BAO

String of joint ventures ensure exciting times for exploration group

by Dan Coatsworth

Shares in Mozambique-based metals exploration group Baobab Resources (BAO:AIM) could rally once an imminent financing agreement to raise up to £2 million is completed. Talks concerning the raising of an initial £1.2 million through the issuance of stock to a new ‘strategic’ investor are nearing their conclusion. A series of joint venture partners should also be announced by the year end, providing money and skills to advance Baobab’s metal projects.

Frank Timis’s African Minerals (AMI:AIM) picked up RAB Capital’s (RAB:AIM) 17.6% holding in Baobab in May. The two companies share an interest in iron ore. Stockbroker Fox Davies estimates Baobab’s Tete project in Mozambique holds 500 million tonnes of iron. Metallurgical tests are currently being conducted in Australia to assess the best way of treating the ore.

Tete is 20 kilometres from a coal mining province where big-name producers are operating, including Vale and Riversdale, which has a project 35% owned by steel giant Tata. Although Tete is still early stage exploration, its prime location should attract interest from majors who want to exploit the coal and iron ore in the region to help produce steel.

Several majors including Antofagasta (ANTO), Anvil Mining and Vale have already visited Baobab’s Mundonguara copper project. They are interested in the deposit’s above-average copper grades, which are currently calculated at 1.4% against the sub-1% seen at many mines.

A joint venture partner is likely on Mundonguara in early 2009. More imminent will be partnerships on Baobab’s Changara polymetallic and Bandire gold projects. It is expected to announce a joint venture on Changara within the next three months, thought to be with an Australian company that is currently being taken over by a Chinese business.

Meanwhile, an off-market deal is being finalised for directors to acquire Baobab stock from Mineral Securities (MXX:AIM), a 7.7% shareholder which is selling down non-core investments in mining companies.

Shares says: Baobab is at least a year behind the schedule set during February 2007’s flotation, so joint venture partners should help accelerate development and the put the company back on track. Buy