For immediate release
15 July 2019
Xtract Resources Plc
("Xtract" or the "Company")
Kalengwa Processing Copper Project Zambia ("Kalengwa") Agreement
The Board of Xtract Resources Plc ("Xtract" or the "Company") is pleased to announce that the Company has concluded a Memorandum of Agreement ("Agreement") with KPZ International Ltd ("KPZ") for Xtract to act as contractor for the Kalengwa Processing project on the copper large scale mining license number 24401-HQ-LEL ("Licence") located in the central part of The Republic of Zambia ("Kalengwa Project"). The historic Kalengwa Copper Mine was one of the highest-grade copper mines in Zambia with a mineralised high-grade core reported to have yielded an average grade of 27% Cu.
Highlights
· Xtract has conditionally been appointed as contractor to oversee and commence initial production from the Kalengwa dumps of approximately 1.34 million tonnes with a potential to contain 25,000 tonnes of copper metal.
· Xtract and KPZ have agreed a 90-day due diligence period following completion of which, should Xtract wish to proceed to act as contractor, Xtract will pay USD200,000 to KPZ to be settled through the issuance of new Xtract ordinary shares.
· Kalengwa Mine produced in the 1970s and is believed to have been one of the highest grade copper deposits in Zambia.
· High grade ore in excess of 26% Cu are reported to have made up approximately 20% of the ore body which was trucked for direct smelting at copper belt mines.
· Xtract intends to commence a simple ore sorting programme, building up to a more significant ore processing operation within the next 8 months, with an annual production target rate of 6,000 tonnes of copper metal.
· Xtract will receive, if it elects to proceed as Contractor, 33.33% of net profits from the operations and will incur the further estimated capital cost as set out below.
· An exploration programme will determine the extent of previously reported potential strike extensions to the North and South of the historic open pit to determine the potential for a new open pit operation.
Colin Bird, Executive Chairman said: "I am pleased to have completed this processing arrangement which makes immediately available to us, relatively high-grade dump material for processing. We will also commence exploration operations to identify the possible extensions of the open pit ore both on strike and depth.
On signing the agreement, we will recommence operations and advance to the initial operation. The initial operation will be upgraded to a mechanised sophisticated ore sorting system. During this initial phase, the Company will explore for extensions of the open pit both North and South. The results from the exploration will determine the size and operating requirements of a larger operation. We will also assess the possibility of dewatering the former open pit with a view to access the high-grade ore left at the bottom.
The redevelopment of Kalengwa should create job opportunities for the local community. The resumption of operations will be much assisted by local knowledge and a strong desire to see the Kalengwa mine once again flourish."
Kalengwa Processing Project Summary
Kalengwa is located in the North-western province of Zambia 800 km north-west of Lusaka and 400 km south-west of Kitwe. KPZ, has been awarded a large-scale exploration permit 24401-HQ-LEL, which was issued on 2 April 2019 and is valid for an initial period of 4 years.
The Kalengwa Copper Mine is believed to have been one of the highest-grade copper mines in Zambia. It paid for its own infrastructure which at the time was in a remote location south of the main Zambian Copper belt. A mineralised high-grade supergene core was reported to have yielded an average grade of 27% Cu, making up approximately 20% of the ore body, which was trucked unprocessed to Kitwe for direct smelting. Total production of 1.9 Mt of 9.44% Cu and 50 g/t Ag was reported from the open pit resulting in circa 15,000 tonnes of copper production per annum for 12 years of production. Kalengwa Mine was owned and managed by Roan Consolidated Mines Ltd. from 1970 to 1982, who were also the proprietors of Mufulira, Luanchya, Chambishi and Chibuluma Mines.
Kalengwa is believed to belong to the iron-oxide-copper-gold ("IOCG") deposit type which includes, amongst many others, Olympic Dam and Ernest Henry in Australia. The confirmed occurrence of intrusive igneous bodies in the mine vicinity is encouraging as such bodies typically act as source rocks/conduits for substantial IOCG mineralisation. Blackthorn Resources has defined over 1 million tonnes of copper in situ at its Kitumba project 180 km south-east of the Kalengwa Copper Mines based on IOCG copper mineralisation style. Similarities to Kalengwa include host rock age, regional scale faulting and the presence of intrusive source rocks.
The Board of Xtract believe that it is likely that only the upper supergene mineralisation was exploited at Kalengwa and that operations terminated when Roan Consolidated Mines believed that they had exhausted the high-grade supergene core. Previous drilling of the orebody down-plunge and on the north-east and south-west flanks of the open pit have demonstrated that further resources may potentially remain unexploited in these areas. Xtract believes that additional drilling has the potential to significantly increase the historically reported resources. There is a historic resource, which was prepared in 1998 but is not compliant with a recognised standard and which has not been subsequently updated or verified ("Non-JORC compliant Resource"), of 1.45Mt @ 2.50% Cu (for 36,300 tonnes of copper metal) at the Kalengwa Mine (Source: African Minerals Ltd, Assessment of Kalengwa Mine, 1998, as reported by Lunga Resources Ltd, 2013).
Memorandum of Agreement
Background
The Memorandum of Agreement was entered into on 12 July 2019 by the Company and KPZ International (the "Parties"). Xtract has agreed to collaborate with KPZ on its Kalengwa Processing Project to process copper ores from the various dumps and the in-situ ore located within the Kalengwa mine Processing Licence for commercial sale.
Key terms of the Agreement
KPZ has agreed to incorporate a local Zambian special purpose vehicle (the "SPV") to carry out the processing of copper concentrates from ores obtained from the Kalengwa Mine.
