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Energio on the cusp of major iron ore opportunity in Nigeria

Energio  (ASX: EIO) is developing a world class iron ore opportunity at the Agbaja Iron Ore Exploration Project in
Nigeria, which has resource potential of 1 to 2 billion tonnes of iron ore.

Analysis

Energio ticks many of the boxes as it moves to explore and develop the advanced Agbaja project:

- Experienced board of directors
- Proximity to infrastructure
- Large scale resource opportunity
- Lower relative risk
- Resource rich and high growth country

The board of directors has a track record of developing and financing large scale resource projects.  Kogi State is
home to the largest iron and steel factory in Nigeria with the full backing of The Federal Government of Nigeria.

The licenses have close proximity to existing rail; road and power infrastructure provides potential advantages in
reduced capital expenditure and allows fast track project development.

Energio aims to complete field programs and drilling program in 2011 with a target of maiden JORC resource in first quarter 2012.

Energio has a strong cash position of $4.729 million, which is sufficient to complete the current round of drilling,
and take Agbaja to initial resource estimation in mid 2012. 

The company’s securities will be suspended from 30 November until (an estimated) 19 December 2011.  A consolidation of shares will provide long term benefits, although in the short term the share price may come under pressure as is common during consolidations.   

However, at the current valuation of the company of just $20 million there is no shortage of upside potential for a company moving in on a 1 billion plus iron ore target with proximity to infrastructure Energio is one to watch as its valuation does also not take into account the exploration upside at the advanced Agbaja project.

Background

The company will seek approval at the Annual General Meeting to be held on 30 November 2011, for a change to its activities.

Energio has exercised its call option with TGP to acquire 100% of the fully paid ordinary shares in KCMH Australia
from TGP. KCMH Australia is the holding company of KCM Nigeria which owns of a package of iron ore licences in Kogi State, Nigeria.

KCMH Australia holds 75% of the shares in KCM Nigeria (having recently exercised an option to acquire a further 5% shareholding in KCM Nigeria in return for making a cash payment of $US412,000 (US$206,000 of which has already been paid).

KCMH Australia is an Australian privately owned company which has been focussed on acquiring iron ore Licences in
Nigeria since 2007. TGP holds 100% of the shares in KCMH Australia.

Nigeria Licenses

KCM Nigeria owns a package of recently granted exploration licences covering iron ore deposits in Kogi State,
Nigeria (Licences).

These Licences contain magnetite in BIF and iron rich oolitic deposits with an Exploration Target of 2.0-3.3 billion
tonnes of potential iron mineralisation grading in the range of 48% to 53% Fe and 1.6 - 2.7 billion tonnes of
potential iron mineralisation grading in the range of 48% to 53% Fe for the larger and smaller areas respectively.

The company announced effective control of Agbaja in September of this year, when it completed the purchase of a 75% interest in KCM Nigeria.

KCM Nigeria is the owner of a package of iron ore licenses in Kogi State, Nigeria, that include the Agbaja Iron Ore
Project. The remaining 25% shareholding in KCM Nigeria is held under option to Energio, putting Energio in a
position to acquire a 100% interest in Agbaja, and a number of other Nigerian iron ore prospects.

The licences contain magnetite in Banded Iron Formation, along with rich oolitic deposits with a conceptual
exploration target of 1 – 2 billion tonnes of iron ore grading a minimum of 30% Fe, with rock chip samples within
the Agbaja project area returning grades of up to 55% Fe, and showing potential for the presence of direct shipping
ore.

Location of Nigerian Licenses

Agbaja is located approximately 300 kilometres southwest of the Nigerian capital of Abuja, and is surrounded by
reliable infrastructure that includes sealed roads and highways. A 414 megawatt gas fired power station is within 50
kilometres of the project area.

There is also abundant water from the Niger River to support major mineral exploitation. Access to existing
available infrastructure will provide for an expedited project development and start up to satisfy the growing
demand for these mineral commodities.

A rail link is also located within 68 kilometres of Agbaja, and covers a distance of 300 kilometres towards the
coast that has latent capacity available to transport 20 million tonnes of ore per year. This line is being extended
over a distance of 27 kilometres, and will connect to the Port of Warri, which has extra capacity available to
trans-ship 10 million tonnes of iron ore per year into international markets.

