Pickstone-Peerless Gold Project Prefeasibility ...

African Consolidated Resources plc / Ticker: AFCR / Index: AIM / Sector: Mining
4 December 2013
African Consolidated Resources plc ("AFCR" or the "Company")
Outcome of the Pickstone-Peerless Prefeasibility Study
and
Near completion of JORC-compliant Mineral Reserve statement
and
Agreement of Indicative Term Sheet

African Consolidated Resources plc, the AIM listed resources and development company, is pleased to announce the outcome of the Prefeasibility Study ('PFS') prepared by the Company with supporting financial valuation from Minxcon, an independent competent person, on its Pickstone-Peerless gold project in Zimbabwe.  

In addition, the Company announces that a Mineral Reserve Statement by Minxcon is near completion (the "Reserve Statement") and shall be published in accordance with the JORC code shortly.

An Executive Summary of the PFS follows at the end of this Announcement and shall also shortly be published (inclusive of supporting diagrams) on the Company's website at www.afcrplc.com

Key Highlights

Reserve Statement

• The provisional declaration of a 1.0 million ounce Mineral Reserve based upon a Baseline PFS scenario, including a gold price of $1,300/oz and a cut off grade at 0.4g/t. Full JORC-compliant report to be published shortly; 

PFS
Preferred development option selected from 14 study options. Under this Preferred Option:

• Life of Mine in excess of 10 years;  

• Production in excess of 100,000 oz per annum at peak production; and  

• An average all-in sustaining cost ('AISC') of below USD 700/oz.   

Indicative Term Sheet

• Indicative term sheet received to fund the plant expansion, subject to certain conditions including additional equity for initial plant construction 

Further PFS information

The PFS study evaluated 14 different options to determine the optimal value exploitation strategy.  A baseline option was selected to represent the Mineral Reserve (the 'Baseline Option') from which the provisional declaration of a 1.0 million ounce Mineral Reserve has been calculated.  The Baseline Option represents the maximum long-term ounce exploitation of the Mineral Resource.  The option selected by the Company (the 'Preferred Option'), whilst requiring more up front capital than some other options, represents the value maximisation of the Mineral Reserve.  The Preferred Option has been calculated at various incremental gold prices, ranging from USD 1,100/oz to USD 1,500/oz.

The investment paradigm driving the selection by AFCR of the Preferred Option was to select the option that provided the "least regret / maximum value" proposition, using the principle of maximising NPV whilst also taking into account the Company's long-term strategy of exploiting the mineral asset throughout the commodity cycle.  The selection and comparison of all the 14 options provides the basis to realise both of these goals.  

The Company has a strategy of decoupling the plant from pit production.  A three month stockpile will be created prior to plant commissioning and initially more tonnes will be mined than what is required by the plant.  This enables the Company to engineer the grade that reports to the plant by drawing down from specific stockpile areas sorted by grade.  This should ensure that based on the Company's Preferred Option (see below) the plant is presented with an average grade of approximately 5.0 g/t in the first 8 years of operation.  

The PFS results of the Preferred Option at varying gold price assumptions are set out below:

Assumed gold price over LOM	(US$/oz)	1,500	1,300	1,100
Upfront capital expenditure	(US$'m)	27.3****	27.3****	27.3****
Gold production:
Total recovered (LOM)	(koz)	766	766	766
First 8 years	(koz)	608	608	608
Avg annual steady-state* production	(koz)	97	97	97
Cost of production:
Avg LOM Cash Cost	(US$/oz)	432	430	428
Avg LOM AISC***	(US$/oz)	685	669	653
Avg steady-state* Cash Cost	(US$/oz)	308	306	304
Avg steady-state* AISC***	(US$/oz)	459	443	427
Avg annual steady-state* free cash flow**	(US$'m)	78	65	53
Payback	(months)	46	50	56
NPV10% Real  (USD'm)	(US$'m)	247	186	124
*            Steady-state refers to the 5-year period immediately following conversion from oxide to         sulphide plant **                Free cash flow refers to cash after all capital expenditure and normal income tax ***        Includes a 7% royalty ****        Does not include corporate costs

The upfront capital expenditure on the basis of the Baseline and Preferred Option is made up as follows: $13.7 million for the 20ktpm oxide plant capital cost; $1.4 million of capital cost contingency; $2.5 million for mining site establishment; and $1.7 million (Baseline Option) or $9.7 million (Preferred Option) for pre-production stockpiling working capital. The construction funding requirement therefore totals $19.3 million under the Baseline Option or $27.3 million under the Preferred Option.

