Busy times ahead for Baobab Resources

Baobab Resources Plc (LON:BAO) is a mining exploration company with an exclusive focus on Mozambique. It was formed in 2005 to acquire Capitol Resources, a Mozambique-based company, which held 16 exploration licences. These give the company a longer term pipeline of prospects, but right now only two of them are actively being exploited - Mundonguara and Tete, a copper/gold and iron ore prospect respectively.

The copper-gold mine at Mundonguara has a Stage 1 JORC compliant inferred mineral resource - it was asessed at 3.1 mt, 1.4% copper, 0.11g/t gold and 2.1g/t silver [ref] Investor Presentation, October 2009: http://www.baobabresources.com/Announcements/20091020%20Presentation/Baobab200910printout.pdf [/ref] . There's a 3km long corridor  of mineralisation, giving it significant further exploration potential.

The iron ore prospect at Tete covers two areas, the Massamba Group and Singore. The whole area covers 632 square kilometres.  Massamba has five prospects - Chitongue Grande, Pequeno, Caangua, Chimbala and the South Zone - of which Chitongue has been most extensively surveyed, with a 15 diamond drill hole programme last year. Exploration of Massamba is further advanced; work on Singore has started more recently.

Coffey Mining Pty, an independent mining consultancy, has signed off on a maiden inferred mineral resource (JORC compliant) of 47.7 million tons of magnetite-ilmenite for a 500 metre portion of Chitongue Grande, based on last year's drilling programme. That's 500 metres out of a total 8 km strike, so further drilling could well improve the resource figure markedly.

For the broader Massamba Group area, there's no hard evidence yet, so no resource, but Coffey gave an exploration target of 400-700 million tons. That obviously requires a heavy discount to inferred resources to account for exploration risk.

This looks like reasonably high grade mineralisation - while Chitongue is only expected to see  20-35% mass recovery, sampling of other areas of the project has shown recovery rates that could be in excess of 50% [ref] Annual results, p5:   http://www.baobabresources.com/Announcements/20091130%20Annual%20Results%20and%20Notice%20of%20AGM%202009/Annual%20Results%20Annual%20Report%20Notice%20of%20AGM.pdf [/ref] . As results have come through, they have shown increasing levels of Fe over the initial test work. The company also notes that blending of feedstocks once the resource has been developed could improve recovery rates significantly [ref] Investor presentation, p 9 [/ref]

This year will see further scout drilling in the South Zone - a downdip extension of the other areas of mineralisation - and Chimbala. The company is aiming to improve confidence in the size of the resource, and to clarify geological domains for metallurgical work. It looks like being a busy year for newsflow - in fact, it already has, with the recently completed TDH0017 drill hole, at the South Zone prospect, showing one of the best results to date. Concentrate grades of 64.5% Fe indicate 36.6% mass recovery, roughly in line with Chitongue Grande.

There have also been promising early results from the previously unexplored Singore East.  Reconnaissance mapping showed linear zones of magnetite-ilmenite mineralisation up to 50m wide, with strike lengths of up to 850m. Sampling showed vanadium concentrate values 25% higher than in the Massamba Group area.
However, the prospects remain very much at the conceptual stage. A scoping study has been carried out, with a successful outcome - the prospects appear capable of economic development. But there's a long way to go yet.

The stock is very much a tiddler with its £13m market cap and AIM listing. Baobab raised £2.75m in October last year with its new broker, Astaire (having parted company with Fox-Davies), plus a £231k follow-up placing in November, both at 6p a share [ref] Placing announcement, October 2009: http://www.baobabresources.com/Announcements/20091020/Placing.pdf [/ref] . The company now has sufficient funds to the end of 2010. It's also been able to get IFC, the commercial arm of the World Bank, to take a 15% interest in Tete.

The shares are now trading around 8p - up on the placing price, though well below the 16p seen in Q3 2009. Fox-Davies, by the way, thought the shares were worth 18p a share [ref] Fox-Davies Research report, August 2009: www.baobabresources.com/.../Reports/Baobabflashnote10August09.pdf [/ref] , though the company discontinued coverage of the shares in September, so that's not completely up to date.

Perhaps the best steer on the company's potential value is the acquisition of the Marampa Project, a Sierra Leone iron ore deposit, by Cape Lambert. This appears to give a valuation of iron ore in the ground, risked, of AUD 0.50-0.75 a ton, although you'd probably want to give it a wide discount to that figure given its early stage of development. I must admit I haven't done my due diligence on that number yet. I'd want to do a lot of crawling through the detail till I decided whether to get involved with the shares but it seems worth a closer look.