Adastra secures Kolwezi subsurface rights (October 12, 2005)

Shares in Adastra Minerals (AAA-T, AAA-L) jumped 23, or more than 16%, to $1.65 in early trading in Toronto on Oct.12, after the company said that it had secured subsurface exploration rights for the Kolwezi copper-cobalt tailings project in the Democratic Republic of Congo.

The 5-year, renewable licence, which was issued to Adastra’s wholly owned Congolese subsidiary Roan Prospecting, covers the entire 62-sq.-km tailings project area including the formerly producing Kingamyambo, Kananga West, Kananga East and Clippe Nord deposits.

Adastra is planning an exploration campaign on several copper and cobalt targets.

“The award of these subsurface exploration rights is of significant importance to our company,” said Adastra CEO Tim Read in a prepared statement. “On the one hand, it gives us considerable exploration opportunities quite separate from the development of the Kolwezi tailings project. On the other, it affords total protection regarding the integrity of the area covered by the tailings exploitation licence, ruling out any possibility of conflicting interests on land use.”

The Kolwezi tailings project centres on two dams containing a resource of 112.8 million tonnes of oxide tailings grading 1.49% copper and 0.32% cobalt. The tailings dams are left over from the mineral concentrator facility in Kolwezi, which processed high-grade ore from the Kov and other nearby mines from 1952 onward.

Initial plans at Kolwezi envisage annual production of 5,500 tonnes of cobalt and 30,000 tonnes of copper over a 53-year mine life. Cash costs are expected to be among the lowest in the world. The company says the existing resources are capable of supporting production of 11,000 tonnes cobalt and 60,000 tonnes copper annually over 29 years.

A definitive feasibility study by Murray & Roberts and GRD Minproc is expected in the first quarter of 2006. Pending a positive outcome, construction could conceivably begin before the end of 2006, with first production by mid-2008.

The base case scenario carries an estimated price tag of $300 million, including working capital, owner’s cost, and contingencies.

In late August, the DRC’s Ministry of Mines’ Direction charge de la Protection de L’Environnement Minier approved Kingamyambo Musonoi Tailings’ environmental and social impact assessment (ESIA) at Kolwezi. Adastra says the approval means the company can proceed with its planned development. The company intends to finalize a ESIA compliant with Wolrd Bank standards by yearend.

In May, International Financial Corp. (IFC), the financing arm of the World Bank, and Industrial Development Corp. of South Africa (IDC) agreed to acquire equity interest in the project and become potential lenders. Adastra will gain US$12 million in cash once these agencies exercise their options.

Adastra currently holds an 82.5% interest in Kingamyambo Musonoi Tailings (KMT), which owns the Kolwezi project. The government of the DRC holds a 5% stake, while state-owned Gcamines has a 12.5% interest.

Adastra’s interest in Kolwezi will be reduced to 65% in order to allow IFC and IDC to acquire 7.5% and 10% interests, respectively. The DRC government and Gcamines will retain their original holdings.

Adastra will receive $12 million from the IFC and the IDC for their equity stake in KMT. Thereafter, the company will look to arrange a mix of debt financing, subordinated debt, and equity financing to build the project. The IFC and IDC will maintain their interest levels via any equity financings, and will lead the project debt financing.