Savannah Resources plc (AIM: SAV) has told DirectorsTalk about the release of its audited financial results for the year ended 31 December 2015 along with the notice of its Annual General Meeting, which is to be held in London on 16 March 2016. An updated copy of the Company’s corporate presentation will also be available to view on Savannah’s website, www.savannahresources.com.
— Significant progress made in implementing our strategy of adding value to assets with near to medium-term production potential and superior operating and capital cost characteristics
— Agreement signed with Rio Tinto for the combination of Rio’s Mutamba Project and Savannah’s adjacent Jangamo Project in a joint venture located in a world-class heavy mineral sands (HMS) province in Mozambique
— Targeting defining higher-grade, HMS mineralisation in 2016 for a scoping study for a dry mining operation to produce a HMS concentrate containing ilmenite, rutile and zircon
— Exploration Target of between 150,000 and 700,000 tonnes of contained copper estimated for Block 4 and 5 in Oman
— Targeting commercial copper production in Oman in late 2017 utilising a central processing hub to minimise capital expenditure and maximise operating margins
Financial
— Raised GBP1.1m in 2015 including private placements to both new and existing shareholders in a challenging funding environment
-- Introduction of Al Marjan Limited as a cornerstone shareholder
— The Company decreased administrative expenses by GBP0.1m in 2015 even with the increased tempo of operational activities from 2014
— Operating loss of GBP3.11m is mainly attributable to a decrease in the value of the Company’s listed investments with an impairment expense of GBP1.07m and realised loss on disposal of GBP0.67m reclassified from other comprehensive income during the year
— Other comprehensive income for the period attributable to the equity owners of Savannah – loss of GBP0.69m attributable principally to reclassification of expenses on listed investments of GBP1.73m as noted above, net of a write down of GBP0.93m in the value of the Company’s investments for the period
— Solid cash position of approximately GBP2m following the issue of new shares to Al Marjan Limited, as announced on 15 February 2016
David Archer, Savannah’s Chief Executive Officer said today, “We made great progress in 2015, particularly in giving more definition to the copper projects in Oman, with high-grade copper and gold results returned from drilling and the definition of a significant aggregate Exploration Target for the two blocks. This was augmented with a major strategic initiative, subject to Mozambican Government approvals, of the combination of our Jangamo HMS Project with Rio Tinto’s Mutamba HMS Project. With defined development strategies in place targeting commercial copper production in late 2017, and a planned fast paced, staged evaluation of Mutamba/Jangamo I believe 2016 will be a transformational year for the Company.”
Availability of Annual Report and Financial Statements
Copies of the Company’s full Annual Report and Financial Statements are expected to be posted to shareholders in the next few days and will also be made available to download today from the Company’s website www.savannahresources.com.
Annual General Meeting
The Company’s next Annual General Meeting (‘AGM’) will be held at 11:00 on 16 March 2016 at the offices of St Brides Partners Ltd, 3 St Michael’s Alley, London, EC3V 9DS. A formal Notice of AGM and proxy form are expected to be posted to shareholders in the next few days and will be available to download today from the Company’s website at www.savannahresources.com.
Chairman’s Statement
As we begin 2016, in my first statement as Chairman for the Company, I am delighted to report on the success we have achieved in building a valuable portfolio of assets, which are well placed to deliver continuing value to shareholders, and significantly, the introduction of Al Marjan Limited as a cornerstone shareholder.
2015 has undoubtedly been a challenging year for the resource sector, for both large and small cap companies alike, with the current geo-political and macroeconomic environment fuelling global market uncertainty and continuing downward pressure on commodity prices. Set against the current climate, arguably the primary factor in planning new resources developments is cost: low OPEX and CAPEX requirements are key to maximising resource value, establishing sustainable operations and achieving superior economic returns for shareholders. With this in mind, we have a development strategy focused on achieving sustainable growth at our copper and gold projects in Oman and heavy mineral sands project in Mozambique. It is this strategic approach combined with a prospective portfolio of assets and strong executive management team which attracted me to Savannah.
