Strong Financial Returns Demonstrated from Mpokoto Scoping Study

LONDON--(BUSINESS WIRE)--

Armadale Capital Plc / Index: AIM / Epic: ACP / Sector: Investment Company

7 April 2014

Armadale Capital Plc (‘Armadale’ or ‘the Company’)
Strong Financial Returns Demonstrated from Mpokoto Scoping Study

Armadale, the AIM quoted investment company focused on natural resource projects in Africa, is pleased to announce the results of the Scoping Study (‘the Study’) for the initial phase of mining at the Mpokoto Gold Project (‘Mpokoto’ or ‘the Project’) in the Katanga Province of the Democratic Republic of Congo in which Armadale has the right to an 80% interest.

HIGHLIGHTS

• Mpokoto has demonstrated to be a robust low cost gold development project with attractive economic fundamentals even at gold price of US$1,100/oz
• Post-tax net present value (“NPV”) of US$33.0 million based on a discount rate of 8% and a gold price of US$1,250 per ounce and internal rate of return (“IRR”) of 141%.
• Scoping Study focussed on initial phase of mining – Stage 1 – based only on the shallow oxide orebody (30-40m).
• Significant further upside potential from unweathered ore at >30m depth – Stage 2 Scoping Study to commence shortly

Key Findings of Stage 1 Scoping Study:

Net Present Value (‘NPV’) - post-tax and royalty	$33.0 million^1
Average annual production	24,600oz
Initial Life of Mine (‘LOM’)	5 years
LOM average operating cash cost	US$649/oz^2
Total Capital Cost	US$20.2 million
Payback period	20 months

¹ based on a discount rate of 8% and a gold price of US$1,250 per ounce² excluding royalties

Exploration Upside

• Significant exploration upside via:
  • Extension of existing ore zones to increase current 506,700oz Au Mineral Resource:
    • in filling resource between existing planned pits
    • expansion of resource down dip following existing high grade intercepts at depth
  • Further potential to upgrade existing resource to Measured and Indicated category, as well defining a maiden economic Reserve
• Stage 2 of Scoping Study to commence shortly – focussed on development of the ore body at depth below the 30m covered by Stage 1, with regard to processing unweathered ore and updated mine plan

Justin Lewis, Director of Armadale, commented:

“The study shows Mpokoto is an attractive gold development project, offering highly attractive returns, near term production potential, with robust economics even at low gold prices. Its positive returns should be further underpinned through the upside potential given that this Stage 1 Scoping Study is only based on a fraction of the total known mineralisation.

“We are now focussed on advancing Mpokoto to the next stage of its development before targeting commercial gold production. Stage 2 of the Study will commence shortly and focus on the less weathered ore below 30m, which is expected to further add to the overall value of the Project. We look forward to updating the market with the results of the additional drilling and metallurgical studies.”

Management Conference Call

Armadale will host a conference call for analysts and investors at 9.00am UK time today to provide further information on the Scoping Study. To participate in this conference call, please register your details with [e-mail] quoting ‘Armadale conference call’.

An updated corporate presentation focussed on the scoping study will also be available on the Company’s website www.armadalecapital.com.

Overview

Armadale commissioned Bara Consulting (Pty) Ltd to undertake a scoping level assessment for the Mpokoto Gold Project in the Katanga Province of the Democratic Republic of Congo. The following are the headline results:

• Project split into 2 stages, only Stage 1 considered in this scoping study evaluation:
  • Stage 1 mining and processing of shallow weathered oxide ores down to approximately 40m depth;
  • Stage 2 mining and processing of fresh sulphide ores at below the Stage 1 ore.
• A number of different production rate scenarios were considered with 60,000tpm identified as best return on capital
• Study supports 60,000tpm scenario to produce over 120,000oz of gold over 5 years
• Metallurgical process is a simple gravity concentration, Carbon-in-Leach (CIL), elution, electro-winning and smelting process
• Plant is based on a low cost modular approach

The Study is based upon the updated JORC 2012 compliant Mineral Resource Estimate announced on 2 April 2014. The Study demonstrates very positive returns with robust economics, which supports conducting further work, including the development of Stage 2, the planned drilling programme and further metallurgical studies (the ‘Programme’). The Programme will focus on expanding the overall Project, in particular the expansion of the existing Mineral Resource and the development of Stage 2 of the Project.

The 60,000tpm scenario generates a post-tax NPV of US$33.0 million at a gold price of US$1,250 per ounce and at an 8% discount rate. Importantly the Project remains robust at significantly lower gold prices, with a post-tax NPV of US$18.8m at US$1,100 per oz gold price and an 8% discount rate.

Mpokoto requires a total capital cost of US$20.2 million, on the basis of using a contract miner who will provide the mining fleet. The total payback period is 20 months.

