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Baobab Resources

Making it in Mozambique

Obtaining first mover advantage in a district in southern Africa ripe for mining that remains, in some parts, unmapped, is a dream scenario for many. There are, of course, few who have what it takes to make the leap.

Western Australia-based leading miner, Baobab Resources, entered Mozambique’s fledgling materials market and has grown considerably since beginning operations in the country back in 2005.

With a core focus on iron ore, as well as interests in base and precious metals, the company has a large land-holding covering five discrete project areas within the country, including its flagship project in the inland province and burgeoning mining hub of Tete.

With valuable iron ore deposits along the Zambezi River, which runs through the province, the government of Mozambique has taken a proactive approach to business in its country where more than half the population still live below the poverty line.

Baobab was established in order to acquire the Mozambican company Capitol Resources, which its directors considered to have a balanced portfolio of projects in Mozambique ranging from advanced resource definition drill targets to brownfield exploration, and greenfield commodities prospects.

Baobab managing director Ben James says: “We’ve grown rather quickly from a £10 million to 15 million company to a plus-£50 million market company since the beginning of this year, which has been a rather rapid increase in our value.”

A geological gold mine

As a geologist with 15 years global experience in the mineral exploration industry, James says that it was originally the geology of Mozambique that encouraged the company to set up shop in the southern African republic.

“We recognized that there is the same prospective geological terrain that has been exploited in neighbouring countries, but it had hardly received any modern exploration companies,” remarks James. “There are opportunities not just for deposits, but entire mineral fields that have yet to be walked over.”

With such an abundance of untouched resources it is no surprise that the big hitters from the global mining industry are eyeing up and setting up shop in the region. As a result of the interest being shown from abroad, Mozambique has begun undergoing something of an economic renaissance.

Just 10 years ago it was one of Africa’s poorest countries, but today thanks to investment from foreign vehicles the world over and, perhaps more importantly its stable democratic government, it is one of Africa’s fasting growing economies.

The stability of the republic’s political system has helped mining companies like Baobab settle in and flourish quickly, and has acted to ensure businesses have all the support necessary to take advantage of the country’s untouched resources.

“The Ministry for Mineral Resources has taken a very proactive approach,” says James. “They see mining as the cornerstone of the new Mozambican economy. They are pragmatic and are taking a very solid long-term view on the future of Mozambique, and it’s proving to be a very enjoyable place in which to work.”

Teaming up with the IFC

In Tete, Baobab has teamed up with International Finance Corporation (IFC), a member of the World Bank. Baobab owns 85 per cent of its project in the province and IFC owns the remaining 15 per cent.

“Having an IFC investment gives both the company and the project a lot of credibility,” James says.

“Financially of course it is very useful as for every dollar we spend the World Bank stumps up 15 cents.

“But the real benefit we see to working with IFC is down the track when it comes to negotiating access to port, rail and power; having them on our side of the negotiating side of the table will be very valuable as they carry a significant amount of clout in southern Africa.”

The experience IFC has in social and community-based programs is something James says will help when it comes to implementing a large-scale CSR strategy.

“As all of our projects mature, having the IFC supporting us with our CSR initiatives will be very useful as that’s really what they specialize in, especially in community development programs,” he remarks.

Size and scale

Within its exploration licence, spanning 600 square kilometres, metallurgical studies and financial modelling for the Tete iron/vanadium/titanium project have outlined a robust project economics in the production of discrete, high-value titanomagnetite and ilmenite concentrates, with potential additional value upgrading onsite, which could include mine-mouth pelletising or smelting.

The site is strategically located to access low-tariff hydro-electric power, rail and port infrastructure, as well as having access to possible coking coal deposits.

Historical exploration limited to government sponsored work was undertaken in the 1960s and 1980s; however, no previous drilling ever took place.

Upon commencing exploration of the area in mid-2008 Baobab immediately recognized the area’s significant resource potential, with the mineralised strike in the Massamba Group alone in excess of 8 kilometres.

