AXG Mining (ASX: AXC) has entered into a Heads of Agreement for the all scrip acquisition of Pinto Minerals which will provide the company with access to three large prospecting licences in Zambia.
Pinto has executed an Option Agreement to acquire a 64% interest in the three licences that are currently under application with the Department of Mines in the Republic of Zambia.
The licences are considered to be primarily prospective for copper and/or gold but may also be prospective for several other minerals, including cobalt.
Two of the licences are located in the north of the country in close proximity to some of Africa’s largest copper deposits, while the third is located in the Central Province, to the north of the capital, Lusaka.
One licence covers 514 square kilometres in the Copperbelt Province. The Zambian Copper Belt, together with the corresponding Katanga copperbelt across the border in the Democratic Republic of Congo comprises the world’s second largest copper deposit, after Chile.
Many of the deposits within the Copper Belt are extremely high grade, with several deposits having copper grades in excess of 5%.
The second licence under the Option Agreement covers 69 square kilometres to the southwest of Barrick Gold’s (NYSE: ABX, TSX: ABX) massive Lumwana Mine and First Quantum Mineral’s (TSX: FM) Kansanshi Mine.
Last year Lumwana produced 159 million pounds of copper at total cash costs of $2.24 per pound. The mine is expected to produce 145 to 165 million pounds of copper in 2012 at C1 cash costs of $3.30 to $3.50 per pound.
The third licence that Pinto can earn a 64% interest in is prospective for gold and copper and covers 137 square kilometres in the Central Province of Zambia between Lusaka and Kabwe.
Until the Copperbelt was developed, Kabwe was home to the largest copper mine in Zambia.
The Mumbwa District contains a number of historical copper and gold mines and current resources, such as Blackthorn Resources’ (ASX: BTR) 439 million tonne Kitumba Deposit and Luiri Gold’s Dunrobin gold project.
Pro-mining jurisdiction
Zambia is a stable multi-party democracy with a modern mining act. The country is endowed with mineral resources and since the 1930s the mining industry and, particularly copper, has been the economic backbone of Zambia.
Zambia is the world’s seventh largest producer of copper, generating 3.3% of the western world’s production.
Copper accounts for 80% of Zambia’s foreign exchange earnings and has, since 2003, been the main driver of an annual economic growth rate of 5%.
The process of privatising the industry began in 2001 and, since then, there has been significant foreign investment in the Zambian copper industry.
Annual production is now back at around 800,000 tonnes per annum and the Government has set a goal of increasing production to 1.5 million tonnes per annum by 2015.
Exploration plan
Pinto has prepared a work program that will be implemented once the licences have been granted.
The goal is to define a resource in each of the licences and apply for the conversion of one or more of the licences into Large Scale Mining Licences.
The work program will initially comprise the collection and analysis of historical geological information from the Department of Mines and other sources, before undertaking an aerial surveying program, trenching and soil sampling, and commencing a drilling program.
Terms of the acquisition
Pinto currently has around 17.5 million shares on issue and has an Option Agreement to acquire 80% of Element Enterprises, which owns 80% of the licences through its shareholding in a Zambian company, Bally Minerals.
As a result, Pinto has the option to acquire a 64% interest in the licences. The company is finalising the raising of $500,000 in seed capital, and the consideration for exercising the option is a combination of shares, performance securities (shares and options) and a royalty.
AXG plans to acquire all of the issued capital of Pinto via the issue of 10 shares for each share issued in Pinto, including those that may be issued by way of the seed capital raising.
The company will also issue performance securities on the same ratio of 10 for 1 to the current holders of the performance securities in Pinto.
The vendors of Element Enterprises also own a production royalty of US$0.25 per pound of copper produced or US$0.05 per pound of copper concentrate produced.
Capital raising
Subject to completion of the acquisition, AXG plans to undertake a placement to raise up to $1 million before costs.
The placement would comprise the issue of 200 million shares at $0.005 each.
Peruvian projects
AXG intends to maintain its interests in the Coparaque and Condoroma Projects in Peru that have been its focus for the past 12 months.
The company plans to fund continuing operations through a partly-owned Canadian subsidiary with fundraising activities to be undertaken in Toronto.
Analysis
The acquisition of Pinto Minerals will give AXG a foothold in a large copper producing region featuring the likes of majors such as Barrick Gold.
The licences covered under the Option Agreement are considered highly prospective, which is further reinforced by their strategic locations among several large copper mines and within a copper belt known to produce extremely high grade deposits.
Once the acquisition is complete and the licences are granted, AXG will be an interesting company to watch as it begins proving up the potential of this landholding in a well-endowed, large copper producing region.
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News - AXG Mining broadens horizons with acquisition of Zambian copper gold licences
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