Blocks 4, 5 and 6 Copper Mine Development Project, Oman
In Oman, our plans centre on assessing the feasibility of establishing a central copper processing facility, which will be used to treat copper ores produced from the copper/gold deposits on Blocks 4 and 5. With near-term production being our primary goal, during the past year we have made excellent progress in furthering the resource potential of these projects, which have an existing Indicated and Inferred Mineral Resource of 1.7Mt at 2.2% copper, and importantly have also identified additional gold mineralisation that offers significant upside. The primary focus will be the definition of Inferred and Indicated Mineral Resources for the Aarja, Bayda and Lasail deposits on Block 4. Looking ahead, our focus is on moving ahead with a feasibility study of the development of the copper deposits and furthering increasing our understanding of the gold potential of the area with additional drilling, with the ultimate aim of commencing commercial copper concentrate production in 2017. The projects will have the benefit of utilising the excellent infrastructure already established, which includes power, roads, and the nearby deep water export port of Sohar.
Strategic Partnership with Rio Tinto
In Mozambique we have a landmark Joint Venture agreement in place with mining major Rio Tinto Plc (via a subsidiary member of the Rio Tinto Group) (“Rio Tinto”) to combine Savannah’s Jangamo Heavy Mineral Sands Project with three licence areas held by Rio Tinto, two of which adjoin the Jangamo Project (the “Joint Venture”). This would combine Savannah’s Inferred Mineral Resource of 65Mt at 4.2% total heavy minerals (“THM”) and Rio Tinto’s Exploration Target(1) of between 7.0 and 12.0Bt at a grade ranging from 3 to 4.5% THM. Our plan, upon receiving Mozambican Government approval for the Joint Venture, is to evaluate the potential to rapidly develop the combined projects as a low capex heavy minerals sands mine, of which Savannah will be the operator. To support this strategy, and in line with our low cost production targets, our aim is to evaluate and build a dry mining operation with grade rather than tonnage being the primary focus. Therefore, our plan over the coming year is to conduct additional resource drilling and complete a scoping study to help define production plans.
The amalgamation of the Mutamba/Jangamo Projects makes enormous commercial sense as it combines licences that are effectively part of the same, continuous mineralisation trend. Importantly the Projects are located close to existing road, grid power, water and port infrastructure and much of the mineralisation appears to be well-suited to conventional dry mining and simple gravity processing to produce feed for sale as heavy mineral sands concentrate for further processing in a heavy mineral separation circuit that would allow extraction of ilmenite, rutile and zircon products. Rio Tinto will also be providing access to its existing camp, facilities and equipment associated with Mutamba, which should not only help speed our work but also reduce costs.
Corporate Update
As noted, this is my first year as Chairman of the Company following my appointment to the Board in February 2015. To give a little more information on myself, I have circa 30 years’ experience in the financial services industry and have extensive experience dealing with regulators on a global basis, particularly in matters relating to corporate governance, operational risk and compliance. I am delighted to be part of the Savannah team and look forward to guiding and supporting the Company’s highly competent and energetic management team as we progress towards production.
At the time of my appointment Professor Mike Johnson, who had served as Non-Executive Chairman since February 2013, stepped down from the Board. His departure was later followed by that of Charlie Cannon-Brookes, who served as Non-Executive Director until August 2015. Their departures were a result of having successfully steered the Company through its strategic transformation from being a Malian gold focused exploration company to the multi-commodity, multi-geographic development company that we are today. I would like to take this opportunity to thank them both for the support they provided the Company with and wish them the very best as we evolve into this next phase of our genesis as a production and development company.
