UK EQUITY RESEARCH

6 December 2016

MINING

Buy
Price

5.4p

Target Price

27p (17p)

Reuters/BBG

BMR.L / BMR LN

Index
Sector
Market Cap
Shares in Issue
NAV
Gearing
Interest Cover

FTSE AIM
Mining
9.6m
183.1m
5.5p
NA
NA

Performance

Absolute

1 month:
3 months:

-28.8%

All-Share

-4.5%

-7.8%

12 months:

31.3%

20.2%

-28.3%

High/Low

8.6p /2.6p

Last Results

March 16 - December Interims

Next Results
Next Event

December 16 Full Year

Star Zinc Option

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

Nov-15

9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Source: Capital IQ

Analyst

Paul Smith
+44 (0)113 394 6609
paul.smith@whirelandcb.com

*WH Ireland acts as NOMAD and Joint

Broker to BMR Group
# WH Ireland makes a market in this
company
Marketing Communication
This document has not been prepared in
accordance with legal requirements designed to
promote the independence of investment
research. Please refer to important disclosures
towards the end of this document.

BMR Group *#
Kabwe assumptions refresh generates upside, new target
BMR continues to advance its Kabwe project in Zambia and has today provided
fresh information about its production and operating assumptions for the new
plant. Overall, the story is a simple one - to reprocess tailings and residues from
the former Kabwe mine to recover zinc and lead (and possibly vanadium and silver)
economically and remediate the former dumps. The operating plan for Kabwe
entails a three-phase approach to realising value from the various Kabwe tailings
and residues as follows: Phase 1 involves processing Wash Plant tailings (WPT) at
a rate of 40kt/a, before doubling the plant size and adding in production from the
high grade Star Zinc ore (Phase 1a). Phase 2 will result in the Leach Plant Residues
and ISF slags being treated in a new process line. Capital costs are expected to be
low, with Phase 2 funding from cash flow. Phase 1 construction has already
started, with commissioning expected in mid-2017. There is some slight risk in
translating the process to a full-scale plant, but we believe this risk is modest and
will be subsumed in the natural commissioning schedule as BMR learns how to
achieve its targeted recoveries. There are also potential primary mineralised bodies
in the area which may provide further high-grade oxide ores to the plant. However
we value the project purely on the Phase 1 production with upside to our target
from Phase 1a and Phase 2 as BMR further clarifies its plans. Our analysis shows
that BMR is undervalued on our risked DCF valuation (NPV10) and we maintain our
recommendation at Buy with an increased target price of 27p (from 17p).
BMR has a project funded and under construction at Kabwe in Zambia The Kabwe project
is to take a centurys accumulation of tailings and residues from the former Kabwe mine to
produce lead, zinc and a zinc sulphate heptahydrate (ZSH) chemical for use in agriculture.
The project involves a simple hydrometallurgical process to leach the already ground and
liberated material located at surface in Kabwe. The project has a plan to process the series of
characterised tailings and residues.
Todays announcement provides details of the production and operating assumptions
with a phased approach to increasing production. Phase 1 involves processing Wash Plant
tailings (WPT) at a rate of 40kt/a (3kt Zn, 2.5kt Pb). Phase 1a is about doubling the plant size
and adding in production of high-grade Star Zinc ore (at 40kt/a 10kt Zn, 2.5kt Pb overall).
Phase 2 will require processing the Leach Plant Residues and the ISF slags in a new process
line which at 450kt/a will enable the Kabwe plant to produce 25kt/a of zinc (as cathode and Zinc
Sulphate Heptahydrate) and 25kt/a Pb in total. Capex is estimated (WHI) to be low with $3.5m
for Phase 1, a further $2.5m for Phase 1a and then $8m for Phase 2 we view these estimates
as ample and believe Phase 1a and 2 will be paid for from cash flow.
Further upside evident With exploration at Star Zinc and around Kabwe due to begin shortly,
we see a distinct possibility that further zinc and lead oxide resources can be outlined. There is
also the potential for vanadium and silver production at Kabwe, adding further by-product
revenue streams
Early cash flow still possible from the Waelz Kiln Slag (WKS) Zinc and lead is too difficult
to recover from the WKS. However, it can be used to make building materials (cement blocks).
BMR has a plan to sell this material, subject to the Zambia Environmental Management Agency
(ZEMA) approving the plan.
The risks are generally low with the key moderate risks being translation of lab scale to pilot
plant scale together with the purity (and market for) the final products from the process. There
are several upsides identified, which include increases to our input long-term zinc and lead
prices and the recovery of additional metals (e.g. vanadium).
We maintain our Buy recommendation and increase our Target Price to 27p (17p) on
changes in US$ exchange rate and an increase in proportion of zinc sold as higher-value ZSH.
We continue to value BMR solely on the WPT. The processing of the other tailings and the
mining of Star Zinc would add to our valuation of BMR.

WH Ireland Limited,

24 Martin Lane, London, EC4R 0DR

WH Ireland is authorised and regulated by The Financial Conduct Authority and is a member of The London Stock Exchange.
Important disclosures and certifications regarding companies that are the subject of this report can be found within the disclosures page
at the end of this document.