The key technical, operational and financial parameters for Stage 1 of the Project are summarised in the following table.

Parameter	Unit	Rate
Ore Mined	Mt	3.44
Average head grade mined	g/t	1.28
Waste mined	Mt	15.65
Strip ratio	Waste:ore	4.53
Contained gold (RoM)	Koz	142
Average gold recovery rate	%	90
Average annual production over LOM	Oz	24,600
Open pit mine life	Years	5
Processing plant capacity	Mtpa	0.72
Total Capital Cost	US$m	20.2
Total capital payback period	Months	20
Operating cash costs	US$/oz	649
Total Cash costs (including royalaties and tax)	US$/oz	715

Project Ownership, Licence and Location

Mpokoto is situated in the south west of the Katanga Province of the Democratic Republic of Congo. The Project is located approximately 200 kilometres to the west of the established mining town of Kolwezi and approximately 150 kilometres east of the Angolan border town of Dilolo. Mines d’Or de Kisenge sarl (“MDDK”) holds four exploration licences (Permis de Recherche) in the much larger Kisenge area, within which the Mpokoto Project is situated. MDDK has recently applied for a separate mining licence over the Mpokoto Project, in which Armadale will have an 80% interest.

MDDK is owned by Kisenge Limited and Enterprise Miniere de Kisenge-Manganese sarl (“KMC”), a government entity, which holds a 20% interest. Netcom, a wholly owned subsidiary of Armadale, has an agreement with Kisenge pursuant to which it has the rights to Kisenge’s 80% interest in the Mpokoto Project.

Geology and Mineral Resource Statement

The Mpokoto area is a metavolcanic-sedimentary succession referred to as the Lukoshi formation with metamorphism to amphibolite grade. The gold mineralisation is hosted within sheared interlayered conglomeratic sandstones. It occurs as northwest to southeast striking and moderately south and southwest dipping sheared intervals between clastic meta-sedimentary rocks in the hanging wall and meta-igneous rocks in the footwall. The deposit contains oxide, transitional and primary sulphide ore types with oxide ores from surface to approximately 30 to 40 metres below surface. The table below summarises the mineral resources currently identified at the project site, a cut-off grade of 0.7 g/t has been used in the mine planning.

GRADE TONNAGE TABLE FOR OXIDE RESOURCES
Cut-off	Tonnes	Au g/t	Au kg	Au oz
>0	2,798,611	1.24	3,469	111,537
>0.5	2,628,912	1.30	3,405	109,459
>0.7	2,377,989	1.37	3,252	104,558
>1.0	1,715,138	1.57	2,688	86,432
>1.3	971,203	1.89	1,835	58,983
>1.6	453,006	2.42	1,098	35,315

The Mineral Resource estimate was prepared by CSA Global and published on 2 April 2014. Stage 1 of the Project is focused on the Oxide portion of the resource.

Table. Mpokoto Mineral Resource, March 2014, by Weathering at a 0.5 g/t cut off

Weathering	Classification	Tonnes	Au g/t	Ounces
Oxide	Measured	-	-	-
	Indicated	1,270,000	1.49	60,600
	Sub-total	1,270,000	1.49	60,600
	Inferred	1,360,000	1.11	48,900
	Total	2,630,000	1.30	109,500
Transitional	Measured	-	-	-
	Indicated	1,540,000	1.31	65,100
	Sub-total	1,540,000	1.31	65,100
	Inferred	910,000	1.13	33,100
	Total	2,450,000	1.25	98,200
Fresh	Measured	-	-	-
	Indicated	4,230,000	1.51	205,900
	Sub-total	4,230,000	1.51	205,900
	Inferred	1,800,000	1.61	93,100
	Total	6,040,000	1.54	299,000
All	Grand Total	11,120,000	1.42	506,700

In addition to the declared mineral resources CSA have identified 880,000 tonnes of oxide material as an Exploration Target tonnage in a grade range of 1.2 g/t to 1.5 g/t. The areas where this material has been identified is along the strike of the orebody either side of and between the planned open pits. This material has been included in the evaluation of the project.

Mine Plan

Mining is planned to be undertaken by standard open pit methods. The oxide ores planned to be mined in Stage 1 of the Project lie in a weathered zone. The rock in this zone is weak and friable and it has been assumed that the material will be free dig, down to depths of approximately 30m to 40m. Waste and ore will be loaded using a hydraulic shovel tipping into 60 tonne dump trucks for hauling to the plant or waste dumps, which will be adjacent to the pits. Below the weathered zone drill and blast will be employed prior to loading and hauling.

