AFRICA — Banff advances Kasese cobalt project in Uganda

Ugandan officials are counting on Banff Resources (BFF-V) to lead the East African country back to a significant level of metal production.

Uganda’s mining industry has spent about two decades in the doldrums. Its most important mine had been Kilembe, which produced copper and cobalt concentrates from 1956 to 1978. No cobalt recovery process was ever found to be economically feasible, so the cobalt concentrate was stockpiled several kilometres from the mine.

Banff, which is 74%-owned by Paris-based LaSource (a partnership between Normandy Mining (NDY-T) and the French government agency Bureau de recherches geologiques et minires), holds a 55% interest in Kasese Cobalt, which is building a cobalt processing plant at Kasese.

In order to process the stockpiled concentrates, which total 922,000 tonnes grading 1.38% cobalt, Kasese Cobalt is building a bio-leach and solvent extraction-electrowinning (SX-EW) plant. Design production capacity is 2.2 million lbs. of high-quality (99.8% pure) cobalt cathode per year at an operating cost of US$4 per lb. At that rate, the stockpiles will provide sufficient feed for approximately 10 years of production.

On schedule

Banff reports that construction of the plant and related infrastructure is well-advanced and on schedule. “By the last quarter of this year, we expect to have some kind of pre-commissioning of the plant,” says Vice-President David Constable, “but commercial production won’t start until the first quarter of 1999.”

Construction equipment has arrived at Kasese, and initial site clearing has commenced. Most major equipment has been selected and supplier tendering is at an advanced stage. All major contractors are on site.

Design drawings for construction of civil works are being issued for the processing plant, and detailed engineering of the plant is approximately 65% complete. Tenders for structural fabrication and erection, as well as mechanical, electrical and instrumentation installation for the processing plant, are due shortly.

The primary contracts for the power station have been let. The detailed design of the power station intake and reject weirs and pipelines is substantially complete, and excavation of the power plant pipeline has commenced. The first consignment of steel for the low-pressure pipe has arrived in Nairobi, where manufacturing of the pipe is under way.

A ceremonial ground-breaking will take place in February, with Ugandan President Yoweri Museveni scheduled to attend.

Kasese Cobalt has employed additional key operational staff in order to prepare for the transition to production and to ensure that the construction design and specifications meet the expectations of the operating team.

Debt financing

Constable says Banff had planned using equity financing to complete the project, but switched to debt financing when it found “the deals that were available on the equity side were not at the level we would have liked them to be.” Last October, Banff arranged for a syndicate of five banks to provide a US$66-million loan; the remainder of the US$110-million capital cost of the Kasese plant will be paid by Banff, Kilembe Mines (25% owner of Kasese Cobalt) and a number of smaller shareholders, including International Finance Corp.

Thus far, Kasese Cobalt has drawn down US$6.9 million in debt and US$9.5 million as new equity. In addition, Banff has capitalized previous advances made to Kasese Cobalt in the amount of US$15 million.

Of the US$110-million total project cost, US$53 million has now been committed. Expenditures to Dec. 31, 1997 were US$25.1 million, including $15.3 million for feasibility costs and basic engineering and US$9.8 million for construction activities.

Kilembe mine

Banff has the option to earn a 65% interest in the Kilembe mine by completing a feasibility study and reopening it. Over a 27-month period, Banff Resources spent in excess of US$4.6 million to complete 7,233 metres of hard-rock drilling, 3,863 metres of drilling on the tailings stockpiles, and analysis of 13,141 samples, as well as geological modelling of the Lower Bukangama and Eastern deposits and the C, D and E tailings stockpiles.

The feasibility study, released last October, concluded that it would not be economically feasible to operate the Kilembe mine in the foreseeable future.

However, the study confirmed the economic potential of re-treating the old copper concentrate tailings at Kilembe to produce a cobalt-pyrite concentrate similar to the concentrate originally produced at Kilembe, thereby providing additional feed for the Kasese plant.

The drilling program on the tailings stockpiles defined 5.5 million tonnes of reserves at an average grade of 0.11% cobalt. Concentrate produced from the Kilembe tailings could result in the life of the Kasese plant being extended by four years and a further 4,000 tonnes of cathode cobalt being produced.

Ready and willing

Uganda has undergone significant economic and political reform since the mid-1980s. The country remains very poor, with a per capita income in the $300 range, but inflation is under control and the government is ready and willing to do business with North American mining companies.

“The country used to have a fairly significant mining industry, and that is now starting again from scratch,” says Constable.

He adds that Kasese is the biggest mining project in Uganda in several decades. “It’s a significant investment, over and above the number of dollars involved. It’s like a test to see how Uganda deals with foreign investment.” So while being “first in” is sometimes a danger, Constable says that, in Banff’s case, it has been “a distinct advantage.”

“We’ve had an incredibly good relationship with the Ugandan government.

They’ve dealt with all security issues, they’ve expedited meetings, and basically given us a good environment to work in.”

On the financial front, Banff reported a net loss for the quarter ended Sept.

30, 1997, of US$257,159 (or 1cents per share), compared with net earnings of US$252,255 (1cents per share) for the quarter ended Oct. 31, 1996. During fiscal 1997, the company decided to change its year-end from July 31 to June 30 to coincide with the year-end of LaSource and its affiliated companies.