BMR GROUP

Contents
Contents ............................................................................................................................. 2
Investment Case................................................................................................................. 3
Valuation ............................................................................................................................ 4
Upside to the Valuation ................................................................................................... 4
Risk .................................................................................................................................... 6
Zinc and Lead Market ......................................................................................................... 7
Zinc ................................................................................................................................. 7
Lead ................................................................................................................................ 7
Zinc and Lead Price Forecasts ....................................................................................... 7
BMR Group......................................................................................................................... 8
Kabwe Tailings ................................................................................................................... 8
Summary of Ownership and History ............................................................................... 8
Geology........................................................................................................................... 8
Mineralisation at Kabwe .................................................................................................. 9
Resources ....................................................................................................................... 9
Processing Plans .......................................................................................................... 10
The Kabwe Pilot Plant................................................................................................... 11
Kabwe Exploration............................................................................................................ 11
Star Zinc Mine Option ....................................................................................................... 13
Directors and Management .............................................................................................. 14

Figure 1: Kabwe Site Construction in progress

Source: BMR Group

WH Ireland

BMR GROUP

Investment Case
Buy 27p/share target

BMR Group has a development project in Zambia to clean up the former Kabwe mine site in the
centre of the country. Since our last note it has moved the process through feasibility and is
now in construction after obtaining funding. We anticipate a short build time and a ramp up to
production as BMR learns in practice how to deal with the tailings and residues left at site after
proving the chemistry of metal extraction and precipitation works at lab scale. We maintain
our Buy recommendation and increase our target price to 27p/share (17p/share).

Kabwe was a very important producer of

zinc and lead up until 1995

Background to the Kabwe mine The Kabwe mine was a rich lead zinc mine in Zambia which
was operational from the early 1900s to 1995. It produced 1.8Mt of zinc, 0.8Mt of lead and
amounts of silver, vanadium, copper and cadmium and left behind a variety of mining wastes,
many of which still contain valuable metals. The area has been investigated several times to
bring production back to the area, create jobs and provide investment and also, perhaps more
importantly, to clean up the residual pollution in the area particularly associated with lead.
Offtake and funding in place Offtake has been agreed with African Compass International
Limited a private South African company which is also providing the funding for building the
plant ($4.2m, includes prepayments for initial sales) and to fund the purchase of Star Zinc from
Bushbuck Resources ($1m). The funding is linked to Spot price and is an FOB price (Kabwe
mine gate). The loan is interest-free and repayment can be offset from product revenues
(100%, or 50% at ACIs request).

At surface, large resource base much

yet to be properly tested
WPT 0.6Mt grading 10.7%Zn + 7.2%Pb
LPR 2.6Mt grading 3.9%Zn + 8.7%Pb

Variable but extensive resource containing significant value The tailings at Kabwe consist
of a variety of mine wastes, tailings and residues. The current plan aims to process the WashPlant Tailings (WPT) and Leach-Plant Residue (LPR) which together have a resource of 3.2Mt
grading 5.1%Zn and 8.4%Pb. In addition, there are other residues on site including the Waelzkiln slag (WKS) and the ISF slag. Because of its low Zn and Pb grades and nature of the
mineralisation, the WKS would prove difficult to process. The ISF slag however, contains a
significantly higher Zn grade (8.1%), and lab tests have successfully achieved a >80%
recovery. These resources are also at the surface and require simple excavation to move.

Management focussed on value not just

metal production

Other residue revenue streams BMR has been working with a local manufacturer to use the
Waelz Kiln Slags (WKS) in its building blocks (80% WKS, 20% building sand) where test work
has been successful.

Determined to produce the highest value

product either metal, intermediate or
chemical

Saleable products An advantage of leaching is the ability to produce a final product on site.
At the laboratory, the process route from the WPT produced a lead sponge grading 96% Pb
and with zinc taken to both a refined zinc cathode of 99.6% Zn and zinc sulphate heptahydrate
(ZSH). The metals produced will not be LME grade and so will be sold at a discount to LME in
country (Table 3). However, ZSH is used in agriculture, for which there is a ready market in this
part of central Africa and in other regions. ZSH is a value-added product attracting twice the
price per unit of zinc sold as a straight zinc metal. Zinc sulphate heptahydrate contains 20%
zinc and sells for ~US$1,300/t in Zambia (source Ominia, Zambia).
Other potential metals
Recent testing has shown that vanadium is present in the leach
solution and may be recoverable as a separate product. This is firmly on BMRs agenda to
study further and if possible BMR will recover this valuable additional revenue stream.

Potentially saleable process simple

leaching and recovery stages, but put
together in a unique way. Material
handling the key

Proprietary processing and possible patents

If the proprietary leaching process does
prove effective, then it may be possible to license this process to other zinc and lead tailings
deposits as well as at ISF smelters with slag waste. The ISF process typically recovers only
92-94% zinc and 94-97% lead, with the remaining unrecovered zinc held in zinc silicate and the
lead as lead metal within the silicate matrix. The test work at the lab scale showed that the
recovery of 77% of the contained zinc could be possible. The ISF slag at Kabwe is a nonJORC resource of 1.5Mt grading 8.1% Zn, which if the process can be verified could easily be
recalculated into a JORC resource.
Additional upside from primary zinc deposits
The whole Kabwe area is still prospective
and BMR is concentrating on several known high-grade, near-surface areas e.g. the Kashitu
prospect for which a trenching and pitting program is planned. There is also further potential
from the willemite deposits at Star Zinc, which is under option by BMR. We highlight these as
they are known occurrences of oxide zinc deposits for which the plant could easily be modified
to treat (e.g. the addition of a small crushing and grinding circuit).

WH Ireland

BMR GROUP

Valuation
We maintain our recommendation at
Buy and increase our Target price to
27p (from 17p)

We have raised our valuation today as BMR has provided new information on its operating
assumptions. We value the Kabwe project on a DCF basis (NPV10) using only the WPT tailings
in which we double the plant size in 2018 to process 80kt/a. Our cash flow and assumptions
are shown in Tables 3 and 4. We separate the straight sale of the WKS slags, which we think
will happen quickly once BMR gains approval from ZEMA (currently subject to an appeal). We
estimate that the WKS can be sold for $4/t, and with just over 1Mt of material we value these
dumps at $4m, to be recovered over a few years. We risk this slightly for permitting risk and
delay to BMR receiving the revenues.
We add in an estimate of cash held by BMR and arrive at our new target price of 27p (17p).
We maintain our recommendation at Buy. Our increase in target price is based the
refinements in numbers provided by BMR today, on an increased proportion of zinc being sold
at the higher-value Zinc Sulphate Heptahydrate (ZSH) and on a changed US$: exchange rate
(1.3 as opposed to 1.4).
We currently add no value for Star zinc in our Base Case and for the exploration in and around
the Kabwe mine site. The area around Kabwe is prospective, but at an earlier stage and will
require time to define resources. BMR are keen to also add further production capacity to
process the LPT and ISF in its phased plan. We treat this as Upside potential which we show
in Table 2.

