AfriOre aims to turn coal to gold (August 03, 2004)

Afriore (AFO-T) plans to sell its stake in one South African coal asset plus half of another to help develop its existing gold projects and expand its precious metals portfolio.

Under the first deal, Afriore has agreed to sell its 50% stake in the flagship Springlake anthracite colliery north of Dundee in KwaZulu-Natal for $4.5 million. CIBC Capital Partners holds the remaining half-interest in Springlake. The same arm’s-length buyer can also pick up a 50% interest in Afriore’s Somkele coal project for just shy of $1.5 million in cash.

Both deals will be put to a shareholder vote at a special meeting slated for around Aug. 26. Afriore and CIBC will receive a cash distribution from Springlake before completion of the sale.

During the year ended Feb. 29, Springlake produced 691,000 tonnes of anthracite, down from 741,000 tonnes a year earlier, owing mostly to a stronger rand. Afriore’s share of the mine’s loss came to $291,030, a stark contrast to the year-ago profit of more than $2 million. Afriore expects only a marginal improvement in the mine’s performance in the coming year.

In late 2003, underground production at the Springlake was suspended after a rock fall killed a load-haul-dump machine operator. The incident was not the mine’s first; in the second quarter of 2001, in the same section, a roof partially closed.

Meanwhile, test work on coal samples from Somkele has confirmed its application to the titanium and ferrochrome metallurgical markets, as well as to domestic heating and selected power utilities.

The company still requires a permit to allow the construction of a rail siding to advance the project. The company also cites poor market conditions in deferring a development decision.

Somkele is home to measured and indicated resources totalling 30.1 million tonnes of anthracite, including 8.6 million tonnes classified as proven and probable reserves. An internal feasibility study envisages producing 40,000 tonnes of low-sulphur anthracite per month. The material would be blended with higher sulphur-bearing Springlake anthracite.

During the three months ended May 31, Afriore lost $459,868 (or 1 per share), compared with a year-ago loss of $380,792 (1 per share).

Afriore gold interests include a high-grade gold discovery at the Banankoro project in Mali, the FSC Witwatersrand-type gold project in South Africa, several priority targets in Kenya, and more than 1,000 sq. km of prospective ground at the Capricorn gold project, adjacent to a new gold discovery in Namibia.