Financial Overview
As is to be expected with an exploration company, the Company is reporting a loss for the year of GBP3.11m (2014: GBP1.92m). The significant driver was an impairment in the Company’s investment in listed securities (GBP1.07m) and realised loss on disposal on the sale of shares in Alecto Minerals plc (GBP0.67m) whose share price has decreased substantially during the year. In addition to Other Comprehensive Income for the year of GBP0.69m (2014: loss GBP2.19m) primarily due to the transfer of the combined impairment in the Company’s listed securities and realised loss on disposal of Alecto shares to profit and loss (GBP1.74m), net of the change in the market value of the Company’s listed securities (GBP0.93m). Net assets have decreased to GBP3.58m (2014: GBP4.75m) predominantly due to the decrease in the Company’s investment in listed securities as at 31 December 2015.
In July 2015, Savannah raised approximately GBP0.55 million cash (before expenses) with the placing of 21,900,000 new ordinary shares at a placing price of 2.5p. In October 2015 the Company raised a further GBP225,500 cash (before expenses) through the placing of 13,264,706 new ordinary shares at a placing price of 1.7p per ordinary share to three of its existing shareholders. This was followed by an additional placing, also in October, of GBP339,060 (before expenses) through the placing of 16,953,000 new ordinary shares at a placing price of 2.0p per ordinary share, with the introduction of Al Marjan Limited (“Al Marjan”) to the share register. Al Marjan subsequently increased their investment in the Company in February 2016, further endorsing their support of Savannah’s growth strategy, with the placing of 98,295,329 new ordinary shares at a placement price of 1.78p per ordinary share. This raised a total of GBP1.75 million (before expenses), resulting in Al Marjan becoming the Company’s largest shareholder with an expected holding of 29.99% of the issued capital subject to approval of the issue of a balance of 27,430,768 new ordinary shares at the Company’s upcoming Annual General Meeting.
As of 15 February 2016, the Company has a solid cash position of approximately GBP2.0 million.
Social Responsibility
Savannah, its management team, and operating partners remain committed to the development and maintenance of good relationships with local communities and maintaining high standards of social and environmental compliance. To this end, the Board continues to implement a Health, Safety, Environment and Community Relations policy that focuses on the positive interaction with all parties and honest, timely and transparent communication with all our stakeholders.
Outlook
Savannah has a strong portfolio of assets in place with the potential for development. Our projects in Oman and Mozambique feature good access to established infrastructure, have experienced management teams in place adept at managing projects in their respective regions, and most importantly of all, with excellent resource potential. Our strategy of building a portfolio covering copper, gold and heavy minerals across different geographies is I believe a sensible one, and provides depth and resilience to our project pipeline.
With our project evaluations continuing in Oman and progress continuing towards obtaining the Mozambican Government’s approval of our Joint Venture agreement with Rio Tinto, I expect 2016 to be a highly active year for Savannah, with value milestones targeted including potential Mineral Resources announcements for both Oman and Mozambique.
Looking ahead, copper prices are expected to begin to recover as the current copper supply surplus is eliminated with copper production cuts, exhaustion of reserves, strikes and a declining pipeline of new projects. This should see copper prices steadily improve in the mid-term, with the supply shortfall expected to deepen towards 2020. With copper production targeted to commence in 2017, we believe the timing of the copper price recovery should complement our development timelines. Furthermore, our Oman project is expected to offer a compelling copper development case with anticipated low operating costs and a low capex per annual tonne of copper produced.
In conjunction with establishing Savannah as a copper producer in late 2017, we are focussed on developing a large-scale heavy minerals sands mining project with Rio Tinto and we will continue to be highly judicious in respect of funding options. We look forward to updating the market on these exciting developments in due course.
Finally, I would like to take this opportunity to thank our management team again for their on-going hard work and dedication during the past year, during which much progress has been made to develop the potential of Savannah’s interests, despite the very difficult market conditions in which we have had to operate, and also the shareholders for their on-going support.