Table 1 BMR Group Valuation Summary Base Case

Asset

Risk

GBp/share**

Kabwe Tailings Project (NPV10)

Kabwe WKS sales (expected cash)
Kabwe exploration
Star Zinc exploration
Cash and cash equivalents***

Value US$m Value - m*

96.7
4

74.4
3.1

0.6
0.8

2.8

2.0

1.0

24.4
1.3
0.0
0.0
1.1

BMR Group Valuation

103.5

79.5

1.0

26.8

Source: WH Ireland Research

*Exchange Rate US$: 1.3
** Based on 173.8m shares in issue
*** WH Ireland Estimate

Upside to the Valuation

Our valuation is at the low end of what
could be achievable

Current spot prices are:

There is upside to our valuation as at this stage we only show the processing of the Wash Plant
Tailings (0.5Mt of WPT) at a rate of 80kt/a. We order these below with those having the most
impact on our valuation closer to the top of the list BMR has a plan which will see zinc oxide
ore production from Star Zinc mine and trucked to Kabwe for zinc recovery. This will be
followed by a large plant expansion in 2020 to enable Kabwe to produce at an annualised rate
of 25kt/a Zn by enlarging the processing plant size to take a combination of the LPR and ISF
residues.

BMR will be a price taker and is dependent upon the prices of lead and zinc going
forward. We, along with many commentators, see strength in the lead and zinc prices
over the medium term and think that the prices could be materially higher than our
long-term price for a period. This is a great time to be a lead-zinc developer and
producer. At current SPOT prices our Base Case target price would be 3p higher
at 30p.

Expanding the plant and processing the Leach Plant Tailings (LPT) and ISF slags
(ISF). These residues are lower-grade than the WPT, but can generate good returns
at current (and our forecast) lead and zinc prices. Recent test work shows that
blending these two residues in the proportion 2:1 LPR:ISF achieves good recoveries.
The Phase 2 scenario where BMR adds a dedicated second line to its plant for
the LPR:ISF blend and treating 450kt/a for a capital cost of $8m would raise the
overall NPV10 to $167m and our risked price target to 43p.

Recent test work shows that vanadium is also leached from the residues and could
potentially be recovered. Silver could also be a useful by-product credit especially
when Star Zinc ore is processed. We do not yet include any allowance for this in our
numbers, but vanadium is already shown to be in the PLS stream.

Zinc - $2900/t (against our $2600/t)

Lead - $2500/t (against our $2100/t)
ZSH - $1200/t in Zambia

WH Ireland

BMR GROUP

Current spot prices are:

Zinc - $2900/t (against our $2600/t)
Lead - $2500/t (against our $2500/t)
ZSH - $1350/t in Zambia

Translation of the proprietary process to other ISF dumps, or other zinc oxide
producers with residues and tailings, if the process can be shown to work
economically. There are other dumps of ISF material worldwide which could be
reprocessed. It would make sense for smelter operators to use BMRs technology to
recover additional zinc and lead units from their slags especially as many will have
excess sulphuric acid production on site.

Table 2 BMR Group Valuation Upside Case (inc. LPR/ISF, Star Zinc and WKS sales)
Asset

Value US$m Value - m*

Risk

GBp/share**

Kabwe Tailings Project (NPV10)

Kabwe exploration
Cash and cash equivalents***

167.4

128.8

0.6

2.8

2.0

1.0

42.2
0.0
1.1

BMR Group Valuation

170.2

130.8

1.0

43.3

Source: WH Ireland Research

*Exchange Rate US$: 1.3
** Based on 183.4m shares in issue
*** WH Ireland Estimate

Table 3: Assumptions used in the DCF Valuation of Kabwe

1.3 : 1
$2600/t ($2340/t realised)
$2500/t ($1700/t realised)
$1300/t

$:
Long-term zinc price (discounted by 10%)
Long-term lead price (discounted by 40%)
Long-term estimate for zinc sulphate heptahydrate (ZSH)

$120/t
$80/t
5%
$3.5m
$2.5m
$8.0m
0.3
30

mine site cost at full production

Sulphuric acid price (process expected to use ~0.5/t material treated)
Royalty
Capital Cost (Phase 1)
Phase 1a - Star Zinc mine (open pit plus crushing circuit)
Phase 2 LPR / ISF treatment plant 450kt/a throughput
Ongoing Sustaining Capital (rising to $1.5m at full production)
Corporate Tax Rate

$/t
$/t
%
$m
$m
$m
$m/a
%

2017-2025
2017 - 2030

Wash Plant Tailings only

Full production from Kabwe

Source: WH Ireland Research

Table 4: Kabwe Plant Cash Flow for the Wash Plant Tailings Only
kt
kt
kt
%

2016

2017
1.7
1.3
7.5
-

2018
3.3
2.5
15.0
-

2019
5.8
4.4
21.0
1.2

2020
6.7
5.1
22.5
1.7

2021
6.7
5.1
22.5
1.7

2022
6.7
5.1
22.5
1.7

2023
6.7
5.1
22.5
1.7

2024
6.7
5.1
22.5
1.7

2025
3.8
2.9
16.9
-

Price Zn (received)
Price Pb (received)
Price ZnSO4 (received)

US$/t
US$/t
US$/t

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

2340
1750
1300

NET REVENUE

US$m

12.0

24.0

37.8

42.1

42.1

42.1

42.1

42.1

27.0

Mine Site Cost

Royalties

US$m
US$m

(3.0)
(0.6)