The PFS considers only the Pickstone-Peerless gold project and does not consider allocations of corporate costs. As at 31 October 2013, the Company's working capital totalled $4.2 million.

On the basis of the plan schedule, production of first gold is estimated to take place within 11 to 14 months of project finance being secured.

Indicative Term Sheet

The Company is also pleased to announce that it has agreed an indicative term sheet with a major African bank for the development of the project.  The term sheet is subject to the customary due diligence review and credit committee approval, and also to AFCR securing equity for the initial plant construction.  Whilst the terms remain confidential at this stage, the Company believes this funding facility provided by the bank will be sufficient for the plant expansion (from 20 ktpm to 50 ktpm capacity) and plant conversion (from oxide to sulphide), which is expected to take place in 2016 and/or 2017.  This means that AFCR shareholders will not be expected to inject any further equity into this project once the initial plant has been commissioned. The Company is evaluating a number of equity and other financing options from which to fund the initial plant construction.

The Chief Executive Officer of AFCR, Craig Hutton, commented: "I am delighted by the outcome of the PFS, as it proves the robustness of this potentially world-class asset that we have been able to bring to the market.  I also look forward to the confirmation of the JORC-compliant Mineral Reserve statement shortly. These results, however, would not have been achievable without the depth of experience and energy of the AFCR team.  As Zimbabwe charters its future direction towards reintegration into the global community, the Company is positioned to be a major force in the local gold sector which may lead to further consolidation opportunities in the country.  Whilst recognising the future opportunities, our focus and energy will foremost be on building Zimbabwe's largest ever open pit gold mine and rewarding the Company's shareholders."

The presentation that will be used at Mines and Money and the Executive Summary of the PFS shall both shortly be available for download on the Company's website at www.afcrplc.com.  No new material information will be disclosed at Mines and Money.

The finalised Mineral Reserve Statement will be published and made available on the Company's website shortly.  At the same time will be published the Mineral Resource estimate update by ExplorMine Consultants referred to in the Announcement of 15 July 2013 and the confirmatory audit and review of the estimation by ExplorMine by Dr Ferdi Camisani and the report by SRK Consulting (South Africa) referred to in the Announcement of 30 September 2013.

This announcement has been reviewed by Mr Craig Hutton PrSciNat, MBA, BComm, HND Economic Geology, a member of the South African Council for Natural Scientific Professions, Managing Director and Chief Executive Officer of AFCR. Mr Hutton 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]
Adam James     Panmure Gordon (UK) Limited     [phone]
Susie Geliher     St Brides Media & Finance Ltd     [phone]

PICKSTONE-PEERLESS MINE
PRE-FEASIBILITY STUDY - EXECUTIVE SUMMARY
December 2013
SUMMARY

1.1.Introduction

The Pre-Feasibility Study ('PFS') described in this document describes the options studied and the option selected to maximise value from the exploitation of the Pickstone Peerless ('PnP') mining operation.  This PFS considers open pit mining of the PnP ore-bodies (oxide and sulphide material), and incorporates the Definitive Feasibility Study ('DFS') completed in June 2013 as the ramp up, and initial exploitation of the oxide material.

Fourteen options were generated and studied in this PFS, based on the investment philosophy adopted by AFCR ('the Company').  Of the fourteen study options, one was considered as the Baseline option and represents the definition of a Mineral Reserve estimate.  Option 12 ('The Preferred Option' is the option selected to achieve the Company's investment criteria and will be adopted for the definitive feasibility study ('DFS').  The former DFS capital and operating cost estimate was at a -5% to +15% level of confidence for the oxide mining phase (definitive level), whilst the PFS mining and processing of the oxides and sulphides for capital and operating cost estimate is at a -10% to +20% level of confidence.  This PFS is sufficiently detailed to generate a JORC compliant Mineral Reserve estimate.

The Company's mining titles are 100% owned and are considered by the Company to be in good standing.  Furthermore, the Company has a valid Environmental Impact Assessment ('EIA') certificate for the development of a 20 ktpm operation.  The expansion to 50 ktpm will require an amendment to the existing EIA which will be submitted in 2014.  The PFS has also determined that sufficient installed water and power is available to accommodate the 20 ktpm build. An application has been submitted to the Zimbabwe Electrical Supply Authority ('ZESA') for additional power on the existing line, whist additional water sources have been identified. These key considerations are exhaustively addressed in the body of the PFS document.

