ACP to Drill in Coming Weeks: Gold Project to Get Bigger?

PUBLISHED: 16-07-2015

A JORC resource of 678,000 oz. of gold with a timeframe to production of less than nine months is impressive...

But Armadale Capital PLC’s (AIM:ACP) flagship, Mpokoto Gold Project in the Democratic Republic of Congo could be about to get even bigger.

Backed by a funding deal worth US$20M, ACP has begun pushing toward its Definitive Feasibility Study (DFS) that will set Mpokoto on track to enter production early next year as a low cost, high grade gold operation in the heart of Africa.

Assuming a forecast gold price of US$1,250/oz, the Project can generate a NPV of US$55.3M – a stark contrast to ACP’s current market cap of just US$3M.

To potentially improve economics as much as possible during the DFS, ACP is all set to begin 2,500m of Reverse Circulation drilling that could add as much as 150,000oz from 3 Mt at grades of up to 1.5 g/tonne.

This would be a significant value add to ACP’s plans for initial production at Mpokoto – which already holds impressive vital statistics:

  • A current total mineral resource of 678,000oz gold from 14.58 million tonnes @ 1.45g/t gold, at a cut-off grade of 0.5g/t.
  • A current mine life in excess of nine years to produce approximately 25,000oz pa.
  • Costs are set below $650/oz and Net Present Value is US$55.3M.
  • No less than two scoping studies have been conducted, showing a low capex of just US$20M. ­
  • Plus there’s an exploration target of between 11.4 and 17 million tonnes – so scope for additional project expansion.

Now, given this project is situated in the Democratic Republic of Congo (DRC) and ACP is capped at around £2M, this is a high-risk stock. Tenure security, as well as graft and corruption can play a part in hindering Congolese projects from advancing, and contribute to the political risk.

We have done our own research and decided to make an investment. We recommend you also do your own research before you engage with this stock.

In addition to the US$20M funding deal confirmed last month, ACP has just announced a conditional placing of a further £400,000 (10 million new ordinary shares at 4.00 pence per share).

If ACP can add yet more gold tonnage to its JORC resource at Mpokoto, the DFS it’s set to finalise for the project could be made that much stronger.

Work is set to begin in a few weeks’ time, so we won’t have long to wait to see what ACP has in store for us...

Armadale Capital plc (AIM:ACP)

Armadale Capital
LSE:ACP

Armadale Capital PLC (AIM:ACP) is listed on the Alternative Investment Market (AIM) in the UK, with a current market cap of just £2M.

At The Next Small Cap we became long-term investors in June of 2015. The article Gold in Africa: Tiny AIM Company Seals $20M Funding is the best place to start your own research, and it details the recent US$20M funding package that should see ACP through to production.

In this article we’re going to run you through the particulars of the imminent drilling campaign ACP is set to execute at Mpokoto that could vastly increase its already sizeable 678,000 oz. resource.

But before we do that, ACP has just held its Annual General Meeting in London where it ran investors through what it called the ‘transformational year’ of 2014 – the year in which the Mpokoto Gold Project started to really accelerate:

Investors who attended were given the full run through of the project – but if you couldn’t make it, allow us to show you the highlights of ACP’s Mkopoto Gold Project.

The map below shows where Mkopoto sits on the map – and despite the Project’s location in the DRC, Mpokoto is in the more stable south of the country where many Western companies including Glencore Xstrata, the Anglo-Swiss mining multinational with a market cap north of $39BN, are operating full tilt – in fact Glencore has invested over $5BN in the DRC’s mining industry.

The so-called ‘ African Copper Belt ’ stretches across the southern Katanga Province , the DRC’s mining hub and where most of the nation’s mineral wealth is concentrated – and where you’ll find ACP Mpokoto project.

ACP has proved up a JORC Indicated and Inferred Resource at Mpokoto estimated at 678,000oz Au from 14.58 million tonnes @ 1.45g/t gold at a cut-off grade of 0.5g/t – plus an Exploration target of between 11.4 and 17 million tonnes.

An extended Scoping Study , completed in October of 2014, summed up the project as a low capex, high-grade gold project that could be brought into imminent production, producing robust returns even if the gold price drops to US$1,000/oz.

Overall, the plan for ACP is simple – bring Mpokoto into production as quickly as possible, aiming for H1 of 2016 to see the first gold produced.