An independent estimate on the Massamba Group claims that the area has could accommodate an exploration target between 400 million to 700 million tonnes at a maximum depth of 250 metres below the surface, supported by 7,500 metre scout diamond drilling.

An aggressive 2011 exploration campaign focused on achieving a targeted global resource inventory of 300 million tonnes and RC drilling programs, totalling 25,000 metres, has been designed to define resources at South Zone, Chitongue Grande extensions and Chimbala within the Massamba Group.

As a result, three RC rigs and two diamond rigs are under contract to accelerate the work programs and ensure that the resource milestones are met.

Improving infrastructure

The company’s activities in Mozambique’s interior have benefited from the infrastructure surrounding the Zambezi River, which flows into the Indian Ocean.

Africa’s fourth largest river provides Mozambique with a significant energy source through the use of hydropower.

“In Mozambique we are confident that we’ll be able to negotiate electricity tariff rates at a half, if not a quarter, of what you would expect to pay in Australia or West Africa, which will have a massive impact on our operational costs,” says James.

“If you take a look at a typical Western Australia magnetite operation, the power bill—as a component of the mineral processing costs—often makes up around 30 per cent of the overall overheads. There will be a significant impact on our financial modelling, as a result of Mozambique’s plentiful power supply.”

With roads and rail improvement and refurbishment plans in place, Baobab is a company that is confident that it can take full advantage of the iron ore and other mineral resources on offer.

“This infrastructure is multi-party,” says James. “It’s not going to be monopolized and we won’t see a situation where smaller companies cannot get access to railway infrastructure, for example.

“We have also had the green light from environmental agencies in regards to barging on the Zambezi River,” he adds. “This has now been put forward for public consideration, and if it turns out to be a viable option it will act to open up additional opportunities for getting bulk commodities very cheaply to the coast.”

Baobab has spent much of its time exploring the Massamba region north of where it has been granted an exploratory license in the Tete province and later this year will begin to take a closer look at the Singora region south of Massamba.

“By the end of the third quarter this year we will have a global resource of at least 300 million tonnes, with plenty of scope for additional resources,” notes James. “It is my personal opinion that we’re sitting on between 300 million to 1 billion tonnes in the Tete area.”

Community spirit

With so much potential material underneath the feet of its workers, Baobab understands that while it stands to make a generous profit from its adventures in Tete, it also has a lot of responsibility in regards to the local population.

“We are privileged to be working in Mozambique, but with privilege there comes a tremendous amount of responsibility; especially in respect to local communities and the environment in which we work,” explains James. “For example, we try to employ ‘local-local’ as much as possible. ‘Local-local’ is an IFC buzzword that means ‘as close to the drill rig as possible’.

“We have a large team of employees in Mozambique, of which more than 90 per cent are Mozambican, and some of these people have been with us for more than four years now.

“They have really thrived thanks to the mentoring and training programs in place, and it has been a real pleasure to see a lot of these guys developing their skills.”

The real benefit of the company’s work in Mozambique, James says, is the amount that is being returned and invested in the country’s economy.

“CSR is incredibly important to Baobab, its shareholders and the local population,” he notes. “But the real benefit of mining is the royalties and how the government redistribute those royalties across the country.”

Venturing into Tete has proven a huge success for Baobab and its project in the province has developed from a concept to a company flagship project within two years. It is a tale of success being written and reflected across a growing Mozambique.

“Baobab is in a really exciting phase of its development,” insists James. “We have got a robust flow of meaningful news coming through to the end of this year, including a series of resource estimates in Tete, a scooping study at our Monte Muande project, and even a possible emerging coal story.

“But in bigger terms we are uniquely placed in Mozambique in respect to its infrastructure and complementary resources. This has provided us with the opportunity to look at sub-3 billion tonne deposits, as well as opportunities to add additional value onsite,” he concludes.