[miningmx.com] — THE African Eagle Resources (African Eagle) share price has moved in opposite directions in recent weeks on the Johannesburg and London bourses, ahead of Monday’s update on the Dutwa nickel project.
African Eagle shares soared 30% on the JSE on Friday to a 12-month high of 190c – the highest the share has been since 2008 – immediately ahead of the release on Monday of the new economic model for the Dutwa nickel project in Tanzania.
But the move was on thin volumes – less than 2,000 shares – compared with the selling pressure on Monday when about 30,000 shares changed hands on the JSE.
African Eagle shares pulled back 10% to around 175c during Monday morning trading, underscoring that well-known stock exchange adage “buy on rumour, sell on fact’.
The trading pattern on the JSE has been markedly different from African Eagle’s performance on the London Stock Exchange, where the share has dropped steadily from about 16 pence in mid-February to 10.6p at present.
At current rand/pound exchange rates, that equates to a 33% fall from about 178c to about 118c.
The heavier trading in London – about 500,000 shares had traded by about lunchtime on Monday – is far more representative of real investor sentiment towards the company.
The updated economic model has evaluated both the tank leach and heap leach ore process routes being considered by African Eagle for its project situated near the southern tip of Lake Victoria.
It also looked at increasing the size of the mine and plant to treat 5 million tonnes (mt) of ore annually compared with the initial estimate of 3mt/year.
In terms of the new study the forecast internal rate of return (IRR) post-tax on the project using tank leaching ranges from 20% to 31%, depending on assumptions about the nickel price and the throughput. The net present value (NPV) post-tax ranges from $385m to $1.1bn.
Using heap leach technology, the IRR ranges from 17% to 27% and the NPV from $260m to $910m, depending on the nickel price and the throughput.
African Eagle MD Mark Parker said: “This latest economic modelling indicates that atmospheric tank leaching rather than heap leaching will give a better economic return at Dutwa.
“Our final selection of the best process option will be based on the outcome of bench-scale and pilot-scale metallurgical test work now commencing in Perth, Western Australia leading to a prefeasibility study scheduled for completion by the end of the third quarter of 2011.’
Parker said: “A higher throughput of 5mt per annum would improve project returns but, under present conditions, logistical challenges are likely to make 3mt per annum a more realistic production target. The throughput could be scaled up if proposed infrastructure developments allow.’
The capital cost using tank leaching is estimated at between $600m and $840m depending on throughput, while the capital cost of a heap leach operation is estimated at between $550m and $770m.
According to John Meyer, analyst for UK institution Fairfax IS: “Dutwa is looking like an increasingly realistic proposition and the fundamentals to the nickel market appear robust longer-term, with few companies providing pure exposure to this market.
“However, there are a number of hurdles to overcome, in particular the sourcing of raw materials for processing and producing the metal as well as confirmation of the metallurgy that looks increasingly robust. We look forward to newsflow as the company derisks this project.’
