between Sipa Resources ("Sipa" or "Vendor") and Rio Tinto in August 2018 where the latter company agreed to spend into the project, seeking a material nickel sulphide deposit.  In total nearly 19,000m of regional drilling has been conducted by the parties over the past five years.  The most prospective of all the work completed to date has been at Akelikongo, where three lenses at various depths have already been identified, with EM (electromagnetic) work and drilling both identifying massive sulphides. 

Approximately US$15 million has been spent to date understanding the geology, geochemistry and the geophysics within the Akelikongo tenement and the local region, and then drilling the most prospective areas.  This work will help Blencowe to focus its own efforts into work programmes that it believes will deliver the most value ahead.

Other nickel targets were identified in the regional programme around Akelikongo but have yet to be explored in detail. Rio Tinto exited the JV in 2020 when the price of nickel was $12,000/tonne versus $24,000/tonne today. Blencowe believes the main target, Akelikongo, has sufficient exploration potential to become a nickel project in its own right and it will focus its efforts there to delineate higher grade and thicker intercepts of nickel and copper mineralisation going forward.

The regional exploration targets also warrant additional exploration.

Three nickel mineralised lenses have been identified based on detailed examination of cross-sections, long-sections, level plans and visualisation of data in 3-D mineral exploration software.  The mineralised lenses have an average grade of 0.37% Ni and 0.12% Cu and thicknesses range from several meters to 25 meters.

Shallow intercepts within the massive sulphides include:

·    41m at 0.5% Ni and 0.1% Cu, from 34m below surface

·    11m at 0.42% Ni and 0.12% Cu, from 38m

·    8m at 0.73% Ni and 0.12% Cu (includes 3m at 1.1% Ni), from 33m

·    22m at 0.36% Ni and 0.13% Cu, from surface

Forward Exploration Program

Blencowe will undertake the following exploration program at Akelikongo during 2022:

Phase One (1H 2022)

·    Down hole EM ("DHEM") on the holes that have not been read;

·    EM at surface to the northwest of Akelikongo to trace the mineralisation down-plunge and along strike;

·    Airborne EM over regional targets identified;

Phase Two (2H 2022)

·    Diamond drilling along-strike and down-plunge of the identified mineralisation; and

·    Diamond drilling of targets identified from the DHEM and the EM surveys.

This program above fits neatly into the consideration milestones that have been set for Blencowe to earn into the project, both in terms of cost and timings.

Acquisition Structure

The Company will acquire 100% of the Project through an earn-in ("Earn-In") over four separate milestones. The Earn-In will require the Company to spend a maximum of US$2.75m over 3 years on exploration on the Project and issue US$1.5m of consideration shares to the Vendors over four success related milestones in that period. The Vendors will retain a Net Smelter Royalty ("NSR") of 1.5% on the Project subject to successful completion of all four milestones.

The Vendor has agreed to a 6-month lock up on the receipt of each tranche of consideration shares.

The consideration shares will be priced at the time the decision is made to progress the Earn-In through to the next milestone, with exploration results meriting further continuation.  On that basis, the Company believes it will mitigate shareholder dilution as any future issue of consideration shares will reflect the success achieved from exploration at the Project.

The Directors believe this is the best structure to develop an exploration project as it mitigates any requirement to commit cash and/or issue further consideration shares until the exploration program has proven to be successful at each phase.

Funding

The work program of US$250,000 (~£175,000) for phase one at Akelikongo will be met from existing cash resources following the Company's recent £2,000,000 capital raise in December 2021. The Company anticipates that the US$500,000 (~£350,000) work programme in phase two can be funded from the exercise of outstanding warrants, given this expenditure is only likely to be incurred based on exploration success in phase one.

Project Synergies

Blencowe is already committed to developing one significant battery metals project in Uganda, being the Orom-Cross graphite project in the north-east of the country.  The Company believes that the demand for source metals/minerals used in the lithium-ion battery will rise exponentially over the next decade, and we have already seen signs of this in the past year via increased demand for lithium, cobalt, nickel, copper and graphite.  Forecasts for each of these metals show massive supply shortfalls emerging ahead which are anticipated to push prices even higher.

Adding a highly prospective nickel-copper sulphide project into the Blencowe emerging portfolio is therefore considered very advantageous and the Earn-In Agreement provides the Company with a staged approach to develop Akelikongo further; but only to pay tranches of shares as consideration to the vendor at each inflection point if and when the project fulfils set targets.  The majority of consideration shares are back-ended and will therefore only be paid if the project delivers exploration success ahead and if/when the Company elects to progress through each phase.  Blencowe would ultimately target the creation of a Ugandan production hub for two of the most critical battery metal products, however the Company recognises there is still further work required to achieve this goal.

Developing a second battery metal project in the near-environs to Orom-Cross also has major synergistic advantages in that the same in-country management and local relationships can work for both assets, and being located near to each other it will be possible to work them in tandem.  

Blencowe has also ensured that the commitment to expenditure for Akelikongo takes into consideration the continued work programmes already in place for Orom-Cross to deliver its key targets so as not to compromise on the excellent progress made there to date.  The Pre-Feasibility Study for Orom-Cross is underway and expected to be completed by mid-year, and the Company expects to release an updated JORC Resource estimate in the near term.

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Background

Orom-Cross Graphite Project

Orom-Cross is a potential world class graphite project both by size and end-product quality, with a high component of more valuable larger coarse flakes within the deposit. A 21-year Mining Licence for the project was issued by the Ugandan Government in 2019 following extensive historical work on the deposit and Blencowe is moving through the Feasibility Study phase as it drives towards first production targeted for 2023.

Orom-Cross presents as a large, shallow open-pitable deposit, with a maiden JORC Indicated & Inferred Mineral Resource deposit of 16.3Mt @ 6.0% Total Graphite Content. Development of the resource is expected to benefit from a low strip ratio and free dig operations, thereby ensuring lower operating and capital costs.

Akelikongo Nickel Project

Akelikongo is a highly prospective nickel sulphide exploration project that has previously had considerable work completed by Rio Tinto and Sipa to establish three mineralised lenses to date.  It represents an opportunity for Blencowe to add further value through a targeted work programme that will seek to delineate higher grade and thicker intercepts of nickel.

Nickel sulphide deposits are rare and valuable and the prospect of further exploration success gives Blencowe suitable incentive to develop this asset under a structured earn-in agreement, whereby 100% of the asset can ultimately be acquired for US$1.5m, all payable in shares.