(5.6)
(1.2)

(7.7)
(1.9)

(8.0)
(2.1)

(8.0)
(2.1)

(8.0)
(2.1)

(8.0)
(2.1)

(8.0)
(2.1)

(4.5)
(1.3)

EBITDA
DDA
Interest
Tax

US$m
US$m
US$m
US$m

8.4
(0.3)
(2.4)

17.2
(0.3)
(5.1)

28.2
(0.3)
(8.4)

32.0
(0.3)
(9.5)

32.0
(0.3)
(9.5)

32.0
(0.3)
(9.5)

32.0
(0.3)
(9.5)

32.0
(0.3)
(9.5)

21.1
(0.3)
(6.2)

Net Profit After Tax

Add back in DDA
Expansion Capex
Sustaining Capex

US$m
US$m
US$m
US$m

5.7
0.3
(2.5)
-

11.8
0.3
(0.5)
(0.1)

19.6
0.3
(0.3)

22.2
0.3
(0.3)

22.2
0.3
(0.3)

22.2
0.3
(0.3)

22.2
0.3
(0.3)

22.2
0.3
(0.3)

14.6
0.3
(0.3)

BMR Plant CASH FLOW

US$m

3.5

11.5

19.6

22.2

22.2

22.2

22.2

22.2

14.6

Production Zn
Production Pb
Production ZnSO4
Zn cathode sold

Source: WH Ireland research

WH Ireland

BMR GROUP

Risk
There is always risk in the junior mining
sector

BMR Group is a junior mining company, though one which is making the right progress moving
to producer status and investing in the company does carry certain risks many in common
with similar companies. We highlight the most significant risks as we see them below.

It is a new process in the way it has

been put together, but other companies
look at the leaching of zinc and lead
oxides e.g. Cinkur in Turkey and
Angouran in Iran.

Proprietary process risk

The reprocessing of zinc and lead tailings is not a new idea and
has been achieved in other countries on other deposits. However, this usually takes the form of
aphysical method (e.g. gravity separation) or physico-chemical methods (e.g. flotation) to
upgrade the metal content. In contrast, BMR proposes a hydrometallurgical process (leaching)
for the Kabwe tailings and residues as simple gravity processing has proved ineffective.
At Kabwe there are considerable quantities of zinc and lead oxides in the tailings and residues
which can be leached. In our discussions with management we have been impressed by the
quality of the lab scale test work and believe that it may be possible to scale these fully as the
BMR process (from what we understand) is simple and the kinetics amenable (i.e. the chemical
reactions are fast). The risk to translating the process to a bigger scale will be the material
handling of larger quantities od residue and making sure the right chemicals are in contact with
the lead zinc minerals for the right amount of time. Also the clarification and filtration of the
Pregnant Leach Solution will be more challenging at the larger scale with the presence of clay
in some of the residues. This is all a moderate risk in our view, and if it works as anticipated
might be applicable to other tailings (and residues) in other countries

Zambia has rolled back its recent

changes to royalties and taxes and
mining is big importance to the Zambian
economy.
Significant investment in
country still required in mining projects
Low-moderate risk

Country risk is low to moderate in our opinion There has been a long history of mining in
Zambia and nearly 100 years of mining and processing history at Kabwe itself. The industry is
mostly in private hands and there is due process to help companies achieve operational status.
The billions of dollars invested in Zambia by foreign-owned firms are testament to the positive
investment climate in the country. Over the past couple of years there has been a push by the
government to raise more money from mining companies especially after the commodities
bull run in the last decade, and Zambia is trying to balance taxes for its mineral wealth with
conditions that will continue to attract investment, BMR will produce a final product on site
not send intermediate material to another facility (e.g. a smelter), which means that revenues in
country are captured and will be available to be taxed properly by Zambia a win-win both for
Zambia and for BMR. The control of the final product also means there is little third-party risk
for BMR.
Licence risk is low
The plans for lead-zinc production from Kabwe were submitted to the
Zambian Environmental Management Agency (ZEMA) and a permit issued. There is another
potential permit required for the sale of the WKS, but we feel this is low risk, as the sale of the
WKS will help clean up the site and the material requires no further processing on site. Any
delay in the issuing the permit will push the cash flow from the WKS further on out, but we are
confident that this licence and the cash flow resulting from it will come to BMR in due course.

Zinc and lead prices are a low risk in our

opinion.
There is a good supplydemand story for zinc (and lead) going
forward. Risk is on the upside in terms
of price.

We view the risk for zinc and lead prices as low Whilst most base metal prices are still just
above recent lows there have been some good recovery stories. Zinc is one of these and we
see a good medium-term outlook for both zinc and lead prices going forward. The supply story
of the recent decade has been the ability by China to produce more and more zinc from its
domestic mines, this cannot continue forever and we are of the opinion that in the next two
years and forecasting only a modest demand increase, zinc metal stocks will be reduced, the
market will tighten and prices may increase further from the current 130/lb level ($2900/t) which
is already above the price we use in our DCF valuation.

No mining risk all at surface in heaps

No mining risk The material at Kabwe is on the surface, is already crushed and ground and
has little or no waste rock / soil associated with it. The Star Zinc resource is also close to the
surface some at surface in Karstic pockets. The ore is high-grade with much resource below
cut-off (14%) and we view the potential to increase the resource as high.

Low environmental risk as the area is

contaminated and requires extensive
clean-up.
BMRs
will
remove
contaminants from site

Environmental risk
One of the reasons for BMR to try and reprocess some of the Kabwe
residues and tailings is to help the environmental clean-up. Obviously BMR will create revenue
and returns from the material, but this will remove metal from site and allow for the remaining
material to be properly covered and reduce any further local environmental pollution. A plan is
in place for a proper clean-up of the tailings site (though BMR is not liable for this).