1.2.Investment Philosophy

The Company's investment philosophy is to maximise economic profit for the longest period of time that an ore-body can yield, and to maximise value of its ore-bodies through the commodity cycles.  As a consequence, mine design, planning and development is undertaken in a manner that will provide a robust economic result, despite underlying commodity cycles and short term volatility.  Succinctly, at the heart of the Company's value maximization philosophy is the objective to position the exploitation of the Company's assets to extract maximum value through the commodity cycle whilst ensuring sufficient flexibility and cash margin to buffer short term volatility.  The Company achieves this by considering both the short- term and long-term outlook of commodity prices.  

Long-term commodity price forecasts are based on the commodity sectors' marginal cost of production as a base line assumption for all Mineral Reserve estimate declarations.  To this end, the Company has an optimisation modelling technique and approach to direct the optimal economic extraction of the ore-bodies it owns and manages.  An embedded economic exploitation paradigm considers both optimal and marginal economics, to ensure that long-term value and cash margin are maximised.  Figure 1 illustrates the determination of the point at which maximum profit (value) can be realised from the orebody.  This represents a first pass analysis of the potential value of the orebody.  This guidance is then used in a spatial analysis of the orebody.  To achieve the processing of the ore-body that is represented in Figure 1, the portion of the orebody that is above the optimal cut-off, requires the pit production and plant processing to be decoupled.  This entails the acceleration of mining in order to generate stockpiles to provide the operations team the ability to optimise the grade blending to the plant. This strategy is more fully explained below.

Figure 1: Cash Flow Optimisation (Profit, Grade and Cut-off Grade)
(Graph available in PFS published on www.afcrplc.com)
describes the definition of the total Mineral Inventory, Mineral Reserve estimate and the Optimal Mineral Inventory, as derived from the guidance from Figure 1.  The inflection point in Figure 1 is the statistical moment at which the optimal life of mine and maximum grade are optimised.

Figure 2: PnP - Grade Tonnage Curve
(Graph available in PFS published on www.afcrplc.com)

Scenario analyses are also part of the Company's intellectual rigour of not only considering spreadsheet metrics but also exogenous factors such as political, economic, social, technological and legal factors to achieve a robust best-case-least-regret scenario.

To this end the Company's approach is to consider a baseline Mineral Reserve estimate within which both optimal and marginal economics can be exploited over the economically feasible life of the asset.  This PFS applies this rigour in a consistent and structured manner as will be demonstrated.

1.3.Option Analysis

Fourteen options were analysed to ascertain value maximisation of the orebody.  The primary options investigated out of the fourteen options are detailed below in Table 1.  The Mineral Reserve Baseline option and the Preferred value option are highlighted.  This table indicates the plant production capacities considered to extract maximize economies of scale benefits.

Table 1: Options Investigated (Plant Capacity)

	Option Number	Unit	Proc. Capacity	Proc. Capacity	Proc. Capacity	Process Throughput
			(Oxide)	(Sulphide)	(Total)	(S/Piles)
Baseline	Baseline	(ktpm)	20	50	70	70
	2	(ktpm)	20	50	70	70
	3	(ktpm)	20	50	70	70
	4	(ktpm)	20 to 40	75	115	115
Start at 50ktpm	7	(ktpm)	50	50	50	0
	8	(ktpm)	50	50	50	50
	9	(ktpm)	50	50	50	50
Incremental Plant Capacity increase (20 to 50ktpm)	10	(ktpm)	20	50	50	50
	11	(ktpm)	20	50	50	50
	Preferred	(ktpm)	20	50	50	50
	13	(ktpm)	20	50	50	50
	14	(ktpm)	20	50	50	50

The value proposition of each option is considered in Table 2 at a gold price of US$ 1,300/oz.  It is clearly demonstrated that the Baseline option is economically viable but does not represent the value maximization option.  Option 12 and Option 14 show similar economic valuation metrics with option 14 marginally better.  Option 12 was adopted for the reason that the opportunity cost (in excess of 100,000 ounces) would be incurred if Option 14 was selected.  The company does not wish to sterilise the optionality of what these ounces represent should higher gold prices be achieved in time.

