It’s no secret that I have attributed very little value to
the African assets that Xtract Resources hold. I am a huge proponent of
Bushranger and the potential of the porphyry asset; it’s model, its attractiveness to large companies
and its ability to be commercialised.
The biggest problem with the African assets, are the general
lack of information in the public domain. They tend to be complicated both in
ownership and geology. Valuing assets in Africa is very tricky due to uncertain
political situations, and often hidden and surprising costs. Trying to
commercial African assets is very challenging. Lumping all the African countries
together in a single basket is maybe not the best country risk approach, there
is certainly considerable difference in the country risk between Gambia and
Nigeria or Botswana and the Congo. Regardless, there is still an African risk
factor associated with the long potential LOM (length of mine) that this
industry has.
Now, lets turn our attention to Eureka. Eureka is your
typical African-AIM project. It has been mined previously using labour
intensive, older mining techniques. The easy to extract and higher-grade copper
has already been extracted. There is without doubt still mineralisation on the
license, but we immediately have questions. How much is there? Is it going to
be patchy? What will the costs be? Is it worth the effort? Simply we do not
know.
I don’t invest in these kinds of scenarios for all the reasons
above, the risk reward just isn’t there. The risk is that we will only find
bits of copper, that it will be a pain to extract, that the costs will just
keep going up. The reward is limited, some profit can be made. Profits large
enough to overcome the costs of director wages, AIM admission etc are tricky.
For a private investor owning the resource, the risk might well be worth it; as
a shareholder in an LSE listed company the answer is normally, no.
That doesn’t mean that the African assets that Xtract holds
are a problem. They require minimal capital expenditure and if they do go on to
be mined, will probably be neutral to the company overall. With luck they might
contribute money to the company, not enough to sustain a large share price, but
enough to be a welcome contribution.
To be a real driver of the share price, any of the African
projects needs to become something it currently is not. It needs to be
transformed. So, is Eureka on the verge of being transformed?
Eureka is not a porphyry like Bushranger, it does not have a
central intrusion, with a quartz outer shell. With layers of onions and vast
alteration zones. Eureka is a far more localised breccia, a fractured mineralisation
of small veins, created by a rising magma outlet. Leaching of minerals then
pushes it wider through a mish mash of small fractures. Grades can be anything
from 0.1% to 20% copper. The biggest problem with these kinds of deposits is
the consistency. It looks like the near surface breccia that existed in the nape
of the fault was largely mined out. Around this was a layer of lower
mineralisation, some of which is still intact.
The area for mining is roughly 150m long and up to 40m in
width.
Open pit exploration has pushed the mineralisation in a thin
band NW up through P3, giving a shallow 5m depth at 2.65% copper. In 2020
Xtract produced a small 3D model of the mineralisation.
The above is an IP anomaly map of the key license area. IP
anomalies are NOT the be all and end of exploration. If only it were that easy!
Mining exploration companies like to make out it is. They all put out the maps,
as evidence that they have between 100-200 tier 1 mining assets…The truth is
that IP anomaly maps by themselves are just geological guides, they show magnetised
areas which 90% of the time are barren of any kind of valuable mineralisation.
Even if they are loaded with copper or gold, they give no indication of how
much. To make much sense you need trenching and sampling to find moly, copper,
gold etc near surface (an indication that they are sourced from an anomaly). To
make matters worse, porphyries might be in the centre surrounded by positive anomalies,
whereas a breccia might exist on top of one. Without information to back up the
IP anomaly maps, preferably drilling but at least very extensive trenching I tend
to ignore them.
Eureka, certainly this far, is a simple breccia (magma
event) oxide deposit sat atop a positive anomaly. An IOCG – an oxide and
sulphate system would also tend to follow the positive IP anomaly.
Moving forward to the latest results. They show that to the
SE of the main deposit, the mineralisation tails off. This is expected. The IP
anomaly shows the highest gradient towards the SE and the shallowest gradient
to the NW. This would indicate the mineralisation/magma rose up from the NW moving
SE as it hit the surface. The natural conclusion would be that the
mineralisation would therefore get deeper as we move from the deposit to the
NW. At this point a standalone small breccia would see limited mineralisation
to the NW. However, mineralisation – particularly at depth in the NW, would
indicate the source flow that created the breccia is still in situ.
The diagram below, shows the IP anomaly and where the
current open pit sits, at the top of the anomaly at surface. In my opinion the
drilling results indicate a joint deeper flow rising up, topping out at surface
with the current open pit. The green is the possible extent of the mineralisation,
probably down to 300m depth if the IOCG is loaded. To my knowledge no
exploration has explored this potential.
Conclusions. Drilling showed the original open pit to still
contain high grade 3-20% copper, probably enough for 3-5 years, as it extends
with 10-25m of overburden to the NW. Drilling to the NW seems to indicate that
the source flow and subsequent breccia events do exist as hoped. Deeper drilling
will be needed, but if sulphides are found and an IOCG is confirmed it would
provide higher copper grades are turn Eureka into a potential strategic resource,
with a LOM of 20-30 years (some 10-30 times its current size). A LOM of this
size WILL attract majors even in Africa, particularly given Eureka would be a
working mine and the IOCG would be a massive extension.
This update for Eureka, ticks off a couple of boxes. It is
still Africa. It is still a risk. However, for a smallish company like Xtract
it is looking far more likely to add considerable revenues, if they get the
sample production flowing later this year. It has also ticked the beginning box
of a much deeper, strategic IOCG. A deeper hole (probably to 150m or so) would
prove this. IF and it’s still an IF, this is the case it could prove to add
almost as much value to Xtract as Bushranger.
