Preliminary results have prompted
The deal, essentially an extension of a letter of intent the pair signed in late 2000, grants BHP the right to earn 51% interests in three properties enclosed by the 8,630-sq.-km Mwinilunga and Luamata prospecting licences. The licences cover the western limb of the prolific Lufilian arc, where Zambia borders the Democratic Republic of Congo (DRC) to the north and Angola to the west.
Each of the properties chosen can be no more than 500 sq. km in size.
To date, the pair have spent $625,000 on exploration, including soil sampling and reconnaissance drilling, resulting in the discovery of two prospects. The funds came from BHP’s purchase of 222,222 First Quantum treasury shares at $4.50 apiece, as was required under terms of the original deal.
The Musangila prospect is an 8-km-long soil anomaly containing more than 100 parts per million (ppm) copper. Rapid-air-blast drilling returned a best result of 1.32% copper and 2.01% cobalt near the base of the Kalahari sand cover.
The Kakoma 2 prospect, also covered by the Kalahari, is a tight, refolded synform that returned up to 883 ppm copper from sulphide lenses and ferruginous siltstones. A second hole, which cut the fold closure, returned up to 400 ppm copper from weathered limonitic and calcareous quartzite.
Follow-up magnetic surveying suggests the Kakoma 2 structure extends for 8 km along strike, most of which remains untested.
To earn its interest, BHP must spend US$2.4 million on exploration over four years. Should an economic deposit be found, the major can increase its stake to 70% by arranging development financing, of which First Quantum’s share would be recouped from future cash flow.
The deal is subject to back-in rights held by
BHP’s and First Quantum’s interests would be reduced proportionately.
BHP has budgeted more than US$1 million for the next year, half for follow-up drilling of known prospects and geochemical targets and the remainder for an airborne geophysical survey over the Mwinilunga licence alone. The survey will employ BHP’s proprietary FALCON system.
First Quantum is the project manager.
Meanwhile, First Quantum has arranged a US$6-million debt facility with the Africa Merchant Bank (AMB) for its Lonshi copper oxide deposit in the DRC. The loan bears interest at the London interbank offer rate (LIBOR) plus 3% annually and is to be repaid in 10 equal quarterly instalments, starting nine months after the facility is tapped.
Proceeds will be used to buy mining equipment (contract miners are currently employed). First Quantum still plans to truck run-of-mine ore to its nearby Bwana Mkubwa solvent extraction-electrowinning plant in Zambia for refinement into cathode.
The AMB loan follows the closing of a 14-million-euro debt facility arranged with the European Investment Bank (EIB). That loan matures in six years, matching the expected shutdown of Bwana Mkubwa, and is equal in rank to an existing, US$18-million project facility with Standard Bank of London (SBL) that was arranged in mid-2002.
Interest on the EIB loan is tied to First Quantum’s realized copper price in the preceding financial year but is to be no less than 3% if copper trades below US$1,399 per tonne and no more than 12.5% if it exceeds US$2,400 per tonne. Repayment is spread annually, starting in July.
Repayments on the SBL began in November 2002 and are spread over 36 months, bearing interest of LIBOR plus 2.5%. The proceeds were used to expand Bwana Mkubwa to its current capacity of 30,000 tonnes annually.
Bwana Mkubwa only began producing at the expanded rate in May, so the plant is now expected to churn out just 28,700 tonnes of cathode in 2003. Consequently, cash costs are expected to average US35 per lb., net of byproduct surplus sulphuric acid.
At last report, the Lonshi deposit hosted 7.3 million tonnes of measured and indicated resources grading 4.91% copper. Reserves at Bwana Mkubwa (which are tailings left over from historic production) stand at 2.1 million tonnes at 0.77% copper.
First Quantum also is advancing the 80%-owned Kansanshi copper deposit in northern Zambia, southeast of Mwinilunga and Luamata. Toward that goal, in mid-March, the company signed a tentative, US$15-million term sheet with AIG African Infrastructure Fund whereby the private equity fund can buy 4 million treasury shares at $5.60 apiece and 1.25 million more shares at $8 each.
As part of the deal, AIG agreed to lend First Quantum US$10 million to cover a portion of development costs. At the fund’s option, the loan can be treated as subordinate debt or converted to shares, minus those bought at $8 apiece.
The deal was to have closed in early May.
According to an independent feasibility study, Kansanshi hosts an acid-leachable reserve of 46.9 million tonnes grading 1.75% copper and 0.29 gram gold per tonne. An additional 95.6 million tonnes at 1.03% copper and 0.19 gram gold can be floated and concentrated for shipment to nearby smelters.
Capital costs are pegged at US$163.4 million, of which SBL and WestLB have agreed to cover US$120 million. EIB and AMB also have expressed interest in participating in the project financing.
At the end of 2002, First Quantum had US$5.4 million in working capital and US$21.1 million in long-term debt. The latter includes a separate, US$4-million credit facility with SBL but excludes the recent AMB and EIB loans.
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