Table 2: DCF - Option Results - Financial (Revenue Au Price US$ 1,300 / oz)

Revenue Gold Price		NPV @10%	AISC (LOM)	IRR	ROI	Payback	Upfront Capex*
US$1,300/oz		US$ (million)	(US$/oz)	(%)	(x)	(months)	US$ (million)
Baseline	1	112	978	41	1.2	65	19.3
	2	118	978	44	1.3	63	19.3
	3	86	987	31	1.1	71	19.3
	4	75	986	22	0.7	87	19.3
	7	104	948	30	1.1	57	57.5
	8	117	935	31	1.2	55	57.5
	9	167	715	40	2.1	50	55.5
	10	155	697	37	2.4	59	28.2
	11	157	713	37	2.4	59	27.6
Preferred	12	186	669	56	2.7	50	27.3
	13	148	683	37	2.3	59	27.7
	14	189	616	63	3.1	48	27.6

*Upfront CAPEX is classified as Pre - Plant Production

Table 3 illustrates the valuation impact at a gold price of US$ 1,500/oz.  The NPV_10% increases from US$ 186 million _{(US$ 1,300/oz)} to US$ 247 million _{(US$ 1,500/oz)} or delta US$ 61 million.  Significantly the All In Sustaining Cost ('AISC') increases in tandem as a result of higher royalties paid to the state at this increased gold price.  The internal rate of return ('IRR') increases from 56% _{(US$ 1,300/oz)} to 72% _{(US$ 1,500/oz)} or delta 16%.  It is noticeable however that the payback period is only reduced by 4 months.  The sensitivity demonstrates the incremental value accretion due to rising gold prices.

Table 3: DCF - Option Results - Financial (Revenue Au Price US$ 1,500 / oz)

Revenue Gold Price		NPV10%	AISC (LOM)	IRR	ROI	Payback	Upfront Capex*
US$1,500/oz		US$ (million)	(US$/oz)	(%)	(x)	(months)	US$ (million)
Baseline	1	185	994	62	2.0	56	19.3
	2	193	994	65	2.0	56	19.3
	3	153	1003	48	1.9	63	19.3
	4	153	1002	34	1.3	72	19.3
	7	176	964	44	1.7	47	57.5
	8	192	951	45	1.9	45	57.5
	9	232	731	51	2.9	45	55.5
	10	214	713	46	3.2	54	28.2
	11	218	729	47	3.3	54	27.6
Preferred	12	247	685	72	3.6	46	27.3
	13	203	699	47	3.1	54	27.7
	14	245	632	79	3.9	45	27.6

*Upfront CAPEX is classified as Pre - Plant Production
illustrates the value sensitivities for gold price ranging between US$ 1,100/oz and US$ 1,500/oz.  The key metrics namely NPV, AISC, IRR and payback remain robust.  Importantly the selected exploitation option (Preferred Option) provides downside margin whilst not sterilizing optionality on the upside of the price curve.  

Table 4: DCF - Baseline and Preferred Option Results - (Various -Revenue Au Price)

		Revenue Gold Price	NPV10%	AISC* (LOM)	AISC** (Steady State)	IRR	ROI	Payback	Peak Funding
		US$ / oz	US$ (million)	US$ / oz	US$ / oz	(%)	(X)	(month)	US$ (million)
Baseline		1500	185	994	886	62	2.0	56	19.3
Preferred Option		1500	247	685	495	72	3.6	46	27.3
Baseline		1400	148	986	878	52	1.6	60	19.3
Preferred Option		1400	216	677	487	64	3.1	48	27.3
Baseline (MinResv)		1300	112	978	870	41	1.2	65	19.3
Preferred Option		1300	186	669	479	56	2.7	50	27.3
Baseline		1200	75	970	862	31	0.9	72	19.3
Preferred Option		1200	155	661	471	49	2.3	53	27.3
Baseline		1100	37	962	854	21	0.5	83	19.3
Preferred Option		1100	124	653	463	41	1.8	56	27.3

Note: Peak funding is classified as Pre - Plant Production

Table 5 represents the physical parameters derived in the options investigated in the PFS.  The various options reflect significant variance between the options in waste material and ore material mined.  This is a result of the underlying pit shell parameters, designs and schedule used in each option.

