Chirundu Joint Venture Project

Chirundu Joint Venture Project

The Chirundu joint venture project occurs approximately 150km south-east of Lusaka by sealed road. Previous exploration for uranium in the late 1970's by AGIP identified a number of uranium anomalies in the Chirundu area. The most significant of these is the Njame uranium prospect which became the initial focus of African Energy's work in the Chirundu joint venture project, and where the Company was able to identify an initial Inferred Resource in September 2006. Since that time African Energy has discovered the Gwabe uranium deposit some 20km to the northeast, and has outlined over 8.7 Mlb of U3O8 (3,945t) in combined Measured, Indicated and Inferred resources at the two deposits.

Joint venture partner Albidon Limited has elected to maintain its 30% interest in the project through meeting its share of future project costs. Both companies committed to a bankable feasibility study which commenced in May 2008. During the past year, work on the feasibility study concentrated on detailed resource drilling to upgrade resources to Measured and Indicated categories, an assessment of mining options, metallurgical test work to determine mineral processing paths and a revised operating cost summary.

In October 2008 the joint venture partners agreed to defer the engineering and hydrogeological aspects of the feasibility study until additional resources had been identified to extend the mine life beyond the current 5-6 years.

Chirundu Conceptual Project Overview
The Chirundu feasibility study is based on an operation utilising open pit mining and sulphuric acid heap leaching of the uranium ores, with mining initially from the Njame deposit only, followed by Gwabe once Njame has been exhausted. Uranium will be stripped from the leach solutions by ion-exchange resins, followed by elution and precipitation to produce a granulated UO4 product suitable for export at an annual rate of approximately 1.2 to 1.4 million lb U3O8 equivalent over a 5-6 year life. A centralised uranium processing facility at Njame will support the combined operations with loaded ion-exchange resins trucked from Gwabe to Njame for final processing and packaging.

Mineral Resources at Chirundu
A major programme of reverse circulation percussion drilling and large diameter core drilling was completed at Njame and Gwabe in late 2008 to provide infill assay data for resource estimation and core samples for metallurgical test work.

On the basis of these programmes a revised mineral resource estimate for both deposits was completed, with the majority of mineralisation classified in the Measured and Indicated resource categories. Combined Measured and Indicated resources for the Chirundu JV project contain 7.4 Mlb U3O8 at an average grade of 293 ppm U3O8, suitable for a 5-6 year mining project producing 1.2 to 1.4 Mlb U3O8 equivalent per annum.

Mining Options Study
Sound Mining Solutions Central Africa (Pty) Ltd were contracted to perform a trade-off study to compare mining using surface mining machines (specifically the T1255 from Vermeer), conventional drill and blast mining, and ripping/free-digging using a bulldozer. These costs have been derived through a consideration of the mechanical strength properties of the rock mass at Njame and Gwabe and have been benchmarked against mining operations in rocks of similar strength. Operating cost estimates for the Vermeer T1255 were also factored to account for actual vs. claimed performance for these machines in a large mining operation in southern Africa. Load and haul costs to deliver mineralisation to the heap leach pads and to deliver waste to the waste rock dump were factored into the estimate.

A summary of the results of this study is provided below:

On the basis of these results, and subject to further test-work to verify the assumptions made, the Company has selected surface miners as the preferred mining solution for Chirundu, although both deposits are likely to benefit from ripping and free-digging in the upper 5-10m which will slightly reduce costs.

Metallurgical Test Work Results
Mintek Laboratories have been performing metallurgical test work studies on the mineralisation from Njame and Gwabe as part of the feasibility study. This work has comprised rolling-bottle tests to assess material variability within and between the deposits and to determine parameters for subsequent column leach tests, and column leach tests on Njame mineralisation. Key results to date are:

• Rolling-bottle tests indicate that there is no material variability in reagent consumption for the mineralisation within each deposit.
• Rolling bottle tests indicate that Gwabe mineralisation consumes approximately twice as much sulphuric acid as Njame mineralisation.
• Column leach tests indicate that no scrubbing or agglomeration is required.
• Column leach tests for Njame mineralisation have achieved uranium recoveries of 84-87% with acid consumption of 3kg/t to 4kg/t.
• An average recovery of 85% and acid consumption of 5kg/t has been used for calculating operating cost estimates for processing Njame mineralisation.
• Uranium recovery of 70% was assumed for Gwabe based on previous column leach tests.
• An acid consumption of 10kg/t has been assumed for Gwabe based on twice that for Njame, as derived from the rolling-bottle tests.
• Sulphuric acid prices used for this estimation are US $170/t for acid purchased in the Copperbelt (2008 estimated contract price) and US $150/t transport to Chirundu as quoted by a local transport contractor. A reduction in these prices may be possible, which will have a positive impact on overall operating costs.
• Prices for other reagents were derived from quotes obtained by GRD Minproc.

Operating Cost Estimates
Based on the results of the mining options study and the metallurgical test work to date, a revised operating cost estimate has been produced:

Njame:

On the basis of these estimates, the average life-of-mine operating cost will be below US $30/lb U3O8. With further optimisation the Company is targeting an operating cost range of US $22-$25/lb U3O8.

Exploration Programmes in the Chirundu JV
Exploration in the last year has resulted in the discovery of the Siamboka prospect, which occurs 8km north of the Njame deposit. The prospect was identified through an airborne radiometric survey which highlighted an anomalous uranium response over sedimentary rocks which are interpreted to represent the faulted offset of the mineralised sandstones and siltstones at Njame.

Field evaluation of the prospect included geological mapping and an assessment of the uranium content of the soils on a 400m x 25m grid pattern. The uranium content in soils was established at each grid point using a calibrated RS-125 spectrometer in assay mode. Results to date indicate that anomalous uranium levels of up to 38 ppm U3O8 occur over a strike length in excess of 5km and up to 0.6km wide. The Siamboka target represents a high priority target for drill testing in the fourth quarter of 2009 due to its proximity to the proposed Njame uranium processing facility.

Further drilling will also be undertaken at Njame South, where previous drilling identified uranium mineralisation associated with airborne and surface radiometric anomalism. Drilling will also be conducted at the southern end of the Gwabe radiometric anomaly to evaluate the potential of down-plunge mineralisation.