Legacy environmental problems are not

the responsibility of BMR
WH Ireland

BMR GROUP

Zinc and Lead Market

Zinc
Stronger consumption news out of China
combined with further supply disruption
could easily see zinc price be the star
performer over the next few years.
The recent story for zinc has been about
the supply side, with large mines closing
and increased production from the
Chinese small and medium size mines

The future for the zinc market is driven by mine supply growth and if it will be able to keep pace
with consumption growth.
We expect global zinc consumption to grow in the region of 2.5%p.a., in line with other market
commentators, led by an increase in per capita zinc consumption. At these rates of growth,
global zinc consumption could rise by an average annual increase of 0.4Mtp.a. Whilst some of
the extra mine capacity will come from expansions and mine life extensions at existing
producers, the majority of the required production will have to be from new projects. It can take
a long time for a mine to go from first discovery to production and especially given the capital
constraints of established mining companies (often too highly leveraged) and juniors (capital
market constrained) we see a delay in progress taking projects through all stages to production.
Despite current market headwinds and a volatile outlook to short-term supply and demand, over
the medium to longer term this is a significant challenge for the zinc industry
This year is projected to be the fourth year of a global refined market deficit and the year when
a sustained draw-down of general inventories should begin to manifest itself in the form of
lower exchange stocks. Such declines will inevitably provide fundamental support for the price,
which is likely to move higher as a result.

Lead
As lead is usually intimately associated with zinc in mineral deposits, there is a similar supply
story for lead. However, new mine supply is not as critical for lead as for zinc since much of
refined lead demand is satisfied from the recycling of lead batteries which make up 80% of
lead consumption. Secondary supply from recycling roughly matches production from primary
sources. That said, any medium term outlook for lead has deficits in the global lead balance
and a rising lead price going forward.
Forecast Chinese demand growth will remain high at 5-6% p.a., slightly reduced on the last
decade as the ebike sector, for so long the major driver of escalating Chinese demand, is
reaching market maturity and saturation, which will see growth continue at far more modest
rates. Demand for lead is also supported by the continued growth in Chinese auto production.

Zinc and lead price forecasts

At WH Ireland we use consensus forecasts for this year and next, then trending to our own
long-term price based on our understanding of the incentive price and supply/demand
dynamics going forward. We present these for zinc and lead below:
Table 4: Price Forecasts (US$/t)

Zinc Price ($/t)

Lead Price ($/t)

2015A
1975
1830

2016E
2100
1950

2017E
2800
2500

2018E
2400
2100

Long-term
2600
2200

Source: WH Ireland Research, Capital IQ (30/09/2016)

WH Ireland

BMR GROUP

BMR Group
BMR Group is listed on AIM (AIM:BMR) and has one project comprising tailings held at Kabwe,
Zambia. The Kabwe area hosts rich zinc-lead deposits in central Zambia roughly 135km north
of the capital Lusaka and has good transport and other infrastructure links. The previous
mining operation in the area has left a legacy of pollution. BMR as part of its reprocessing of
the tailings will provide a clean up to the area.

Figure 2: Kabwe Site Google Earth

Kabwe Tailings
Summary of ownership and history
The Kabwe Mine area, has been in production on and off from 1904
with the mine closing in 1995. Over its life, the Kabwe mine
produced approximately 1.8Mt of zinc, 0.8Mt of lead with other
amounts of silver, vanadium, copper and cadmium.
Following the Kabwe mine closure in 1994 the infrastructure was
sold in lots to private investors with overall responsibility for the
decommissioning and rehabilitation of the site retained by ZCCM,
and its successor ZCCM-IH. The Kabwe dump assets have changed
hands several times, with Sable Zinc Kabwe Ltd (SZK) purchasing
the tailings and other units in 2000. SZK produced zinc cathodes
from a SX-EW plant by processing the Washplant Tailing Material
(WPT) up to 2003/4. Metorex Limited, of South Africa, acquired
SZK in 2004, and during 2006, SZK stopped tailings reprocessing.
The plant was converted to produce copper cathodes by processing
malachite ore supplied via the DRC and was in turn expanded later
to include a cobalt oxide precipitate plant. Sable Zinc was bought by
Glencore in 2011, who closed the operation in October 2014.
In 2008, Berkeley Minerals Resources PLC (renamed BMR Group in
2015), purchased some of the Kabwe Mine assets from Zincorous
Investments and Dorset Solutions Limited. In 2010, with permission
from SZK, BMR analysed the Kabwe Tailings Dumps, subsequently
calculating two JORC Resource Statements on the Wash Plant and
Leach Plant Residues dumps in 2012.
In 2010, SZK sold the tailings to Enviro Processing Limited (EPL), a
100% subsidiary of BMR which supplemented this acquisition in
2012 by the purchase of all the relevant assets at the Kabwe Mine
Site, which included Mine Plots from ZCCM-IH, Alberg Mining and
Silverlining and the large-scale mining lease.

Geology
The geology of the Kabwe area is poorly exposed with few rock
outcrops, except for the original mineralised kopjes. A stratigraphic
record has evolved from exploration work over the last 95 years.
Rock formations range in age from the Basement Complex (oldest
Pre-Cambrian) to the Upper Kundelungu (youngest Lower
Palaeozoic).
Source: WH Ireland research, Google Maps

The Basement rocks consist of early Pre-Cambrian granite-gneisses

and late Pre-Cambrian quartzites. The Basement Complex is
estimated to be between 2680 and 2050 million years old.
The granite-gneiss is not exposed in the Kabwe mine area, and the nearest outcrop is 5km east
of the mine. Outcrops of late Pre-Cambrian quartzites and schists occur to the south of the
mine site.

