Completion of Pickstone-Peerless Definitive Fea...

African Consolidated Resources plc / Ticker: AFCR / Index: AIM / Sector: Mining

15 July 2013
African Consolidated Resources plc ("AFCR" or "the Company")

Completion of Pickstone-Peerless Definitive Feasibility Study and Updated Resource Estimate

African Consolidated Resources PLC, the AIM listed resources and development company, is pleased to announce the successful completion of its Definitive Feasibility Study ("DFS") on the initial phase of development at the 3.2 million ounce Pickstone Peerless Gold Project in Zimbabwe ("Pickstone-Peerless").  Phase 1 development, focussing on the oxide cap, being a subset of the entire Pickstone-Peerless Mine, is being accelerated in order to generate near term cash flow with low capital expenditure intensity.  In addition, the Company announces an updated JORC compliant mineral Resource estimate and updated capital requirements for Pickstone-Peerless.  

A supporting presentation shall shortly be available for download on the Company's website at www.afcrplc.com.

Key Highlights:

• A maiden mineral Reserve estimate of 136,000 ounces @ 2.06 g/t based on a gold price of USD 1,500/oz and a cut-off grade of 0.4g/t.  This maiden Reserve represents only 17% of the mining inventory reported in the Preliminary Economic Assessment ("PEA") in December 2012.  

• EBITDA after tax of USD 26M after 3 years of operation and of USD 54.8M after 6 years of operation and a project valuation of USD 17.7M on a discount rate of 10%.  These are based on an average gold price of USD 1,250 in 2014, USD 1,350 in 2015 and USD 1,500 per ounce thereafter. 

• 2013 Competent Persons Report ("CPR") confirms the previous estimate with minor modifications, being a gold resource of 40 million tonnes grading at 2.5 g/t and containing 3.2 million ounces of gold.   

• Updated net funding requirement of USD 15.7M reflects the introduction of a four month pre-production ore stockpile in order to improve the grade of ore reporting to the processing plant.  Sources of funding to minimise recourse to shareholders are in advanced stages. 

AFCR's Chief Executive, Craig Hutton, commented: "The completion of this DFS on time and on budget represents a significant achievement in the transformation of AFCR from an exploration company to a mining company.

"I should like to emphasise that the DFS relates to the oxide cap only, just one component of the much larger Pickstone-Peerless Gold project, and will support the funding of the much larger and higher grade sulphide ore (Phase 2) outlined in the PEA.  Restricting Phase 1 to the oxide cap reduces the CAPEX that would otherwise be necessary and enables us to use plant facilities already in place.  We have increased the funding requirement for Phase 1 principally to stockpile ore for four months to maximise early grade.  Scheduling for implementation of Phase 1 remains on track for first production of gold in June 2014.  

"Meanwhile, work on the Pre-feasibility study for Phase 2 is in progress.  This study is expected to be complete in September/October 2013 and as a result of this we are targeting a Reserve of 1,000,000 ounces at that time."

Definitive Feasibility Study

Considering the state of current market conditions and the requirement to raise funds to achieve production, the Company has prioritised cash generation from the Pickstone/Peerless gold mine.  Consequently, the focus of the DFS has been to keep the capital expenditure intensity to a minimum whilst maximising the near term cash flow.  To this end, it was decided that only the oxide cap would be considered in Phase 1 at a production rate of 20 ktpm, as part of the two-phased strategy to exploit the previously reported open pit mineral inventory of 813 koz (at 5.1g/t) - Option 3 reported in the PEA as announced on 4 December 2012.

The DFS therefore represents a subset of the larger project and allows the Company to declare a maiden Reserve of 136,000 ounces at 2.06 g/t based on a gold price of USD 1500/oz and a cut off grade of 0.4 g/t and to generate in excess of USD 50M cash over a 5 year period on an EBITDA less tax basis despite the lower grades that relate to the oxide cap and the higher concomitant unit costs of production.  This strategy provides the Company a way to generate organic cash flows to reinvest in the development of the Phase 2 (50ktpm) operation.  This strategy also benefits shareholders as the Company will be able to redeem previously capitalised exploration expenditure as well as financing further capital expenditures thereby minimising the burden on existing shareholders and limiting the dilutionary effect of new capital raised to bring these assets into production.