Table 5: Option Results - Physical

Option		Mined Waste Tonnes	Mined Ore Tonnes	Mined Grade	Mined Ounces	Proc'd** Tonnes	Recvd*** Grade	Recvd*** Ounces
		(millions)	(millions)	(g/t)	(millions)	(millions)	(g/t)	(millions)
Baseline	1	214.9	19.9	2.01	1.29	19.9	1.83	1.18
	2	214.7	19.9	2.03	1.30	19.9	1.84	1.17
	3	214.7	19.9	2.03	1.30	19.9	1.84	1.17
	4	214.7	19.9	2.03	1.30	19.9	1.84	1.17
	7	213.4	19.2	2.08	1.28	13.2	2.34	0.99
	8	214.9	19.9	2.03	1.30	19.9	1.83	1.18
	9	86.6	10.3	2.74	0.90	10.3	2.47	0.81
	10	86.6	10.3	2.74	0.90	10.3	2.47	0.81
	11	89.1	12.4	2.41	0.96	12.4	2.18	0.87
Preferred	12	73.6	9.2	2.86	0.85	9.2	2.58	0.77
	13	72.1	9.5	2.67	0.81	9.5	2.41	0.74
	14	49.4	7.1	3.16	0.72	7.1	2.86	0.66
PEA		51.9	5.4	4.65	0.81	5.4	4.09	0.72

* Note these are LOM figures ** Proc'd = Processed  ***Recvd - Recovered

The Company follows a strategy of stockpiling which enables it to re-engineer the grade presented to the plant. This is more fully described below.

1.4.Option Selection Rationale

In line with AFCR's investment philosophy to ensure that maximum value is created through the commodity cycle, a baseline feasible economic pit was selected within which cash generation was optimised.

The baseline economic pit yields a Mineral Reserve estimate of 1,018 koz.  The Mineral Reserve estimate represents the maximum economically feasible gold ounces.  It does not represent the value maximisation option as described in Figure 1, but represents a viable long term Mineral Reserve base.  Option 12 (Preferred Option), represents the value maximization option related to the definition of the Mineral Reserve estimate on the basis of combined metrics, namely: Maximum DCF_10%, maximum IRR, shortest payback, lowest peak funding, highest ounces produced, and lowest unit costs of production through a commodity cycle as described by the optimal cash flow point in Figure 1.

The Preferred option enables maximum value creation by accelerating mining and thereby early liberation of the higher grade sulphides through decoupling of the pit from the plant in terms of mined ore versus processed ore.  The acceleration of ore mining provides the operations team the ability to re-engineer the plant feed grade, and not be constrained by the life of mine average grade.  Importantly, this also positions the team to better forecast production, whilst enabling better cost management achieved by consistent feed and feed grades.  

Figure 3 below illustrates the grade profile represented by the Preferred option.  The plant feed grade of the ore prioritised in the first 8 years, peaks above 6.0 g/t and represents the optimal value ounces.  This grade profile is achieved by the incremental expansion of the operation (Preferred option) to achieve a plant capacity of 50 ktpm steady state, from the initial ramp-up of 20 ktpm for a period of 2 years.  The expansion to 50 ktpm results in an increased annual ounce production, which in-turn translates to a reduction in unit cost as measured by US$/oz and US$/tonne milled.  At peak production the mine will achieve in excess of 100 koz (recovered) of gold per annum.

The medium term production target of 100 koz per annum is achieved in year four. The management team has noted the fall off in the ounces based upon the exploitation of the open pit and will then exploit other options to maintain the Company's gold production at 100 koz per annum. Options to achieve this include going underground, brownfield expansion, developing the Company's gold asset at its Gadzema belt and notwithstanding the significant potential to consolidate properties within the Kadoma district.

Figure 3: Grade Versus Recovered Ounces
(Graph available in PFS published on www.afcrplc.com)

The ounces contained in the plant production tail (after the initial 8 years of processing) are considered marginal.  This is a result of the decrease in grade relative to the first 8 years (through the processing of lower grade, marginal stockpile material).  Since the cost of processing only will be considered through the tail processing of these marginal ounces, this offers further value maximization and optionality to the commodity curve and commodity price lines.  At the current low gold price levels, these marginal ounces still remain profitable signalling upside value potential to a rising commodity cycle.  

1.5.Study Conclusions

Table 6 indicates the summary of the Financial and Physical Results of the PFS (Baseline and Preferred Option) when compared to the PEA (2012).  Table 7 also reflects the capital expenditure planned with respect to the initial plant construction, plant upgrade and the associated infrastructure (as reflected in capital expenditure figures of Table 6).

