Savannah Resources
(SAV) – excellence delivered…
Savannah resources has been a favourite of mine since last
autumn and quite a bit has happened in that time. I had decided that I would
try and put a blog together once the results are in mid September.
With that in mind I started a bit of research since my
summer holidays are almost over and I need to get back to the grindstone of
earning money.
That research proved to be a little more extensive than I
wanted and so this blog was born really before I wanted to write one. So now it
will have to be a case of a pre news flow blog and a post news flow blog after
hopefully talking to David.
Let’s talk about what
Savannah has been up to over the last 6 months.
It has entered into a majority ownership of a very nice
little Copper mine in the Oman. This looks to contain a good 30000-50000 tonnes
of copper, in a pretty high grade open pit strip operation, with low capex and
tonnage costs, under the current JORC. There is without doubt scope to expand
this resource and it looks like a low risk, bankable operation probably aiming
for total resources of 100k tonnes of copper at a mill rate of 50K tonnes of 2%
rock a year over 20 years. This should give approx. 1000 tonnes a year as a
bare minimum with expansion to 2000 t/yr quite easily.
With regards to the Oman project although the JORC grading
is at 2% and this has been used to calculate the tonnage above, considerably
higher values of 6%> have been found with significant lengths of 50+m. It’s
my belief that Savannah is continuing to explore these higher value targets for
early production targets. Again a through mill rate of 50k t/yr as mentioned
above would if these targets are confirmed generate 3000 t /yr of copper
expanding quickly to 6000 t/yr quickly on a low capex. Generating income of
15-30m a year with an approx 2 year pay back on initial capex, giving a
conservative valuation of 60m Mcap.
News is expected in September as to Oman exploration on
these higher targets, increasing the JORC figure and potential economic
analyst.
Moving on to the Mozambique operations. I am assuming that
anybody reading this has read though the RNS’s and has a basic understanding of
the prospect.
To help with the exploration to date I’ve used the latest
exploration map and added any features that I think are missing.
Savannah invested in this license less than 12 months ago,
in that time they have undertaken 2 drill campaigns with over 100 drills, they
have performed XRF and detailed electro-analyst of the results to determine
Heavy Mineral values and Oxide percentages. Metalurgy results have been
produced. Ground and Airbourne magnetics have been shown to provide good
results of Heavy Mineral finds and have been rolled out extensive across the
license area.
To remind people, the license area has extensive train and
road access, as well as electricity grid and water availability. The Mozambique
government have asked Savannah to explore quickly as they are keen for mining
to be undertaken so permits etc are a formality. The licenses next door are
owned by Rio Tinto who have a target of 7-12 bn tonnes at 3-4.5% in Mozambique.
Figure 1.
So far Savannah have identified 2 major dune systems to the
SE and NW with multiple targets in each area, measuring many km’s in
length. Total Heavy Mineral(THM) results
indicate widespread values of around 3% as high as 5% in places. Results
indicate that the extraction process is relatively cheap and easy due to low
slimes content and the deposit looks to be from surface to 25m(down to 50-75m
in places) allowing easy strip extraction.
Figure 1 shows how well drilled the license area is thanks
to the 100+ 2nd drill program which will be reporting in the next 2
weeks. These drills results will give a very good understanding of how much
tonnage the license area is likely to contain.
The Magnetic surveys have also done an admirable job identifying
strandlines that have not been picked up yet by investors. These strandlines
are massively undervalued in my opinion. Again I have put an example strandline
on to figure 1 which was released as a taster by Savannah. A few points that
maybe people don’t understand.
The strandlines seem to be on the edge of the dune systems
and so are extra to the found exploration areas.
They follow the contour of the
upland dune systems as they go down into the river valley. They would have
acted as high grade depositors channels of the Heavy Mineral sediments as the
alluvial deposits built up over time, this is against the more general uniform alluvial
deposits of the dune systems. It is my opinion that THM could be in the region
of 8-15% in these strandlines. With some strandlines being multi km in length
they would provide fantastic opportunity for high grade start up mining. These
sites are currently being investigated.
Savannah resources have now mobilised a team to perform
detail JORC drilling which is getting under way as we speak with the aim of
defining a high quality JORC.
Savannah resources have also contracted a world leading
heavy mineral consultancy firm to provide the economic component to the
project, detailing potential uses of extracted Heavy mineral products and
looking at details so that a DFS and PEA can be produced a break neck speed
once the JORC is completed. Again its important to remember that 12 months ago
this was pretty much virgin exploration territory, demonstrating the speed at
which the Savannah train is travelling.
What to expect.
Well I’ve performed some initial calculations, using what I hope
are very conservative assumptions detailed below.
1 sqm = 2 tonne
Only the top 25m is economical (not true but gives a low
ball figure).
Only 10 strandlines are economical.
So giving the above I get a 2bn tonne resource…
At 2% THM I get 43.5m tonnes of THM, at 5% Just over 108m
tonnes.
It’s clear from figures like this that Savannah is likely to
have a resource valued at well over £1bn even using very conservative figures…
A large 10% strandline mined could be worth $150m over a 3
year period just by itself.
So where does that
leave us.
Savannah has a current Share Price of 4p and a Market Cap of
6.6m. Savannah has 3 main assets 21% of Alecto Minerals(ALO) currently worth approx.
1.5m. Oman and the Mozambique project. If we assume the Oman project is worth
1.5m, then it has lots of potential upside as it approaches production and
economic studies and starts to reach it net worth of at least 20m…
That leaves Mozambique which must be worth 3.5m……Yep that’s right,
we have a project that is being progressed quicker than any other project on
the AIM, its being progressed by a team that has created 100’s of millions of
Market cap value for other companies. It has a project size that is measure in
Billions and is entering a good value market.
Buy outs in the Heavy mineral arena are currently active as
the market leaders seek to squash and buy up any new entrants to ensure they
control supply.
The next few months, with September in particular, will
likely see a fresh and large news flow. In the past the main criticism I have
of David has been a lack of understanding of how demanding AIM is. He’s use to
the more research/patience ASX. AIM needs good news flow something he seems to
be delivering. I have also been critical of the length of time taken to get
samples to the lab and thank goodness David now transports via plane rather
than via sea.
Another major problem recently has been the poorly received Bergen
funding. Savannah is certainly well funded now, but Bergen have been selling
into the market and forcing the price down. In a low liquidity market it has
dragged the SP down from 6-7p to the current 4p.
I have been reliably informed that Bergen’s holding is now
below 1.5% having fallen by nearly 80% this means that the biggest break on the
Share price is about to be release and will certainly have no effect on a
moderate news flow.
With the news flow we will see the size of the Heavy mineral
deposit, the likely THM results and the first detailed picture of the license
area. We will see how economical the copper project is.
The 1.5m value for Oman and 3.5m for Mozambique will likely
be blown out of the water in the next few weeks…