Matthew King
Chairman
17 February 2016
Chief Executive’s Report
2015 has been an extremely active year for Savannah, with multiple exploration programmes conducted in both Oman and Mozambique. Our exploration activity during the period has been strategically designed to deliver maximum impact with modest expenditures. We are delighted with the results achieved and look forward to building upon the resource potential as we transition into a mining and development company.
Blocks 4, 5 and 6 Copper Mine Development Project, Oman
Savannah has rights to three blocks covering 1,270km(2) in the copper-rich, Semail Ophiolite Belt in the Sultanate of Oman, a region proven to host clusters of moderate to high-grade copper deposits with gold credits and metallurgically simple ores. The three blocks are located approximately 180km northwest of Muscat, the capital city of Oman and within close proximity to the export Port of Sohar. The Company’s strategy is centred on building a copper and gold resource inventory to support high margin, low cost operations and establish Savannah as a high-grade copper miner, with production targeted to start in late 2017.
Savannah has focussed its attention during the year on Blocks 4 and 5 where significant copper and gold potential has been identified. Savannah is earning a 65% shareholding in the Omani company, Al Thuraya LLC, the owner of the Block 4 licence and is a 65% shareholder in Al Fairuz Mining, the holder of the Block 5 licence.
At the beginning of the year Savannah acquired an extensive, digitised exploration database relating to historical drill data across Block 4, which has been significantly enhanced during 2015 with the addition of data collected between 1975 and 1994 including approximately 100,000m of drilling data for the Aarja, Bayda and Lasail deposits. The analysis of this has been extremely valuable, giving a much higher degree of confidence in the resource potential of our projects and at minimal cost. The drilling today might otherwise have cost approximately US$20 million at today’s prices. Importantly this has also saved us significant amounts of time.
Based on these historical drill results and other exploration factors, a series of internally generated Exploration Targets have been calculated for each of Savannah’s high priority areas, namely the Mahab 4 and Maqail South deposits in Block 5 and the Aarja and Bayda and Lasail deposits in Block 4. This has led to the estimation of an Exploration Target of between 10,700,000t and 29,250,000t grading at between 1.4% and 2.4% copper for 150,000t and 700,000t of contained copper with additional gold credits.
Following analysis of these results, and given the intensity of drilling on these deposits, Savannah has a good degree of confidence that, with appropriate resource drilling programmes, Mineral Resources can be defined within the ranges of announced Exploration Targets. Should these Mineral Resources be established, they would form the basis for feasibility studies that could potentially lead to mine development.
At Block 4, for example, a total of 144 holes are known to have been drilled at the Aarja Prospect. This has led to the identification of a new area of high-grade copper mineralisation along strike and under the previously mined Aarja pit. The best results include 18.58m at 4.7% copper at the Aarja Main target located directly below the previously mined pit, 33.8m at 3.35% at the Dog’s Bone target located along strike from Aarja Main, and 9.8m at 3.86% copper at Aarja South, which is below Aarja Main.
Importantly, these results support exploration work conducted by Savannah using modern techniques. A 3,667 line km Versatile Time Domain Electromagnetics (‘VTEM’) and airborne magnetic survey was conducted at Block 4 in March 2015. This was completed in April 2015 and identified a total of 10 Priority 1 and 33 Priority 2 VTEM anomalies, and three major potential Volcanogenic Massive Sulphide (‘VMS’) clusters. These were identified around existing, previously mined VMS deposits at Aarja, Bayda and Lasail (collectively produced over 190,000t copper) and within a new cluster at the Zuha Prospect.
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Of these initial targets, 29 anomalies (7 Priority 1, 19 Priority 2 and 3 Priority 3) covering seven primary areas within the Block 4 licence area were analysed further. 3D models of each were generated to enable the potential prospectivity to be further assessed with a view to generating drill targets for follow up work. Modelling targets were chosen based on their proximity to existing VMS mineralisation, geology, geochemistry, structure and geophysical signatures.