Table 6: Summary of Results

		PEA	PFS	PFS
Description Reserve / Mining Inventory	Unit	50 ktpm (Oxides + Sulphides) (Cut off 2.0g/t)	Base Case - Option 1 (Cut off 0.4g/t)	Preferred Option - Option 12 (Cut off 1.75g/t)
Waste	t (million)	46.5	214.9	73.6
Stripping Ratio	t (waste) : t (ore)	8.53	10.78	7.98
Ore tonnage (diluted)	t (million)	5.45	19.93	9.23
Au Content (diluted)	Oz ('000)	814	1,300	848
In-situ Grade (Ave In pit)	g/t	5.3	2.2	5.1
Optimal In-situ Grade ("8 years")	g/t	5.4	2.4	3.1
ROM grade to Plant "8 years"	g/t	5.3	3.65	5.0
Total Tonnes Mined	t (million)	51.9	234.8	82.8
Mineral Reserve Est. (Prov+Prob) (US$ 1,300/oz)	Oz (million)	n/a	1.018	n/a
% Reserve to Mineral Inventory	%	n/a	78%	n/a
Plant Recovery Factor	%	88	90	90
Recovered Ounces	Oz (million)	0.72	1.18	0.77
Expenditures (@ US$1,500/oz)
Cash operating costs	US$ / oz	342	726	432
All-in sustaining cost	US$ / oz	564	994	685
Capital Expenditure	US$ ('000)	62,689	191,755	113,476
Mining Infrastructure	US$ ('000)	4,868	2,881	2,881
-Initial	US$ ('000)	n/a	2,476	2,476
-Residual	US$ ('000)	n/a	405	405
Plant Capital*	US$ ('000)	53,343	90,003	68,603
-Initial	US$ ('000)	n/a	15,103	15,103
-Residual	US$ ('000)	n/a	74,900	53,500
Working Capital**	US$ ('000)	4,478	1,688	9,721
Mining Capitalisation***	US$ ('000)		81,999	26,297
Plant SIBC	US$ ('000)		15,184	5,973
Financial Results (@ US$1,500/oz) Presentation of results @ 1,500 for comparison To PEA
NPV 10%	US$(M)	313	185	247
IRR	%	126	62	72
Payback	Months	18	56.3	45.9

* Includes EPCM and Contingency   ** Stockpiling *** IFRS Capitalisation of Waste stripping

Table 7: Plant Capital Expenditure

Plant Capital	Initial Capital	Expansion Capital	Infrastructure Capital	Total Plant Capital
Baseline (Option 1)	US$ 15.1 M	US$ 60.0 M	US$ 14.9 M	US$ 90.0 M
Plant Capacity	(20 ktpm)	(50 ktpm)		(70ktpm)
Preferred Option (Option 12)	US$ 15.1 M	US$ 40.0 M	US$ 13.5 M	US$ 68.6 M
Plant Capacity	(20 ktpm)	(30 ktpm)		(50 ktpm)

Baseline (Option1) is the selected option for Mineral Reserve estimate reporting (JORC 2012), as it mitigates against long term Mineral Resource sterilisation given the difference between the assumed market acceptance of depressed long-term commodity prices and the industry reported marginal cost of production as measured by AISC and total cost of production.  The Mineral Reserve represents the maximum economically feasible gold ounces and long term reserve repository and the highest cash flow of all options at 0% discount.  The Baseline option also represents the Mineral Reserve estimate of 1.0 Moz (@ US$1,300/oz and cut-off 0.4g/t)(estimate subject to finalisation by Minxcon).  

Option 12 (Preferred Option) represents the value optimization and maximization of the Mineral Reserve estimate whilst providing the maximum upside optionality of the studied options considering the prevailing economics.  The adoption of Option 12 addresses the principle of maximum value generation based on the discounted cash-flow method, without incurring an opportunity cost of 100,000 ounces (relative to Option 14).  Table 8 illustrates three price line scenarios demonstrating the above.

Table 8: Financial Results (Preferred Option) (Various Revenue Gold Prices)

	Preferred Option Revenue Gold Price $1,500/oz	Preferred Option Revenue Gold Price $1,300/oz	Preferred Option Revenue Gold Price $1,100/oz
NPV10% Real	247	186	124
IRR (%)	72	56	41
Payback (months)	46	50	56
LOM (years)	18	18	18
Optimal production	8	8	8
Marginal production	10	10	10
AISC ($ / oz) LOM	685	669	653
Peak Funding	59.8	74.6	89.4

The Preferred Option yields ~760koz over the life of the mine (considering the Mineral Inventory). The Company's Mineral Reserve estimate (@ 0.4g/t) is 1.0 Moz.  The Preferred Option delivers an average Plant Feed Grade of ~5.03 g/t for 8 years.  The Life of Mine represented by the Preferred Option is estimated to be 18 years with the payback period considering US$ 1,300/oz is ~4 years and US$ 1,100/oz is ~4.5 years.