WH Ireland

BMR GROUP

The late Proterozoic Katanga Supergroup (which hosts the majority of the copper-cobalt
deposits in the copperbelt) is solely represented by the Roan Group in Kabwe. It consists of a
succession of quartzite and schist overlain by a pelite-dominated succession. A meta-carbonate
unit, Kabwe Massive Dolomite, within the quartzite and schists hosts the lead and zinc
deposits. It is also host for the Chiwanda deposits which are 6km west of Kabwe.

Mineralisation at Kabwe
Figure 3: Typical Tailings Dump

Source: WH Ireland Research

Figure 4: ISF Slags in the Distance

The Kabwe lead-zinc deposits are epigenetic replacement bodies in the form of non-stratiform
pipes, pods and veins in the Kabwe dolomite. The strike is approximately 50-70 plunging to the
ENE at 30 to near vertical. The Kabwe deposit consists of 6 orebodies, which are referred to
as numbers 1, 2, 3-4, 5- 6, 8 and X (Figure 11). Orebodies 3-4 and 5-6 join to form one orebody
at depth and orebodies 8 and X do not outcrop. The Kabwe orebodies, except No. 2 and 8,
have a core of massive sulphide with a 10m oxidised halo. When the width of the orebody is
less than 20m the sulphide core is absent.
Of course the mineralisation of interest currently to BMR is in the tailings and residues at
surface formed as a result of the near century of exploitation of the original orebodies. Kabwe
had metallurgically complex ore and the mine operated a series of independent and
interconnected process routes to extract as much value as possible. Some of the metals were,
however, left behind in the dumps and tailings impoundments. Each dump was usually the
waste from one process and so the dumps can be metallurgically characterised and a process
route devised to extract further value. BMR is now beginning to make the progress required to
begin processing (some) of the dumps.

Resources
The resources at the property are varied. Some have been properly sampled and drilled to
sufficient standard that a JORC Measured Resource has been calculated by BMR, whilst some
are not to JORC-standard and remain geological estimates only.
Table 5: Resources and Reserves

Source: WH Ireland Research

Figure 5: Top of the ISF Slag Dump

Tonnage
kt

Zn
%

Pb
%

Cont. Zn
kt

Cont. Pb
kt

Measured Resources
Wash Plant Tailings (JORC) - WPT
Leach Plant Residues (JORC) - LPR
Total Measured Resources (JORC)

573.5
2648.9
3222.4

10.7
3.9
5.1

7.2
8.7
8.4

61.1
102.8
163.9

41.3
230.7
272.1

Waelz Kiln Slag - WKS

ISF Slag
Mixed Leach Plant
Pyrite Tailings
Blue Powder
Total Non-JORC

1104.8
1481.6
249.7
333.5
1.9
3171.5

3.6
8.1
6.7
4.9
14.1
6.1

1.5
1.2
10.2
5.7
7.3
2.5

40.2
119.6
16.8
16.2
0.3
193.0

16.8
18.1
25.4
18.9
0.1
79.3

Total Resources (Non-JORC)

6393.8

5.6

5.5

356.9

351.3

Source: WH Ireland Research BMR Group

Of principal interest is the WPT (highest grade), with the LPR (largest tonnage and largest
amount of contained zinc and lead) also featuring in the first plans for processing.
Of other interest is the ISF Slag, with a considerable amount of zinc in resource (~120kt). BMR
is looking to upgrade this to JORC status as soon as there is a viable extraction process route
for the zinc. We believe that the tonnages and in-situ grade calculations are robust and that the
120kt contained zinc in these slags will be close to the JORC resource figure. If this is the
case, then this would add significant value to the Kabwe Resources.
Recent test work shows that at a slightly elevated temperature of 80C, recoveries of 85%Zn
and 91%Pb can be achieved, falling to 75% and 80% respectively at ambient temperatures.
The test work was carried out on a series of random samples in the proportion LPR:ISF of 2:1
Source: WH Ireland Research
WH Ireland

BMR GROUP

using a sulphating acid brine leach, but with a much lower consumption of sulphuric acid than
previously achieved (now at 0.5 tonnes acid / tonne processed).
BMR is considering all possibilities for its resources by looking at the WKS as a raw material for
making building blocks the value there being in its ferro-silicon content, not its zinc and lead
grade, for use as a cement in the building blocks. There is a plan to sell this material, but it is
currently held up by the requirement for an Environmental Assesment for ZEMA.

Processing Plans
Figure 6: Wash Plant Tails

Plans for processing the materials and residues at Kabwe were reassessed following the arrival
of new management. Previous work on metallurgy and potential process plans was revisited
(and redone in many cases).
Flotation was never really a viable option and an initial plan to use gravity separation on the
higher-grade WPT has been shelved. Recent work has focussed on hydrometallurgical
processing for the WPT and the LPR using a proprietary acid / brine leach with recovery either
to a metal or intermediate chemical. The final product is under review as part of the pilot plant
stage of evaluation.
As we understand the process it will:

Source: WH Ireland Research

Figure 7: Leach Plant Residues

be simple - not many steps and not a complicated collection of chemical reagents
be quick short reaction times to leach the metals from the residues and tailings i.e.
hours, not days (or longer)
operate at ambient temperatures and pressures - which is important as it means
that standard equipment can be used i.e. not built using speciality steels and no with
need for a high-pressure vessel. This will impact positively on capital and operating
costs

have a simple final product metal and intermediate chemcials

BMR should be able to produce an acceptable grade of lead metal (for battery manufacture),
possibly for sale locally in Zambia albeit at a discount to LME. Lab-scale testing has shown
that lead grading 96% Pb can be produced. For zinc, BMR has a plan to produce both a zinc
sulphate for farming (agriculture or animal feed additive) which it could produce at site for
distribution within Central Africa (or further afield) and additionally a zinc cathode (LME grade).
The recovery of zinc is lower than that for lead as from mineralogical work on the material a
proportion of the zinc is tied up in insoluble zinc silicates and sulphides.