The Company has been able to maximise early projected cash flows by decoupling the open pit mining from the plant feed by building stockpiles in advance of milling.  This strategy enables the grade reporting to the plant to be managed thereby decoupling the in situ average grade from the average plant feed grade that will contribute to the funding and development of Phase 2 expansion to 50 ktpm.  The projected effect of this in the first five years of the mine is significant - engineering an estimated average 3.04 g/t feed grade to the plant from an estimated 2.10 g/t in situ grade. The reduction in capital intensity has been largely due to utilising existing infrastructure and focusing on the oxides portion so as not to incur additional capital in the plant to treat the sulphides. Additional capital would have been required for floatation and increased leaching facilities and which has been avoided.  

Phase 2 is now being considered at a Pre-feasibility level of study, and it is the Company's intention to have this study completed in September/October 2013 together with a conceptual study of underground mining which would represent Phase 3.  The significance of the expanded Phase 2 operation is that the higher grade sulphides can be liberated, whilst the increased rate of production will realise economies of scale.  The combined effect of these two considerations will reduce both the USD/oz. and the USD/tonne cost of production thus significantly improving the project margin.

Basil Read Matomo ("BRM") a division of Basil Read, a South African construction, engineering and mining development company, was appointed as the lead contractor for the DFS and will remain for the Prefeasibility Study for Phase 2.  PDNA Minxcon, a South African based minerals and mining consultancy company, was retained to undertake the mine design, mine scheduling and financial valuation of the DFS.

Key DFS results:

Maiden Reserves	Tonnes	Grade	Content
	kt	g/t	Oz
Proved	221.55	2.68	19,115
Probable	1,830.26	1.99	116,937
Total	2,015.80	2.06	136,052

Tonnes Produced	Unit	Project
ROM Head grade	g/t	2.10
Tonnes to mill from RoM stockpiles	tonnes	1,240,015
Mill Head grade from RoM stockpiles	g/t	3.04
Recovered grade
Recovered grade	g/t	2.74
Overall Recovery Percentage	%	90%
Metal recovered
Metal	Oz	109,248

	USD/Gold oz.	USD/Milled Tonne
Metal Recovered
Gold (oz)	82,548	82,548
Gravity Gold (oz)	26,700	26,700
Net Turnover	1,388	122
Mine Cost	340	30
Plant Costs	402	35
Total Cash Operating Costs	742	65
Royalties	97	9
Tax	47	4
Total Cash Cost including Tax	886	78
EBITDA	549	48
Capex	230	20
Notional Cost	1,069	94
EBITDA Margin	40%	40%

		YEAR	2014	2015	2016	2017	2018	2019
	Units	LOM	1	2	3	4	5	6
Metal Recovered		1
Gold	oz	82,548	1,759	18,403	18,422	18,162	16,384	9,418
Gravity Gold	oz	26,700	569	5,953	5,958	5,875	5,300	3,046
Total Gold Recovered	oz	109,248	2,328	24,355	24,380	24,037	21,684	12,464
Revenue	USDm	151.7	2.8	31.2	34.7	34.3	30.9	17.8
Mining Cost	USDm	(37.1)	(0.6)	(10.1)	(9.3)	(9.6)	(7.5)	0.0
Plant Costs	USDm	(43.9)	(0.7)	(8.6)	(8.6)	(8.6)	(8.6)	(8.6)
Royalties	USDm	(10.6)	(0.2)	(2.2)	(2.4)	(2.4)	(2.2)	(1.2)
Total Production Cost	USDm	(91.6)	(1.5)	(20.9)	(20.4)	(20.7)	(18.3)	(9.9)
Total Capex	USDm	(26.2)	(21.1)	(0.7)	(1.5)	(1.2)	(1.5)	(0.3)
Tax	USDm	(5.2)	0.0	0.0	0.0	(0.5)	(2.8)	(1.9)
Working Capital Changes	USDm	0.0	(0.1)	0.1	(0.4)	0.6	(0.6)	0.5
Annual Free Cash Flow	USDm	28.6	(20.0)	9.8	12.4	12.5	7.7	6.2
Cumulative Cash Flow	USDm	0.0	(20.0)	(10.2)	2.2	14.7	22.4	28.6
EBITDA	USD '000	60,022	1,249	10,346	14,379	13,578	12,587	7,884
Cumulative EBITDA	USD'000		1,249	11,595	25,974	39,552	52,138	60,022
Tax	USD '000	(5,186)	0	0	0	(506)	(2,774)	(1,906)
EBITDA less Tax	USD '000	54,836	1,249	10,346	14,379	13,072	9,813	5,978

Project Valuation Summary

Real Discount Rate	Unit	Project
NPV @ 0.00%	USD million	28.6
NPV @ 5.00%	USD million	22.6
NPV @ 10.00%	USD million	17.7
NPV @ 15.00%	USD million	13.6
NPV @ 20.00%	USD million	10.2
IRR	%	43%
NCE Margin	%	27%
Payback	Months	34.5
Cash Generated (EBITDA - Tax)	USD million	54.8
Capital Redeemed	USD million	26.2