To make that happen, ACP has signed an instrumental deal that will secure the company US$20M to develop, construct and operate the Mpokoto Project through a partnership with Africa Mining Contracting Services (A-MCS).

A-MCS will introduce the cash by way of a secured loan for a period of 36 months – and will be appointed as mining contractor. It will assist with the construction of the infrastructure as well as the management services to get ACP’s project into construction.

Then, when Mpokoto is in production by H1 of 2016, ACP will look to explore its vast exploration licenses at Kisenge and hopefully find more gold to keep Mpokoto in production for much longer.

The extended Scoping Study showed the overall mine life of Mpokoto is nine years and the post-tax net present value is set at US$55.3M, based on a discount rate of 8% and a gold price of US$1,250 per ounce.

Average operating costs over the life of mine remain under $650/oz, despite the treatment of higher cost un-weathered ore and the start-up capital cost of US$20.42M, which is relatively very low for a project of this size.

Mkopoto’s gold is amenable to gravity processing because sits as very fine particles in the ore body so it’s easy to separate – which keeps costs low. So for an estimated US$10M, ACP is going to build a modular processing plant using off the shelf equipment.

And when it’s time to export to market, ACP can simply fly the gold out on a plane or helicopter!

So that’s ACP’s Mpokoto project in very broad strokes, now let’s drill into that upcoming exploration work that could see the project get even larger...

DFS drilling could make Mpokoto even bigger

With a JORC Indicated and Inferred Resource of 678,000 oz Au from 14.58 million tonnes, ACP’s plan to get Mkopoto into production by H1 of 2016 is an uncommon bird indeed – near term production with near term revenue.

And as ACP surges through the DFS stage with A-MCS’s US$20M fuelling the machine, Mpokoto could be about to become even more attractive:

ACP is about to begin 2,500m of RC drilling to augment the existing geological work completed to date – and it could add an additional 120,000 to 150,000 oz Au from 2.4Mt to 3.0Mt at a grade of 1.25 to 1.5g/t Au.

The work is set to begin in just a few weeks, and will target newly identified exploration target areas located along-strike and down dip from known mineralisation identified by geological consultants.

Previous work at Mpokoto found extensions of high grade mineralisation in sheared altered mafic rock intersected in a drill hole called MPDD0064, which intercepted 27.9m @ 7.8 Au g/t in addition to laterally continuous zones of mineralisation.

After taking a long hard look at the results, ACP reckons there could be more gold in and around the sections of Mpokoto it’s going to bring online first – so the drilling is designed to bring the biggest possible resource size to the table for the DFS and the immediate mining plan.

So, best-case scenario is that ACP finds an additional 150,000oz (the high case), and the project jumps from a JORC of 678,000oz to 828,000oz – quite an improvement.

This upcoming drilling programme for ACP has the potential to significantly enhance the current pit models and economic fundamentals of Mpokoto – already coming together as a low capex, low opex commercial gold mining project.

And remember, with an exploration target of between 11.4 and 17 million tonnes, Mpokoto has even more potential to get even bigger.

Looking long-term, ACP will aim to raise its minable resources to over a million ounces of gold by continuing to drill and explore the vast and highly prospective Kinsege Exploration License surrounding its mine and at Mpokoto itself.

The deposit remains open along strike and at depth, and with the DFS locking down the details for an initial nine year mine life, just imagine what would happen if ACP unlocked even more gold ore in the surrounding areas.

ACP could establish Mpkoto with its initial JORC resource find more gold, then ramp up its operations while still keeping costs low.

ACP is gunning to get Mpokoto into production by H1 of 2016 and could pay back its $20M capex in just 20 months – after that it’s all cash flow, and that could pay for some significant exploration muscle that would make ACP a big gold player.

ACP reaches a definitive stage for Mpokoto

Drilling at Mpokoto to expand its JORC resource of 678,000oz is set to begin in the coming weeks and should take only a few weeks to complete.

At The Next Small Cap we will be eagerly awaiting the results of this drilling – the potential to add up to 150,000oz of extra gold to the pot is a golden chance for ACP as it works up to the DFS stage.

The coming months will see ACP put the finishing touches on the project it will bring into production at Mpokoto and we could see an even stronger operation come into being than we first invested in.

The possible announcement of a larger resource could push ACP’s market value up further still and attract more interest from the markets in its plans for Mpokoto – we will be waiting and watching...

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