Source: WH Ireland Research

Figure 8: Cycles of Tailing Deposition

Full details of the process plan should become available as the plant is built. We anticipate that
the plant will be a batch process with agitated leaching taking place in vats. Leaching will be
achieved by the addition of sulphuric acid (H2SO4) and sodium chloride (NaCl). The vats will
have to be washed several times with additional sulphuric acid and sodium chloride to remove
the metals and leave behind any solids and colloidal clays. Once zinc and lead (and other
metals) are in solution, they can be recovered and separated.
Lead will be recovered by the addition of zinc dust leading to the precipitation of lead with zinc
recovery by the addition of sodium sulphide (Na2S) to produce a zinc sulphide precipitate. Zinc
will be converted to metal cathode by the construction of an Electrowinning plant with some of
the zinc will be turned into zinc sulphate heptahydrate for use in agriculture.
This is a proprietary process but that is not to say it carries an overly high amount of risk.
Leaching of ores for base metals is well known and understood especially for some e.g. copper
and nickel deposits. It is not used widely in zinc (and lead) mining as zinc and lead oxide
deposits suitable for leaching are rare, whereas copper and nickel oxide deposits are more
widespread. The chemistry has been shown to work in the lab and we see no difficulties in
translating this to the pilot plant stage, although BMR will need to learn the optimum material
handling strategies to get the full recoveries achieved in the laboratory.

Source: WH Ireland Research

WH Ireland

Once the process has been demonstrated there is the potential to move it to other operating
zinc-lead oxide deposits around the world (e.g. Mae Sod, Vazante and Cinkur). One constraint
may be acid consumption as many of the zinc oxide deposits are associated with carbonate
rock sequences for which the acid consumption may be prohibitively high.
10

BMR GROUP

The Kabwe Pilot Plant

BMR has stated that it is funded for the pilot plant and is looking for ways to build the plant for
as little as possible.
Figure 9: The Proposed process at Kabwe

Source: WH Ireland Research

Whilst the plant will be configured for the WPT, BMR will use the opportunity to mix up tailings
and residues from the other dumps (namely the LPR and ISF slags in the first instance) to
assess the suitability of the process and the changes to chemistry and material handling
required to produce lead and zinc from these other sources as well.
At 100% a plant running at 5t/hour and 24/7 would process pro-rata 40kt/a. At the WPT
resource grades (a JORC resource of 574kt grading 10.7%Zn and 7.2%Pb) and recoveries of
80% for the zinc and 94% for the lead, the plant could produce ~3-4kt/a of zinc and ~2-3kt lead
contained in the final products.

Kabwe Exploration
In the longer term if Kabwe becomes a production hub for BMR it might want to consider the
underground potential still left in the area. The resources shown in Table 6 are Non-JORC
compliant but an estimate of what was known in place at the time the mine closed in 1995.
The area has never been explored using modern mineral exploration techniques and the whole
science of remote sensing these hidden deposits has improved. There is a greater ability to
see anomalies at greater depth and for those deposits with a large proportion of zinc (zinc
minerals do not usually have a large geophysical signature) the sensitivity has improved
markedly over the last 20 years.

WH Ireland

11

BMR GROUP

Table 6: Underground Resources

Old Airfield
Speaks
Number two Ore body
Mine Club
Total
Source: BMR Group

Max Depth
m
150
200
470
200

Tonnage
kt
46460
1944
1905
666
50975

Zn
%
2.2
12.0
12.9
11.8
3.1

Pb
%
0.8
2.0
1.8
0.8
0.9

Cont. Zn
kt
1036.1
233.3
245.0
78.4
1590.4

Cont. Pb
kt
371.7
38.9
33.7
5.5
453.7

Figure 10: Kabwe Licences showing location of Tailings (West) and the Large Scale Mining
Licence with zones of Potential to the East

Source: BMR Group, WH Ireland Research

BMR is beginning surface exploration in the Kashitu area and is beginning a trenching and
pitting programme after a thorough assessment of historic drilling and ground magnetic data.
Figure 11: Vertical Projection showing the Orebodies at Kabwe (rough location of the
vertical section marked in purple on Figure 10)

Source: BMR Group, WH Ireland Research

WH Ireland

12

BMR GROUP

Star Zinc Mine Option

BMR Group has signed an option agreement with Bushbuck Resources Limited (a private
Zambian company with with an Australian parent company) to acquire the licence around the
Star Zinc deposit. The option on exercise will be to pay $1m to Bushbuck, the money for which
will be made available to BMR through its loan agreement with African Compass International
Limited.
The Star Zinc Licence comprises 83 km2 and is situated approximately 15km NNW of Lusaka
on the Great North Road and 90km from Kabwe. The deposit was mined briefly in the 1950s by
open pit mine with the ore treated at the Kabwe mine. The deposit was drilled by Chartered
Exploration (Anglo American) in the 1960s and later AVMIN Development (Zambia) Ltd
undertook a limited amount of exploration.

Geology
The Star Zinc prospects were discovered in the early 1920s. They are found in a late
Proterozoic Zambezi Supracrustal sequence in limestone and dolomitic marbles of the Cheta
and Lusaka Formations. Mineralisation is in fractures genetically related to the Pan-African
Mwembeshi dislocation zone (a major geotectonic boundary between the Lufilian Arc and the
Zambezi Belt). There are several suggestions as to how they were formed, either from a preexisting sulphide zinc body or primary hydrothermal fluids controlled by rifting.

Resources
There is a 2015 (non-JORC) resource of 0.3Mt grading 20.2%Zn at a cut-off grade of 14%Zn.
The zinc is present in the form of willemite (Zn2SiO4) There is silver and germanium associated
with the mineralisation with historically mined grades of 150g/t and 110g/t respectively.
The resource is open along strike and depth and is about 40m deep. AVMIN found three other
prospective areas (Star East, Star West and Star South) with float samples from these areas
assaying over 30%Zn. Close to the open pit there are areas of karst containing zinc
mineralisation (willemite) with grades up to 20%Zn these remain poorly explored. All these
areas will be the targets of further work.