The cash flow for the Preferred option is illustrated in Figure 4 and indicates that the payback period for Option 12 is ~ 4 years.

Figure 4: Preferred Option Cash flow (Annual and Cumulative)_{(US$1,300/oz)}
(Graph available in PFS published on www.afcrplc.com)

1.6.Study Highlights

0.6.1.Pit / Plant Decoupling and Stockpiling Strategy

To increase the plant feed grade a two-pronged mining approach is adopted:

1. A three-month stockpile is created prior to plant commissioning ; and  

2. Initially more tonnes are mined than what is required by the plant 

This mining approach enables the company to engineer the grade that reports to the plant, by drawing down from specific stockpile areas (sorted by grade).  The intention is to ensure that the highest possible grades report to the plant earlier in the LOM, and results in optimal cash flow margins being achieved in the shortest possible timeframe. This is illustrated in Figure 5.

Figure 5: Cash Flow Margins
(Graph available in PFS published on www.afcrplc.com)

Table 9 reflects the average grades of the material that is delivered to the stockpiles from the open pit mining operation.  This table also reflects the grade categories in place for each of the material types (oxide, sulphide) to enable the grade blending strategy to be enacted.

Table 9: Average Stockpile Grades

	Stockpile Bin Range		Material Type	Average Stockpile Grade
	Min	Max
ROM 1	0.40	1.75	Oxide	0.97
ROM 2	1.75	2.50	Oxide	2.24
ROM 3	2.50	3.50	Oxide	2.93
ROM 4	3.50	+	Oxide	7.03
ROM 5	0.40	1.75	Sulphide	1.18
ROM 6	1.75	2.50	Sulphide	2.25
ROM 7	2.50	3.50	Sulphide	2.96
ROM 8	3.50	+	Sulphide	7.59

Figure 6 describes the generation of stockpiles from the tonnes deliver to the staging area.  Eight stockpiles will be created. Two streams will exist, one for oxide material and the second for sulphide material. Each of these streams will collect material according to the bin criteria illustrated below.  The plant will then carefully blend the material to achieve the required average grade.

Figure 6: Generic Stockpiling Strategy
(Graph available in PFS published on www.afcrplc.com)

Figure 7 highlights the build-up and depletion of the cumulative stockpiling balance.  This profile delivers the grade blending required to feed the plant at grades elevated above the average mining grade in the initial years of the operation.

Figure 7: Stockpile Balances (Cumulative)
(Graph available in PFS published on www.afcrplc.com)

0.6.2.Sensitivity on NPV

Figure 8 highlights the impact of gold price assumptions between the PEA (December 2012) and the outcome of the PFS on a like for like basis.  Option 12 was also stress tested on a gold price of US$ 1,100 /oz. on a flat-line basis to indicate the robustness of the selected option in a declining commodity price scenario.  Figure 9  reflects the sensitivity impact on the NPV of the Preferred option based on changes in the gold price, operating costs and capital costs.  This graph illustrates that the largest impact on the valuation of the asset is the gold price.

Figure 8: Net Present Value Comparison (PEA_US$1,500, and Preferred Option _Various)
(Graph available in PFS published on www.afcrplc.com)

Figure 9: Sensitivity Graph (Option 12) (@US$ 1,300/oz)
(Graph available in PFS published on www.afcrplc.com)

Figure 10 illustrates three of the options' surface pit outlines that were investigated in the PFS.  

Figure 10:  Open Pit shells (Various scenarios)
(Graph available in PFS published on www.afcrplc.com)

0.6.2.1.Competitive Advantage

As indicated in the Global Gold Mining cost curve (Figure 11 and Figure 12), Pickstone Peerless lies in the bottom quartile.  The significance of this illustration is that a key competitive advantage that has been engineered is the maximization of the profit margin.  On a cost per ounce basis this graph clearly illustrates that if the long term gold price declines to below US$ 1,000/oz, this project will remain cash generative.