Two discrete pits have been identified along the strike of the ore body, each pit being planned to 30-40 metres depth. The mine is planned to produce at 60,000tpm with over 60% of production being mined from the main pit. A total of 3.44 million tonnes will be mined at a strip ratio of 4.53 tonnes of waste to one tonne of ore. The run of mine grade is estimated at 1.28 g/t to deliver a total of 141,682oz of gold to the mill. The material mined is largely oxide although small amounts of transition material are also extracted from the planned pits. This plan includes the Exploration Target tonnages.

Metallurgy and Processing

The oxide ore that will be delivered to the plant in Stage 1 is amenable to gravity methods of separation. The process is therefore relatively simple consisting of scrubbing followed by various stages of gravity concentration prior to leaching (CIL), elution and electro-winning of gold. Tailings from the process will be delivered to a tailings storage facility adjacent to the plant site. The estimated metallurgical recovery for this plant is 90%. Small amounts of transitional material are also processed in this plant, the recovery for this material has been estimated at 70%. The Stage 2 process will be more complicated, is undergoing further evaluation, and will be subject to a separate scoping study anticipated to be commissioned shortly.

Capital Costs

The Plant and Infrastructure Capital Cost for Stage 1 of the Project is estimated to be US$20.2 million. It is estimated that US$10.4 million of capital would be required for the acquisition of a mining fleet for the Project. The Study has assumed that a contract miner will be utilised and the contractor will be responsible for providing the mining fleet. The cost of a contract miner has been accounted for in the operating cost estimate.

All infrastructure required to support the proposed mining plan has been evaluated and allowed for. This infrastructure includes the following aspects:

• Bulk power supply and on site power reticulation
• Bulk water supply and on site water reticulation
• Buildings (offices, change house, first aid)
• Workshops
• Stores yard and stores building
• Senior employee camp
• Roads and security

Capital costs have been generated for the mining plan and engineering concepts developed. The costs have been factored from public domain information available on similar projects as well as input from potential plant and equipment suppliers. Costs have been factored to account for increasing over time and for potential savings that may be incurred by use of in country resources. The Capital costs are summarised in the table below.

STAGE 1 PROJECT CAPITAL COST SUMMARY
Item	US$M
Mining equipment	-
Mining pre-strip	1.73
Plant	8.25
Tailings Dam	2.00
Infrastructure	6.50
Electrical installations (including power plant)	1.72
Total Capital Cost	20.20

Note: the mining equipment capital assumes a fleet rental and is amortised in the mining operating cost.

Operating Costs

Operating costs have been validated in a similar manner to the capital costs developed, that is by the use of publicly available information on similar projects. The Study has demonstrated total cash costs of US$649 per ounce, excluding royalties, of the LOM. Mining operating costs include labour, materials, consumables and other services. The table below shows a summary of the operating cost.

COST PER TONNE PROCESSED (US$/T)
Mining	13.21
Processing	7.69
G&A	2.30
Total	23.20

Fiscal Terms

A financial evaluation of the Stage 1 of the Project was prepared based on the mining plan and costing generated and using a base case gold price of US$1,250 per ounce. The tax implications for the Project were also considered in this evaluation. It is noted that the Project should be subject to the provisions, including certain dispensations in respect of tax, of the Mining Convention between the Licence holder (then represented by Cluff Mining) and the Government of the DRC. A summary of the fiscal assumptions used in the Study are shown in the table below.

Tax	Rate
Corporate Tax	30% on net profit
Tax Holiday	100% for initial 5 years of production 50% from Year 6 to Year 15
Mining Royalty	1% on gold export 1% on gold Pithead value (First 10 years of Project)
VAT	16% (Holiday on petroleum products)

In addition to the tax due to the Government of the Democratic Republic of Congo there are certain royalties and fees payable to the previous owners of the Project which are linked to the sale agreement. These royalties are as follows:

Royalty	Rate
Original owner	2.5% of Revenue
Previous owner	$20/oz on first 150koz (varies with Gold Price from low at US$10/oz to high of US$40/oz)   $10/oz on production from 150k oz to 1Moz (fixed regardless of gold price)

Economic Sensitivity Analysis

The results of the financial evaluation, at a gold price of US$1,250/oz, shows a post-tax and royalties positive cash flow of US$45.7 million and a cash positive situation after 20 months. The funding requirement is US$20.2 million. The cash operating cost is low at US$649/oz.

A gold price and discount rate sensitivity has been run on the base case model produced and described above. Sensitivities have been run at a range of gold prices from US$1,100/oz to US$1,600/oz, the results of the base case evaluation and the sensitivity analysis is shown in the table below.