Kogi State hosts a large proportion of Nigeria’s known iron ore deposits that occur in both Banded Iron Formations,
or within oolitic ironstones, and have been evaluated over a period of 50 years.

Ajaokuta Steel Complex & Itakpe Iron ore processing facility

In the early 1970’s the Soviet and Nigerian authorities collaborated in the construction of the nearby Ajaokuta
Steel Complex, which was established to produce 10 million tonnes of steel product per year.  Since completion, it
has essentially remained on care and maintenance for lack of funding and technical expertise.

In addition to the Ajaokuta steel works, Kogi State is also the location of the Itakpe iron ore processing facility
near Okene. This facility was originally designed and constructed with the capacity to beneficiate up to 3.3Mtpa
into concentrate for supply to Ajaokuta as 10% of its feedstock, using the existing rail facility.

Similar to Ajaokuta, Itakpe is also under the direct control of the Nigerian Federal Government. This plant is
currently on care and maintenance.

Due Diligence

As part of the due diligence process Energio completed an initial geophysical program in April of this year, on some
of the Nigerian iron ore prospects, with a particular focus on the Agbaja Plateau, which is contained within
licences EL8583 and EL8886.

The results reinforced existing data already collected by the Company that confirmed the presence of major iron ore targets along the Agbaja Plateau, and removed the need for more extensive aeromagnetic and geo-resistivity test programs.

The company then undertook a surface sampling program that included the hand excavation of four small vertical
shafts that were targeted into the highly prospective oolite and pisolite iron formations. Some of the shafts
reached a depth of 40 metres, and indicated that the mineralization within the length of the shafts reinforced the
positive historic geological data that had previously been collected along the top of the Agbaja Plateau.

Samples from this program were received by the Company in September, and were assayed and evaluated as part of the ongoing field program. This work was aimed at defining targets for a major resource definition drilling program, and ongoing exploration efforts.

Energio has now commenced drilling on the Agbaja Plateau, and plans to complete 20,000 metres for 680 shallow holes.

The drilling campaign is expected to take 6 months to finish, with drill samples shipped to Perth for assaying, and
release to the market.

Potential

The KCM licences in the greater Lokoja area cover at least 122km2 of prospective plateau that could host 1.6 billion to 2.7 billion tonnes of oolitic ironstone mineralisation with a grade range from 48-53% Fe. If the granted area of ELs turns out to be, as KCM understands them to be, then this target mineralisation would be over a larger area of 151.7km2 and would be from 2.0 billion to 3.3 billion tonnes.

Metallurgical testing of this material is required to determine if a suitable saleable product can be beneficiated.

Energio has completed preliminary scoping studies that indicate Agbaja has potential for an open pit mine producing iron ore at an annualized rate of 10 million tonnes. Access to local infrastructure will defray a considerable amount of capital costs and allow the project to be developed expeditiously.

Exploration

The initial exploration programme commenced in February 2011 with the objective of selecting drill pad locations and to prioritise drilling sequencing. This has included visits to the deposits, a review of aerial aeromagnetic survey
results and ground magnetics.

The Agbaja plateau was selected for the initial drilling program.

Drill Program - November

Energio has engaged a drilling contractor and the drill rig is now operating around the clock.

The plateau is 140 square kilometres in area and hosts a horizontal sandstone layer some 20 to 30 metres thick which has had embedded in it magnetite mineralisation by sedimentary action.

To test the content and quality of the iron in the mineralised zones of interest, Energio has defined an area of
approximately 1600 Hectares for drilling using a drill grid spacing of 200 metres by 100 metres.

In all Energio expects to drill some 700 holes which will total approximately 20,000 metres of drilling, to examine
in detail this portion of the mineralised zone of interest which represents only 10% of the entire Agbaja Iron Ore
Exploration Project’s land area.

Drilling is by Reverse Circulation (RC) and sample material will initially be taken at half metre intervals.

Sampling may, depending on JORC requirements, be extended to 1 metre intervals as drilling progresses.