Based on the results of this modelling and the analysis of the historical data, a ten-hole drill campaign commenced in October 2015 to test the high priority VTEM targets at Aarja and Zuha. Initial results from the Dog’s Bone target at Aarja have returned 9m at 4.86% copper, 1.54% zinc, 1.3g/t gold and 37.3g/t silver, including 6m at 7.01% copper, 2.20% zinc, 1.9g/t gold and 53.8g/t silver from 103m. These results confirm the high-grade nature of the mineralisation with work now underway to test extensions and compile a compliant mineral resource estimate. Importantly, much of the Aarja deposit has existing underground access via existing portals and workings that would allow rapid development and exploitation.
In addition to testing the Aarja and Zuha copper targets, the drill campaign also aimed to test gold mineralisation identified at the Gaddamah Prospect in Block 4. This gold potential was first identified in March 2015 following rock chip sampling and further underpinned in May 2015 through trench sampling, with results including:
-- 5m at 18.49g/t gold, 1.7% zinc and 0.53% copper in GDT08 -- 4.9m at 18.82g/t gold, 0.96% zinc and 0.76% copper in GDT0 -- 7.7m at 11.35g/t gold, 1.45% zinc and 0.40% copper in GDT01
As a result, two 30m holes testing down dip extensions of elevated gold results were conducted in October and November 2015 to determine if the results have any down dip continuity. Results from this are expected to be available in the coming days.
Elsewhere in Block 4 additional gold mineralisation has been identified at the Salahi 1 Prospect. Individual trench/rockchip, channel and grab samples collected in June 2015 produced results of up to 72.2g/t gold, with trench sampling results including 12m at 11.87g/t gold. Additionally, further individual grab samples collected in September 2015 returned results of up to 13.9g/t gold. Importantly, these anomalous gold results occur sporadically along a 180m strike length, varying in width from 12m to 1m, which remains open to the north and south providing significant upside potential in addition to the already established copper prospectivity.
At Block 5, a Mineral Resource Estimate of 1.5Mt at 2.1% copper for 31,500t of contained copper has already been established at Mahab 4. Combining data from the analysis of the this historical data, with historical results including 54.86m at 6.32% copper and 20.06m at 5.62% copper, and based on exploration conducted by Savannah, the Company identified an opportunity to extend this resource. As a result, Savannah commenced a second drill programme in November 2015 to test the up and down dip extensions of the high-grade copper (>5%) centre of the Mahab 4 deposit. Results from the first hole at Mahab 4 were very encouraging, confirming the extension of high-grade copper mineralisation up dip from the current resource, returning 6.6m at 6.92% copper, 5.6% zinc, 0.3g/t gold and 23.8g/t silver, highlighting the potential to increase the Mineral Resource. Further results relating to the potential down dip extensions are expected to be available in the coming days.
Aside from these targeted drill campaigns, an electro-magnetic (‘EM’) survey completed over Blocks 4 and 5 in late 2014 returned results in January 2015 that identified a series of high calibre anomaly targets at the Sarami West Prospect in Block 5 and the Ghayth Prospect in Block 4. The strongest anomaly was identified at Sarami West, with a very high conductance suggesting copper mineralisation spanning over 200m, which appeared open to the south. A diamond drilling programme was consequently undertaken in February 2015 to test these anomalies, with five holes drilled covering 778.60m. Results from this drilling confirmed the presence of Volcanogenic Massive Sulphide (‘VMS’) mineralisation intersecting both massive and disseminated copper sulphides at Ghayth, with best results including 1.15m at 3.6% copper. These results build upon historical results of 15.27m at 6.2% copper and 4.29m at 7.2% copper returned from this prospect.
At Sarami West, drilling failed to locate the targeted EM anomalies, but intersected a strong alteration system similar to those seen around the margins of VMS deposits. A downhole EM survey is now planned to provide a more accurate location of the original EM anomalies identified in order to optimise targeting for future drilling. Further drilling is also planned at Ghayth to define the full extent of the mineralisation present. Timings for this are yet to be defined as a number of other high priority targets have since been identified and prioritised for further investigation.
