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African Aura Mining: no shortage of potential in its gold, diamond and iron ore assets

African Aura is an established exploration and development company that operates three divisions: iron ore, gold and diamonds.

The iron ore division includes its 38.5% interest in the Putu iron ore project in Liberia which is moving through pre-feasibility managed by its joint venture partner Severstal Resources (the mining division of Moscow listed OAO Severstal). Putu has an initial resource of 1.07 Bt @ 37.6% Fe from 2.6km of the projects 12km strike which is currently being tested. Putu is presently the subject of a prefeasibility study, including airborne geophysics and a 27,000m drilling programme. The iron division also includes a 100% interest in the Nkout iron ore project and surrounding iron targets in Cameroon. Grab samples from Nkout have averaged 54% iron along a 5km section of a 12 km discontinuous ridge. The project is strategically well located situated close to the proposed rail route between the 2.5 billion tonne Mbalam iron ore deposit, and the proposed deep water port at Kribi on the Atlantic coast.

The gold division includes the multi million ounce potential New Liberty greenstone gold deposit. The project currently has a resource of 1.4 million ounces (NI 43-101 compliant 13.533 million tonnes of measured and indicated resource, with an average grade of 3.18 grams per tonnes), which is likely to be expanded and is presently being advanced through a bankable feasibility study. New Liberty is one of a chain of potentially similar deposits, including the high grade Weaju and Gondoja deposits, all in western Liberia, which will be drill tested by African Aura and are all considered to be in trucking distance of New Liberty. The Company is targeting annual gold production of 100,000 ounces pa from New Liberty.

The diamond division is represented by a 31.8% interest in AIM listed diamond producer Stellar Diamonds Plc (AIM: STEL), a subsidiary company which has successfully spun out of African Aura in February 2010 with RBC raising £5m for the reverse take-over of West African Diamonds. The holding in Stellar is presently worth a bit over £5 million, based on a share price of 15.5p per share.

Overview


African Aura is arguably one of the least appreciated mining juniors on the TSX and AIM. Arguably on a peer group comparison its current capitalization could be justified on either its iron ore or gold divisions on a standalone basis. The Company has a strong portfolio, and a highly motivated and experienced board and management team with a record of discovering deposits and taking projects through development and into production in Africa.

African Aura's strategy is to be a 'first mover” in pursuit of the next generation of gold and iron ore mines in emerging sub-Saharan Africa. The Company is distinguished by its experience of working in Africa and its ability to identify and assess the non-geological risks inherent with investing in emerging countries.

London mid-tier investment bank, Evolution Securities, in January stated current share price did not reflect the true value of African Aura, and noted that recently announced exploration campaigns are set to produce “considerable newsflow” in the first few months of 2010, which could spark further movements of the stock price. Similarly the London arm of GMP in February highlighted the likely fair valuation of Aura as being considerably higher than the current trading price.

Putu, Liberia Iron Project

Ownership:     38.5% Mano River Iron Ore Holdings, 61.5% Severstal Group
Target:         Haematite/Magnetite deposit with potential strike of 12km
Resource:     NI 43-101 Inferred resource estimate of 1.07 Bt @ 37.6% Fe from 2.6km of strike
Location:     South East Liberia, 100km for Atlantic Coast
Status:         4,000m drilling program completed
Program:    27,000m drill programme and airborne survey underway

In July 2009, SRK Consulting (NASDAQ:UK) Ltd was engaged to produce a National Instrument 43-101 (NI43-101) compliant Independent Mineral Resource Estimate for the Putu Iron Ore Project based on previously announced drilling results. The estimate for the 2.6km section of the 12km ridge drill tested to date provided an initial Inferred Mineral Resource of 1,077 million tonnes at a grade of 37.6% total of Banded Iron Formation (NYSE:BIF) mineralization.

African Aura is targeting a minimum resources of 2 billion tons and is targeting annual concentrate production of 20million tons by 2016. As a ridge Putu is relatively easy to mine, located only 120 kilometers away from deep water, requiring a basic terminal to be built close to an existing port, and simple railway infrastructure, suggests an attractive long life project.

New Liberty Liberia Gold Project

Ownership:     100%
Location:     North West Liberia
Resource:    1.4M oz (NI 43-101) 13.533Mt M&I at 3.18g/t Au
Geology:     Near vertical sheared ultramafics
Status:         BFS planned for H2 2010
Program:    10,000m drill programme and PFS underway

The New Liberty gold deposit is a classic shear-zone hosted Archaean age 'greenstone' gold deposit, which has geological parallels with gold deposits found in world class gold provinces such as the Victoria goldfields of Tanzania, the Kilo Moto region of north east DRC, the Guyana shield of Venezuela and Ontario in Canada. The Archaean geology of west Africa, as found in western Liberia, is one of very few Archaean gold provinces globally that remains to be significantly explored and one which African Aura’s consider has the potential to host numerous new open pit and underground gold mines.

The project has a 1.6km strike length and the hard rock has been mined intensively by artisanal gold miners down to a depth of up to 30m in places. African Aura has undertaken a systematic drill programme on the project which has yielded impressive results to date with a best intersect of 8.45 g/t Au over 37 metres. Other intersects below 200m include 23 metres grading 4.95 g/t Au and 26 metres grading 5.04 g/t Au.  Recent drilling confirmed the zone even goes even deeper with 4.42g/t intersected over 8m from 447 metres. The current 1.4 million ounce resource was projected down to a depth of only 300 metres. Metallurgical test work undertaken on ores from New Liberty yielded encouraging results, with gold being associated with silicate minerals resulting in high recoveries from gravity separation followed by conventional leaching.

Other Projects

In addition to the New Liberty Gold project and its surrounding deposits and the Putu and Nkout Iron Ore projects, African Aura has a pipeline of over 20 prospects discovered by its exploration teams to date.  In addition the Company it’s a 31.8% interest in diamond producer Stellar Diamonds plc (AIM:STEL) which recently undertook a reverse takeover of West African Diamonds. Led by RBC, Stellar raised £5 million from investors in February 2010. Stellar has a portfolio of projects in West Africa from production through to exploration. Two projects in Guinea are in production, namely Mandala and Bomboko, which provide cash flow. At the time of the merger, Mandala had produced over 53,000 carats and Bomboko had produced over 2,000 carats, with both projects currently undergoing expansion programmes. In Sierra Leone the Kono and Tongo projects comprise a series of kimberlite dykes, with the Kono project having produced 4,200 carats of diamonds through underground trial mining by Stellar in joint venture with Petra Diamonds. In Guinea, the Droujba kimberlite pipe and the Bouro kimberlite dykes are located in proximity to the Mandala mine and demonstrate grades of up to 500cpht and 200cpht respectively. Management believes that Stellar is well positioned to become a leading West African diamond producer, in one of the world's most prospective diamond regions.

Summary

African Aura is very well positioned as a junior mining company with value being created from its three divisions of iron ore, gold and diamonds. In Africa, there are often concerns about infrastructure, especially transportation, but with a significant track record in the region, the company’s management team has assembled and efficiently advanced a portfolio of projects with world class potential and on which it is focused on moving forward rapidly. The company has been active in Liberia since 1998 and Cameroon since 2006. With a number of significant events recently announced and expected to be announced, African Aura should soon draw the attention of a wider range of investors and industry players.

Disclosure: The author holds no positions in the company