A number of RC holes will be extended to approximately 200 metres deep to determine whether deeper ore bodies are present on the Agbaja Iron Ore Exploration Project. Additionally some drill core will be taken to enable metallurgical testing to be carried out for mineral processing considerations.

The drilling program should last approximately 4 months and an average hole will penetrate about 10 metres of
overburden followed by 20 to 30 metres of ore bearing sandstone material.

The company expects to drill 10 holes per day and to receive further drilling results toward the end of November and further news flow and updates through to the end of the program.

The first consignment of drill hole sample material will be dispatched to Perth for laboratory analysis.

The company has appointed consultants to supervise and sign JORC Mineral Resource Reporting.

Energio has 39 people from local host communities on the ground at Agbaja.

Where warranted, bulk samples will also be collected for additional beneficiation test work.

The objective is to lift mineralisation to JORC compliant levels of Resource or Reserves by 30 April 2012.

A metallurgical study is expected to start shortly, with a full report on the results of the drilling campaign expected towards the end of the first half of calendar 2012, and should include an initial JORC compliant resource.

Board of Directors


The company’s board of directors has a track record of developing large scale resource projects.

Nathan Taylor serves as chairman and non-executive director, and has assisted with raising $6 billion for ASX listed resource companies, and $10 billion for other ASX listed entities. He has held senior positions with StoneBridge Securities, UBS and Macquarie Bank.

Ian Burston is a non executive director, who has developed several multi-million tonne per year mining and export
operations, and serves on the board of Fortescue Metals Group, Cape Lambert Iron Ore and African Iron Ltd.

Don Carroll is a non executive director, who is a former executive with BHP Billiton, and helped develop the Kalimantan coal projects, marketing of minerals in Asia, and was the CEO for the Guinea Alumina project in West
Africa. 

Kevin Joseph is a non executive director, who has had 17 years of extensive business experience in Nigeria, and has established invaluable in-country relationships that will assist Energio with the development of Agbaja.

Athan Lekkas is a non executive director and has participated in a broad range of business and corporate advisory transactions and projects for a diverse range of ASX listed and unlisted companies, including the banking, mining and corporate finance industries in Australia and abroad.

Chief Executive Officer

Management is currently conducting a search for a Chief Executive Officer to lead the exploration and development of Agbaja, and develop a number of other large scale exploration projects that the Company has retained in Nigeria.

Meeting of shareholders and change of activities

On 30 November 2011, an Annual General Meeting of shareholders will consider the resolutions for change of
activities and consolidation of the company’s securities.  The securities will be suspended from trading on the ASX.

The AGM will vote on the issued capital of the company to be consolidated on the basis that:

(a) every 10 shares be consolidated into one 1 share; and
(b) every 10 options to acquire shares be consolidated into one 1
option,

On 19 December 2011, it is anticipated that the suspension of trading is lifted and Energio’s securities commence
will trading again on the ASX.

Recap

Energio ticks many of the boxes as it moves to explore and develop the Agbaja project:

- Experienced board of directors
- Proximity to infrastructure
- Large scale resource opportunity
- Lower Risk
- Resource rich and high growth country

The board of directors has a track record of developing and financing large scale resource projects.  Kogi State is
home to the largest iron and steel factory in Nigeria with the full backing of The Federal Government of Nigeria.

The licenses have close proximity to existing rail, road and power infrastructure provides potential advantages in
reduced capital expenditure and allows fast track project development.

Energio aims to complete field programs and drilling program in 2011 with a target of maiden JORC resource in first quarter 2012.

Energio has a strong cash position of $4.729 million, which is sufficient to complete the current round of drilling,
and take Agbaja to initial resource estimation in mid 2012. 

The company’s securities will be suspended from 30 November until (an estimated) 19 December 2011.  A consolidation of shares will provide long term benefits, although in the short term the share price may come under pressure as is common during consolidations.   

However, at the current valuation of the company of just $20 million there is no shortage of upside potential for a
company moving in on a 1 billion plus iron ore target with proximity to infrastructure

Energio is one to watch as its valuation does also not take into account the exploration upside at the advanced
Agbaja project.