Figure 11: Industry Benchmark of Cost Curve (C1)
(Graph available in PFS published on www.afcrplc.com)

Figure 12: Industry Benchmark of Cost Curve (AISC)
(Graph available in PFS published on www.afcrplc.com)

0.6.2.2.Geology and Gold production

The geological address of the Pickstone Peerless orebody is similar to that seen in Western Australia.  Zimbabwe is acknowledged as a good well mapped and understood geological address for gold and boasts a long history of gold mining. Given similar attention to that of Western Australia, there is little doubt that Zimbabwe cannot mirror the gold mining success of Australia from the early eighties. Figure 13 describes the mapped greenstones belts across Zimbabwe and historical gold mines are depicted a dots.

Figure 13: Zimbabwe Map - Historic Gold Mines and Greenstone Geology
(Graph available in PFS published on www.afcrplc.com)

Figure 14 below illustrates Zimbabwe's annual gold production from 1970 to 2011.

Figure 14: Zimbabwe - Historical Gold Production (1970 - 2011)
(Graph available in PFS published on www.afcrplc.com)

0.6.3.Strengths, Weaknesses, Opportunities and Threats

0.6.3.1.Strengths

• Pickstone Peerless is deemed a large quantity, high quality reserve 

• The decoupling of the pit from the plant provides the operations team the ability to re-engineer the plant feed grade, and not be constrained by the life of mine average grade.   

• Cash Cost - Pickstone Peerless ranks favourably on the world production cost curve.   

• Workforce, within Zimbabwe labour is readily available at low unit rates when compared to international and regional mining labour rates 

• The robustness of ore-body has been proven through the three dimensional modelling and estimation techniques employed by AFCR which comply with international best practice, and signed off by independent consultants, ensuring alignment with international standards.  

• The Preferred Option has a proven robustness, even at lower gold prices. 

• Government actively encouraging investment in the mining sector and providing positive support and encouragement to the mining industry 

0.6.3.2.Weaknesses

• Large scale open pit gold mining has been limited over the last decade in Zimbabwe 

• Zimbabwe has not been a world class gold mining country for several years.  This has led to mining technology being largely outdated, with low levels of innovation capabilities. 

• Labour code favours the employee and can be onerous on the employer if not carefully managed  

• A diversion of a small river will have to be undertaken 

• Underground workings will have to be in-filled as the open pit expands and deepens  

0.6.3.3.Opportunities

• Increasing resources in pits for surface mining, and also significant potential for underground mining at Pickstone Peerless. 

• There are significant opportunities within the AFCR portfolio of resources that can be expanded and potentially processed through common infrastructure. 

• There is significant upside in the processing of readily accessible tailings material, rock dumps currently within the Pickstone Peerless project and surrounding claims. 

• As the largest potential gold miner, AFCR will be well positioned to lead a consolidation of gold projects in the Kadoma region. 

• Significant share price uplift, should gold rise and general sentiment towards Zimbabwe improve.  

0.6.3.4.Threats

• Current bearish sentiment toward gold producers my impact on the ability to raise required project funding 

• Markets selling down shares price in the short term in anticipation of construction capital requirements 

• Pressure by Zimbabwe to develop the asset given the tight economic conditions in country may lead to unrealistic stakeholder demands 

• The anticipated economic recovery of Zimbabwe will place greater demand on the country's infrastructure, primarily power and water, which could impact on sustained supply, distribution capacity and subsequent pricing schedules.   

Glossary of defined terminology used:

• AISC        :        All-in sustaining costs (as defined by the World Gold Council) 

• Avg        :        Average 

• Capex        :        capital expenditure 

• g/t        :        grams per tonne  

• IRR        :        internal rate of return 

• koz        :        thousand ounces 

• ktpm        :         thousand tonnes per month  

• LOM         :        Life of Mine 

• Mineral Reserve        :        An 'Ore Reserve' is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. 

• NPV        :        Net Present Value  

• oz        :        ounce 

• Proven Reserve :        A 'Proven Ore Reserve' is the economically mineable part of a Measured Mineral Resource. A Proven Ore Reserve implies a high degree of confidence in the Modifying Factors. 

• Probable Reserve:        A 'Probable Ore Reserve' is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Ore Reserve is lower than that applying to a Proven Ore Reserve.  

• PEA         :        Preliminary Economic Assessment, dated December 2012 

• PFS        :        Prefeasibility Study  

• ROI         :        Return on investment 

• SIBC        :        Stay in Business Capital 

• US$'m        :        million United States dollars  

• US$/oz        :        United States dollars per ounce  

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: African Consolidated Resources Plc via Globenewswire

HUG#1747748