2015 was an extremely active year in Oman which has resulted in the identification of multiple high priority targets across Block 4 and 5. The final results that are expected to be available in the coming days from the recently completed Block 4 and 5 drill programmes.
Mutamba / Jangamo Heavy Minerals Sands Project, Mozambique
In June 2015 Savannah announced a landmark Joint Venture agreement with Rio Tinto to combine Savannah’s now 100% owned Jangamo licence with Rio Tinto’s adjacent Mutamba and Dongane Prospects and nearby Chilubane Project. Whilst the Joint Venture is conditional, inter alia, on the consent to the Joint Venture of the Ministry of Mineral Resources and Energy of the Republic of Mozambique and the approval of the proposed work programme by the National Directorate of Mines of Mozambique, discussions regarding the approval appears to be progressing well. Rio Tinto and Savannah have agreed to extend the long stop date for fulfilment of the conditions precedent until 31 March 2016 (or such later date as may be agreed in writing between the parties) to enable further time to complete the approval processes.
The Projects, which will be collectively known as Mutamba/Jangamo Project under the Joint Venture, are located in the Gaza and Inhambane Provinces of Mozambique in a world-class heavy minerals sands region close to established infrastructure, approximately 40km from the ports of Inhambane and Maxixie and 450km northeast of the capital city of Maputo. Importantly, these assets have been proven to host thick zones of ilmenite dominant heavy mineral sands from surface and are part of a large area of prograding, siliciclastic sediments, which are ideal for hosting heavy mineral deposits and cover much of the south eastern African coastline. The heavy minerals are derived from the Limpopo River over a long period and reworked along ancient and current coast lines. Savannah has already defined an Inferred Mineral Resource of 65Mt at 4.2% total heavy minerals at Jangamo while Rio Tinto’s licence areas feature an Exploration Target of between 7.0 and 12.0Bt at a grade ranging from 3 to 4.5% total heavy minerals. Based on the prospectivity of the area and the significant Exploration Target, Savannah is confident that there is significant potential to expand the current Mineral Resource.
Savannah believes that Mutamba/Jangamo has the characteristics for a dry mining operation for staged, early development. With this in mind, Savannah plans to complete a scoping study and commence pilot plant test work in 2016.
Under the terms of the Joint Venture, Savannah will be the operator and may earn up to a 51% interest in the combined project. In addition, Rio Tinto has agreed to enter into, or procure an affiliate that enters into, offtake sales contracts on commercial terms for the purchase of 100% of the production of heavy mineral concentrate products from any mine that may be developed in the Mutamba/Jangamo project area.
Savannah looks forward to providing further updates on the progress of this Joint Venture in due course.
Outlook
With near-term production potential in Oman and mid-term potential in Mozambique we have made satisfying progress in building our project portfolio during 2015 and also, crucially, identifying low cost production routes. We will maintain our development approach despite the subdued market environment for resources.
Key milestones to look out for in Oman include an increase in the current copper Mineral Resource in addition to improved confidence in the gold potential. We will also continue to assess a number of potential production routes relating to the establishment of a central copper concentrate production facility. In Mozambique, our key focus is on obtaining the Government’s approval for Joint Venture agreement with Rio Tinto and improving the resource confidence by not only increasing the heavy mineral sands resource currently defined but also completing a scoping study in order to help define likely production plans and targets. We look forward to providing shareholders with further updates on these developments in due course in line with our active communications policy.
Finally, I would like to extend my thanks to the hard work of our team; having experienced exploration and development professionals based in both Oman and Mozambique has enabled us to quickly implement our work programmes whilst ensuring that all work is conducted to the highest standard.
And finally, I would like to add that we are also grateful for the on-going support of our shareholders. The best companies are built on a triad of assets, management and shareholders.
David Archer
Chief Executive Officer