Item	Unit	Project DFS Duration
Waste Tonnes Mined (Undiluted)	t	4,173,016
Ore Tonnes Mined (Undiluted)	t	2,455,581
Stripping Ratio		1.71
Total Tonnes Mined (Undiluted)	t	6,618,597
Grade Mined (Diluted)	g/t	1.92
Diluted Ounces Available on Stockpile	Oz	157,103
Tonnes to Plant (Milled)	t	1,240,015
Mill Head Grade	g/t	3.04
Kilograms to Plant	kg	3,775
Recovered grade	g/t	2.74
Overall Recovery	%	90%
Ounces Recovered	oz	109,248
Revenue	USDm	151.7
Capital Expenditure Until June 2014	USDm	21.1
Peak Funding Requirement*	USDm	20.2
Peak Funding Year	Year	2014
Peak Cash Flow Year	Year	2017
Peak Cash Flow  (2017)	USDm	12.5
Steady State Cash Flow per Month	USDm	0.85
Breakeven Milled  Grade	g/t	1.84
Breakeven Gold Price	USD/oz.	839

* The Peak Funding Requirement is the maximum cumulative cash flow needed for the project in year 2014

Note: Capital expenditure until June 2014 is detailed in the table under 'Capital Requirements' below and inclusive of working capital and mining site establishment up to June 2014.

Updated JORC Resource estimate

The JORC compliant mineral Resource estimate update (30 June 2013), undertaken by ExplorMine Consultants, in substance confirms the previous Resource estimate as announced on 13 September 2012.  The updated Resource estimate reflects 39.50 Mt of ore at a grade of 2.50 g/t containing 3,200 koz of gold in situ.   This is categorised as follows: Measured 1.90 Mt, 1.90 g/t, 120 koz; Indicated 17.20 Mt, 2.40 g/t, 1,300 koz; and Inferred Resource 20.40 Mt, 2.70 g/t, 1,800 koz. (Rounding has been applied)  

The cut off applied was as follows:  A 0.5 and 0.6 Au g/t cut-off has been applied for near surface (less than 250m below surface) material at Pickstone and Peerless respectively, and a 1.5 g/t cut-off has been applied for material deeper than 250m below surface.

Pickstone and Peerless Mineral Resource Tabulation - June 2013 at a  cut-off of 1.5g/t for Underground and 0.5-0.6 g/t for Open pit (rounding has been applied)
Mineral Resource category	Reef Type	Tonnes (Million)	Grade AU (g/t)	AU (kgs)	Au (oz)
Measured	Oxide and Fresh	1.91	1.91	3,642	117,086
Indicated	Oxide and Fresh	17.20	2.35	40,430	1,299,857
Total - Measure and Indicated	Oxide and Fresh	19.11	2.31	44,072	1,416,942
Inferred	Oxide and Fresh	20.42	2.70	55,181	1,774,096
Total Resources	Oxide and Fresh	39.52	2.51	99,252	3,191,038

Pickstone and Peerless Mineral Resource Tabulation - October 2012 at a  cut-off of 1.5g/t for Underground and 0.5-0.6 g/t for Open pit (rounding has been applied)
Mineral Resource category	Reef Type	Tonnes (Million)	Grade AU (g/t)	AU (kgs)	Au (oz)
Measured	Oxide and Fresh	1.72	1.91	3,282	105,527
Indicated	Oxide and Fresh	19.32	2.34	45,253	1,454,915
Total - Measure and Indicated	Oxide and Fresh	21.04	2.31	48,535	1,560,442
Inferred	Oxide and Fresh	16.20	3.22	52,098	1,675,001
Total Resources	Oxide and Fresh	37.24	2.70	100,634	3,235,443

The open pit mineral Resource estimate was increased to a depth of 250m. The Resource declaration is reconciled as follows:

	Gold	g/t	Tonnes 000's
Total 2012	3.2 moz	2.70	37.24
add increase in Measured category	0.01 moz	1.89	0.19
less decrease in Indicated category	0.16moz	2.27	2.12
Net decrease in M&I	0.15 moz	2.31	1.93
add increase in Inferred category	0.10 moz	0.73	4.22
Total 2013	3.2 moz	2.51	39.52

As stated in the updated Resource estimate "Reconciliation with previous mineral Resource estimate", the following has been extracted:

• The estimates for the Peerless portion of the mineral Resource remains essentially the same except for minor changes in tonnage due to changes in the application of density factors and changes in the depth to which opencast Resources are declared with the associated cut-off. 