SUMMARY OF FINANCIAL EVALUATION AND SENSITIVITY ANALYSIS
Criteria	Gold Price in US$/oz
	1,100	1,200	1,250	1,300	1,400	1,600
Net cash flow (US$m)	35.4	47.7	53.8	60.0	72.3	96.9
Tax and Royalties (US$m)	7.4	7.9	8.2	8.4	8.9	12.0
Pre-tax NPV at 10% (US$m)	22.9	32.3	36.9	41.6	51.0	69.7
Post tax NPV (US$m)
5% discount	21.8	32.1	37.2	42.3	52.6	71.2
8% discount	18.8	28.3	33.0	37.8	47.2	64.4
10% discount	17.1	26.1	30.6	35.1	44.1	60.3
Payback period (months)	30	22	20	19	16	13

The project is focused on gold production at a low cash cost and the base case results in a cash cost of approximately half that of the gold price used.

Social

Armadale, through the licence holder MDDK, adheres to the highest standards of corporate social responsibility and is committed to relations with communities that are based on shared value and participatory processes aimed at empowering stakeholders. MDDK appreciates that maintaining its ‘Social Licence to Operate’ is a key business function that would ensure the project succeeds and produces benefits for its shareholders.

Environmental

An environmental impact assessment and management plan (EIA and EMP) have been undertaken for the project by MDDK. This work has been undertaken as required by local legislation. The work has assessed environmental and social issues and has included a public consultation program. The following steps have been undertaken:

• Social and environmental baselines
• Determination of impacts
• Determination of mitigation measures
• Development of mitigation plans

Conclusions and Recommendations

The results of the scoping study have shown that Stage 1 of the Mpokoto Project has economic potential and that it is worthy of further evaluation. It is proposed that the following next steps be taken to further understand the Project and to reduce the risk profile:

• Undertake additional exploration drilling to increase level of confidence in the mineral resource and to identify additional resources
• Undertake additional metallurgical test work on samples from the oxide and sulphide ore types to enable more detailed process design work to be undertaken
• Undertake a more detailed geotechnical evaluation to include a geotechnical drilling program at the pits identified and laboratory test work on cores recovered
• Initiate work on a scoping study for Stage 2 of the Project and a feasibility study with a focus on confirming the low cost approach

Scoping Study Preparation

The Scoping Study has been prepared by Bara Consulting (Pty) Ltd, with input from Armadale and Cluminco in respect of the assumptions used and the operating assumptions. CSA Global Pty Ltd which reported the Mineral Resources estimate and Appropriate Process Technologies (APT) which reviewed the metallurgical work and the proposed plant design.

Qualified Person

Scientific or technical information in this release has been reviewed by Mr. Andrew (Jim) Pooley Pr Eng, BSc Eng (Hons), FSAIMM, Managing Director, of Bara Consulting Pty Ltd. Jim Pooley is a fellow of the Southern African Institute of Mining and Metallurgy and has over 19 years’ experience, which is relevant to the style of mineralisation under consideration and to the activity which he is undertaking to qualify as a Competent Person, as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (the JORC Code). Mr. Jim Pooley consents to the inclusion in this announcement of the information, in the form and context in which it appears.

The information in this release that relates to in-situ Mineral Resources has been prepared by Mr. David Williams BSc (Hons) MAusIMM MAIG, Principal Consultant, of CSA Global Pty Ltd. David Williams is a member of the Australasian Institute of Mining and Metallurgy, and a member of the Australian Institute of Geoscientists (MAIG) and has over 20 years’ experience, which is relevant to the style of mineralisation under consideration and to the activity which he is undertaking to qualify as a Competent Person, as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (the JORC Code). Mr. David Williams consents to the inclusion in this announcement of the information, in the form and context in which it appears.

**ENDS**

Enquiries:
Company
Justin Lewis, Director [phone]
Charles Zorab, Investor Relations

Nomad and broker: finnCap Limited
Stuart Andrews/Christopher Raggett [phone]

Press relations: St Brides Media & Finance Ltd.
Susie Geliher/Charlotte Heap [phone]

Notes

Armadale Capital Plc is focussed on investing in and developing a portfolio of investments, targeting the natural resources and/or infrastructure sectors. The Company, led by a team with operational experience and a strong track record in Africa, has a strategy of identifying high growth businesses where it can take an active role in their advancement.

Armadale is focused on the development of the development of the Mpokoto Gold project in the Democratic Republic of the Congo, to which it holds the right to an 80% interest. Armadale also currently holds approximately a 40% interest in Mine Restoration Investments Ltd, a South African listed company, which aims to develop profitable operations in South Africa through the briquetting and sale of coal fines in KwaZulu Natal and an acid mine drainage project in the Witwatersrand basins, as well as a number of other quoted investments. .

More information can be found on the website www.armadalecapitalplc.com.

Category Code: MSC

Sequence Number: 413345

Time of Receipt (offset from UTC): 20140407T061200+0100