AIM Resources Moving Forward With Perkoa Zinc Project, But More Potential Is On The Horizon Elsewhere
By Stephen Clayson
AIM Resources, which is listed on the ASX as well as AIM, closed 2005 by announcing the completion of a bankable feasibility study on its Perkoa zinc project in Burkina Faso. As exciting as this is for shareholders, there could be even greater growth potential around the corner for the company.
First off, Perkoa. Now that the BFS is in place, AIM’s Managing Director Marc Flory expects production to be achievable by the end of 2007, with financing the only hurdle remaining prior to the commencement of mine construction. Flory expects to conclude project financing arrangements along with some off-take agreements by April, and considering the current tightness of the zinc market he should find neither of theses tasks too difficult. Given the sheer volume of discussion and administration that will be required though, shareholders should not be surprised or concerned if the conclusion of the financing and preproduction marketing phase slips back as late as June.
AIM has appointed Barclays Capital as adviser for the financing of the Perkoa mine’s construction, and has been speaking with a number of banks regarding provision of debt facilities, including Investec, ABSA, BNP Paribas and Societe Generale. Off-takers may also chip in some capital at favourable rates in return for guaranteed concentrate supplies. As is usual, the mine is likely to be financed through a mix of debt and equity, and Flory estimates at this stage that the ratio of debt to equity may fall somewhere around 60:40.
The vital statistics of the Perkoa project as envisaged under the BFS are as follows: capital expenditure of US$72.5million, to be paid back within two years; cash operating costs of US$53.50 per ton of ore processed; a mine life of 14 years; a net present value of US$147.5million, discounted at 10%; and an internal rate of return of 43.5 per cent. Zinc is assumed to be trading at $1,815.50/tonne, a level which the metal has recently surpassed, and given the strength of demand, worries about the zinc price should probably not keep investors awake at night. Furthermore, the BFS as completed takes no account of the additional zinc mining potential of the Perkoa vicinity. Flory reports substantive extra zinc anomalies in the area, and is very hopeful that further material discoveries will be made in time. For now though, AIM’s priority at Perkoa is to begin mining, with local exploration to be conducted in earnest later.
According to Flory, there are also several areas within the Perkoa BFS where optimisations can probably be made and incorporated into the mine as it is constructed. He expects to be able to make improvements on the basis of there being “some fat in the economic model” put together by consultants Snowden for the BFS, and anticipates in particular that labour costs can be whittled down to a lower level than estimated, without losing any skills.
In the longer term, great potential also exists within AIM’s Mumbwa project, which is an iron oxide copper gold (IOCG) play in Zambia. Flory even goes so far as to compare the Mumbwa project with Australia’s legendary IOCG deposit, Olympic Dam. Indeed, the potential for another Olympic Dam, now owned by industry giant BHP Billiton by way of its purchase in 2005 of WMC, may have been what has prompted the former company to emplace a joint venture with AIM covering the Mumbwa project.
The ultimate implication of this joint venture agreement is that if exploration at Mumbwa is encouraging enough, AIM Resources could one day find itself with a nice carried interest in a mammoth project through BHP Billiton’s’s right to claw back 80 per cent of Mumbwa, or maybe even the object of a wholesale corporate takeover.. Flory imparts that the latter thought is not one to which he is averse, a sentiment with which many shareholders would probably be inclined to agree, given the premium for their shares that they would likely receive.
The potential extent of Mumbwa, as Flory perceives it, could overwhelm a company of AIM’s size with the weight of its funding and managerial requirements, hence possibly making an increase in the involvement of BHP Billiton a logical step. In the meantime, the joint venture partners intend to engage drilling contactors to test geological targets selected through the use of the major’s proprietary Falcon airborne surveying technology.
AIM’s Mokopane PGM project in South Africa remains on hold, and is described by Flory as the company’s “least preferred asset” on the basis of what AIM sees as the deteriorating South African investment environment. In Burkina Faso, Flory reports that AIM benefits from the “priority one status” of Perkoa as far as the country’s government is concerned; he is also prepared to describe the project as a potential company maker.
AIM Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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