• Reconciliation of the Pickstone portion of the 2013 and 2012 mineral Resource estimate (at 0g/t cut off) reflects a 6.7% increase in tonnage and 9.5% decrease in grade, resulting in an overall 3.4% reduction in contained gold.  This is a result of changes in tonnage due to changes in the application of density factors, changes in the depth to which opencast Resources are declared with the associated cut-off, updates to the oxide surface and topography, additional surface drilling resulting in improved quality of data (increased Measured Resource), and change in the 2013 estimation technique improving the range of variograms and resulting in increased tonnes but reducing grade. 

The Resource estimate was again undertaken by ExplorMine in South Africa and is being independently audited by an associate of SRK Consulting (South Africa) (Pty) Ltd and a former chairman of the South African Mineral Resources and Reserves Committee ("SAMREC").

Capital Requirements

Capital Expenditure until June 2014		Amount
Plant
20ktpm Capital Cost*	USD'000	15,103
Other
Bankable Feasibility Study (20ktpm)	USD'000	53
Prefeasibility Study - expansion (50ktpm)	USD'000	600
Underground conceptual study	USD'000	65
Working Capital	USD'000	1,600
Mining/Site Establishment	USD'000	761
Subtotal Capital Requirement	USD'000	18,182
SRK	USD'000	127
Other Working Capital **	USD'000	2,933
Subtotal Total	USD'000	21,242
Corporate costs allocated	USD'000	2,295
Total	USD'000	23,537
Bank balance end June 2013	USD'000	7,813
Net Funding Requirement for Pickstone/Peerless Mine	USD'000	15,724

* A contingency of USD1.4 million is included in the plant cost
** 4 months of stockpiling

As explained above, the decision to stockpile four months of ore in order to maximise grade and cash flow has the effect of increasing the funding requirement.  The Company is comfortable that it will be able to secure the funding necessary without undue shareholder dilution.  In addition to debt financing, which is in an advanced stage, funding options available for Pickstone Peerless include the sale of Harare offices, South African Department of Trade and Industry grant and sale of tailings.

This announcement has been reviewed by Mike Kellow BSc, a member of the Australian Institute of Geologists and Technical Director of ACR.  Mr Kellow meets the definition of a "qualified person" as defined in the AIM Note for Mining, Oil and Gas Companies.

**ENDS**

For further information visit www.afcrplc.com or please contact:

Roy Tucker	African Consolidated Resources plc	[phone] [phone]
Craig Hutton	African Consolidated Resources plc	[phone]
Andrew Godber	Panmure Gordon (UK) Limited	[phone]
Callum Stewart	Panmure Gordon (UK) Limited	[phone]
Adam James	Panmure Gordon (UK) Limited	[phone]
Susie Geliher	St Brides Media & Finance Ltd	[phone]

Glossary of technical terms

Term	Explanation	Acronym
Au	chemical symbol for gold
core	Cylindrical sample of rock as cut by a diamond drill
diamond drilling	Drilling method using a diamond-impregnated cutting bit to obtain a core sample of rock
greenstone belt	belts of metamorphosed sedimentary and igneous rocks of Archean age
JORC	Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy
lodes	Higher grade portion of mineralised zones, usually with specific orientation
mineralised zones	hydrothermally altered structural features containing potentially valuable minerals
orebody	economically viable portion of a mineralised zone
Reserve	mineral reserve as defined by the JORC Code 2004
Resource	mineral resource as defined by the JORC Code 2004
reverse circulation drilling	rotary percussion drilling whereby the sample is returned from the cutting head inside the rod string to surface thereby avoiding contamination from the walls of the hole	RC
sulphide	sulphur bearing metallic mineral
tenement	an area encompassing a number of blocks of claims
UNITS
cm.g/t	centimetre grams per tonne - metal content expressed as grade times thickness
g	gramme
g/t	grammes per metric tonne - metal concentration
ha	hectare
kg	kilogramme, a thousand grammes
km	kilometre
koz	thousand ounces
kt	thousand metric tonnes
kv	thousand volt
kva	thousand volt amperes
m	metre
mm	millimetre
µm	micron, or millionth of a metre
Mt	million metric tonnes
Moz	million ounces
oz	fine troy ounce equaling 31.1048 grammes - normal unit used in selling gold
ppb	parts per billion
ppm	parts per million, equivalent to g/t
t	metric tonne
t/m3	density measured as metric tonnes per cubic metre

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Source: African Consolidated Resources Plc via Thomson Reuters ONE

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