London-listed mineral exploration and development company Blencowe Resources has entered into an agreement to acquire the Akelikongo nickel sulphide and copper project in Uganda from joint venture (JV) partners Sipa Resources and Rio Tinto.

The JV was formed in 2018 when Rio Tinto agreed to spend into the project, seeking a material nickel sulphide deposit. In total, nearly 19 000 m of regional drilling was conducted over the past five years. 

The most prospective of all the work was completed at Akelikongo, where three lenses at various depths were identified, with electromagnetic work and drilling both identifying large-scale sulphides.

The highly prospective early-stage nickel sulphide exploration project is located in northern Uganda, near to the town of Kitgum, which is the regional centre near Blencowe's existing Orom-Cross graphite project.

Blencowe sees the Akelikongo and Orom-Cross projects as operationally synergistic in terms of their proximity, with operations being run from the existing Blencowe office in Kitgum. 

A prefeasibility study for Orom-Cross is under way. Blencowe expects this to be completed by mid-year. It also expects to release an updated Joint Ore Reserve Committee-compliant resource estimate in the near term.

"Nickel is one of the most sought after metals at the moment and demand is set to soar even higher over the next decade. We believe graphite and nickel have many synergies at a higher level as both are key [lithium-ion] battery metals and both will be in significant demand by battery producers for electric vehicles (EVs) moving forward, hence the opportunity to develop two such projects in tandem is very appealing,” Blencowe executive chairperson Cameron Pearce said on February 22.

Forecasts for lithium, cobalt, nickel, copper and graphite indicate the potential for supply shortfalls ahead, which Blencowe said would push prices up.

The company added that it would ultimately target the creation of a Ugandan production hub for two of the most critical battery metal products, although it said there was much work still required to achieve this goal.

“The EV market is continuing its rapid expansion and we are seeing huge investments being made by substantial companies at various different levels within the full EV product cycle as they move to gain lost ground on the market leaders. 

“We are . . . seeing a philosophical trend towards less reliance on China as the dominant source of most EV components, and a paradigm shift where manufacturers are prepared to offer incentives to move further up the supply chain to secure critical offtake,” Pearce explained.

Akelikongo covers 112 km² of granted exploration licence and comes with considerable data from previous work conducted by the JV partners.

About $15-million had been spent, prior to Blencowe’s acquisition, on understanding the geology, geochemistry and the geophysics within the Akelikongo tenement and the local region, and then drilling the most prospective areas. 

Three nickel mineralised lenses have been identified based on detailed examination of cross-sections, long-sections, level plans and visualisation of data in three-dimensional mineral exploration software. The mineralised lenses have an average grade of 0.37% nickel and 0.12% copper, while thicknesses range from a few meters to 25 m.

Other nickel targets were identified in the regional programme around Akelikongo but have yet to be explored in detail.

In the first half of this year, Blencowe will carry out down-hole electromagnetics (DHEM) on the previously drilled holes that have not yet been read. Electromagnetics (EM) will also be conducted at surface to the northwest of Akelikongo to trace the mineralisation down-plunge and along strike. Airborne EM will also be carried out over identified regional targets.

In the second half of this year, Blencowe will conduct diamond drilling along strike and down-plunge of the identified mineralisation. It will also conduct diamond drilling of targets identified from the DHEM and the EM surveys. 

ACQUISITION STRUCTURE

The structure of the acquisition will see Blencowe acquire 100% of Akelikongo through an earn-in deal over four separate milestones. The earn-in will require Blencowe to spend $2.75-million over three years on exploration on the project and to issue $1.5-million worth of consideration shares to Sipa and Rio Tinto over four success-related milestones.

Moreover, Sipa and Rio Tinto will retain a 1.5% net smelter royalty on Akelikongo, subject to successful completion of all four milestones. The two JV partners have agreed to a six-month lock-up on the receipt of each tranche of consideration shares.

To earn the first 20%, Blencowe will need to spend $250 000 on the project over the first six months. If successful, $350 000 of consideration shares would be issued to the vendors.

An additional 30% would be earned – bringing the total to 50% – if Blencowe spends a further $500 000 on the project over the next six months, after which an additional $500 000 of consideration shares would be issued to Sipa and Rio Tinto.

A further $1-million spent on the project over the following 12 months will earn Blencowe a further 30% interest, totalling 80%. An additional $650 000 of consideration shares would then be issued.

The fourth and final stage would require Blencow to spend a further $1-million on the project over a further 12 months, thereby ensuring its acquisition of the final 20%, bringing the total ownership to 100%.

The consideration shares will be priced each time the decision is made to progress the earn-in deal through to the next milestone, with exploration results meriting further continuation.

On that basis, Blencowe said it believed shareholder dilution would be mitigated as any future issue of consideration shares would reflect the success achieved from exploration at the Akelikongo project.

In a statement issued to shareholders, Blencowe’s board of directors said they believed this would be the best structure to develop an exploration project as it mitigated any requirement to commit cash or issue further consideration shares until the exploration programme had proven to be successful at each phase.

“The structure of the transaction means we are . . . ensuring our cash is deployed in advancing the asset and unlocking incremental value,” Pearce added.

The majority of consideration shares are back-ended and will, therefore, only be paid if the project delivers exploration success, as well as if Blencowe elects to progress through each phase.