The Company will act as a contractor and funder to the SPV ("Contractor"), and will be responsible for either identifying a third party, or use its own resources, to build a small scale processing copper concentrate plant ("Initial processing Plant"), and then subsequently an enlarged plant capable of producing not less than 6,000 tonnes of copper metal in concentrate per annum ("Large Scale processing Plant"). The Company will be responsible for managing and carrying out all related processing operations. Xtract will carry out exploration and metallurgical test work to assess the potential for the open pit expansion. Results from exploration and modelling will determine the ultimate size of the operation including the process plant.
The Parties will decide no later than 30 November 2019, whether to commit to the construction of the Large Scale Processing Plant and, should the Parties mutually agree to proceed, this is to be satisfied by commencement of the construction of the Large Scale Processing Plant by no later than February 2020 or, if both Parties agree for it to be delayed, August 2020.
On commencement of production, the Company as the Contractor, will be entitled to a monthly payment equal to 33.3% of SPV's net profits ("Xtract Profit Share"). Xtract has estimated that its capital costs to act as Contractor are up to USD 1 million, which Xtract intends to fund from its 33.3% share of SPV's net profit from processing and existing resources. The Company may at any time withdraw, should Xtract deem the Kalengwa Processing Project unsuitable for further investment. Should Xtract withdraw, it will forfeit any rights it has to the Kalengwa Processing Project.
Xtract intends, wherever possible, to utilise local Zambian personnel as well as introduce local training and development for the local Kalengwa operation.
The Parties will enter into a 90-day due diligence period (the "Option Period") and, on completion of the Option Period should the Company wish to proceed to act as Contractor, Xtract will pay KPZ USD200,000 to be settled through the issuance of new Xtract ordinary shares ("New Xtract Shares"). The share price used to determine the number of New Xtract Shares shall be the volume weighted average share price for the month ended 30 June 2019. From the date of issue until the date six months thereafter, KPZ may not dispose of any New Xtract Shares. Thereafter, KPZ may sell such number of New Xtract Shares as set out below in the relevant period, provided that so as to maintain an orderly market in the trading of Xtract ordinary shares, KPZ must give Xtract 60 days' notice of the number of New Xtract Shares KPZ wishes to sell and any such sale must be conducted through Xtract's Broker:
· 20% for a period of 6-12 months;
· 50% for a period of 12-18 months; and
· 30% for a period of 18-24 months
Following expiry of the lock-in period at the end of the 24th month, KPZ will be free to dispose of the balance of any New Xtract Shares it then holds without restriction.
There is an historic debt of USD15m in respect of the Kalengwa Processing Project owed by KPZ (the "Loan"), primarily made up of previous sunk costs that relate to the dumps and has been lodged with the relevant Zambian authorities and bears interest at a rate of 6% per annum. Xtract will have no liability whatsoever in respect of this Loan or any of the interest or capital which are to be repaid by KPZ from SPV's net income (capped at 66.67% of SPV's net income taking account of the Xtract Profit Share).
Provided that the Loan has been fully repaid (the "SPV Option"), the Company will have the right to acquire an interest of 43.33% of SPV in consideration for the transfer by Xtract to SPV of the title to the processing plant. Following any exercise of the SPV Option, payment of the Xtract Profit Share would terminate.
The Processing Area includes all dumps and extension of the existing open or new pits and exclude any concessions which already form part of KPZ.
Further AIM and other Disclosures
Further details are available from the Company's website which details the company's project portfolio as well as a copy of this announcement: www.xtractresources.com
SPV has not traded to date and there is no reported financial information in respect of SPV.
This announcement contains inside information for the purposes of Article 7 of EU Regulation No. 596/2014 on market abuse. The person who arranged for the release of this announcement on behalf of the Company was Colin Bird, Director.
Enquiries:
Xtract Resources Plc |
Colin Bird, Executive Chairman |
+44 (0)20 3416 6471 www.xtractresources.com |
Beaumont Cornish Limited Nominated Adviser and Joint Broker |
Roland Cornish Michael Cornish Felicity Geidt |
+44 (0)207628 3396 www.beaumontcornish.co.uk |
Novum Securities Limited Joint Broker |
Colin Rowbury |
+44 (0)207 399 9427 www.novumsecurities.com |
Qualified Person:
In accordance with AIM Note for Mining and Oil & Gas Companies, June 2009 ("Guidance Note"), Colin Bird, CC.ENG, FIMMM, South African and UK Certified Mine Manager and Director of Xtract Resources plc, with more than 40 years' experience mainly in hard rock mining, is the qualified person as defined in the Guidance Note of the London Stock Exchange, who has reviewed the technical information contained in this press release.
TECHNICAL GLOSSARY
The following is a summary of technical terms:
"altered zone" |
a zone exhibiting change in mineralogical composition of a rock commonly brought about by reactions with hydrothermal solutions |
"Ag" |
Silver |
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"Cu" |
Copper |
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"exploration" |
method by which ore deposits are evaluated |
"g/t" |
gram per metric tonne |
"grade" |
relative quantity or the percentage of ore mineral or metal content in an ore body |
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"igneous |
Applied to rocks that have solidified from a molten state |
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"intrusive" |
A body of igneous rock that invades older rocks |
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"mineralisation" |
process of formation and concentration of elements and their chemical compounds within a mass or body of rock |
"Mt" |
Metric tonne |
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"supergene" |
Descriptive of a mineral deposit, weathering or alteration formed by descending solutions |
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ENDS