Metallurgy
The current owners (Bushbuck) showed that over 90% of the zinc could be recovered by acid
leaching using tests which have been replicated by BMR Group. The acid consumption was
moderate at 0.4t/t ore treated which is similar to the tailings at Kabwe.

WH Ireland

13

BMR GROUP

Directors and Management

Alex Borrelli - Chairman and CEO. Alex qualified as a Chartered Accountant with Deloitte,
Haskins & Sells, London in 1982. He has subsequently been active within the investment
banking sector and has acted on a wide variety of corporate transactions in a senior role for
over twenty years, including flotations, takeovers, mergers and acquisitions for private and
quoted companies (on the Official List, AIM and PLUS, now ISDX). Alex was until recently
chairman of Ablon Group Limited, a real estate group with a portfolio valuation of c. 400 million
in Central Europe (formerly listed on the Main Market, standard segment, of the London Stock
Exchange and the subject of a successful cash offer in 2013). He is a non-executive director of
a number of listed and unquoted companies.

Jeremy Hawke Executive Director. Jeremy is a Chartered Engineer who spent the first
17 years of his mining career in senior operating positions with the Anglo American Corporation
in Zambia and DRC and later Rio Tinto in Namibia. His first mining industry appointment was at
the Broken Hill lead and zinc mine, later to become the Kabwe Mine in Zambia. After Namibia
he moved to South Africa where he started his own manufacturing company producing high
speed diesel engine protection equipment for open pit earth moving equipment. On his return to
the UK he worked for International Mining Consultants as Principal Mechanical Engineer, where
he led a number of World Bank and EU funded mining projects, principally in Africa.
Over the past three years Jeremy has been involved in a variety of tailings re-treatment projects
for the recovery of copper, gold, iron and earlier diamonds. This past year he has overseen the
metallurgical, mining and equipment selection programmes for a major tailings retreatment
project on the Zambian Copperbelt.
Founder of AIM-listed African Mining and Exploration (now Savannah Resources, AIM:SAV,
NA), Jeremy is currently a director of New Resource Management Services Ltd, a niche mining
and geological consulting company

Antony Gardner-Hillman - Non-Executive Director. Antony is a solicitor of the Senior

Courts of England and Wales and has a first-class honours degree in Jurisprudence from
Oxford University. He co-founded the Jersey Trust Company group in 1987 and was a director
and shareholder for 21 years until he resigned as non-executive group chairman and disposed
of his remaining shareholding in the group holding company in 2008. He was a partner of Crills,
a Jersey law firm, from 1987 to 2002, and a Jersey resident non-executive partner of the
international law firm Holman, Fenwick & Willan (Jersey partnership) from 1987 to 2003. Since
2008 he has worked full-time on a varied portfolio of directorship appointments (including with
AIM listed companies).

WH Ireland

14

BMR GROUP

Disclosures
WH Ireland Recommendation Definitions
Buy
Expected to outperform the FTSE All Share by
15% or more over the next 12 months.
Outperform
Expected to outperform the FTSE All Share by
5/15% over the next 12 months.
Market Perform
Expected to perform in line with the FTSE All
Share over the next 12 months.
Underperform
Expected to underperform the FTSE All Share
by 5/15% or more over the next 12 months.
Sell
Expected to underperform the FTSE All Share
by 15% or more over the next 12 months.
Speculative Buy
The stock has considerable level of upside but
there is a higher than average degree of risk.

Share Price Target

The share price target is the level the stock should currently trade at if the market were to accept the analysts view
of the stock and if the necessary catalysts were in place to effect this change in perception within the performance
horizon.
Stock Rating Distribution
As at the month ending 30 November 2016 the distribution of all our published recommendations was as follows:
Recommendation

Total Stocks

Buy

Percentage %

Corporate

52

82.5

39

Speculative Buy

11.1

Outperform

4.8

Market Perform

0.0

Underperform

1.6

Sell

0.0

63

100

47

Total

This table demonstrates the distribution of WH Ireland recommendations. The first column illustrates the distribution
in absolute terms with the second showing the percentages.
Conflicts of Interest Policy
This research is classified as being non-independent as defined by the FCAs Conduct of Business Rule 12.3.
Please refer to www.wh-ireland.co.uk for a summary of our conflict of interest policy.
*WH Ireland acts as Nomad and Joint Broker to BMR Group
#WH Ireland makes markets in this company
WH Ireland has acted as manager in the underwriting or placement of securities of this company within the last 12
months.

Disclaimer
This research recommendation is intended only for
distribution to Professional Clients and Eligible
Counterparties as defined under the rules of the
Financial Conduct Authority and is not directed at
Retail Clients. This note contains investment advice
of both a general and specific nature. It has been
prepared with all reasonable care and is not knowingly
misleading in whole or in part. The information herein
is obtained from sources which we consider to be
reliable but its accuracy and completeness cannot be
guaranteed. The opinions and conclusions given
herein are those of WH Ireland Ltd. and are subject to
change without notice. Clients are advised that WH
Ireland Ltd. and/or its directors and employees may
have already acted upon the recommendations
contained herein or made use of all information on
which they are based. WH Ireland is or may be
providing, or has or may have provided within the
previous 12 months, significant advice or investment
services in relation to some of the investments
concerned or related investments. Recommendations
may or may not be suitable for individual clients and
some securities carry a greater risk than others.
Clients are advised to contact their investment advisor
as to the suitability of each recommendation for their
own circumstances before taking any action. No
responsibility is taken for any losses, including, without
limitation, any consequential loss, which may be
incurred by clients acting upon such
recommendations. The value of securities and the
income from them may fluctuate. It should be
remembered that past performance is not necessarily
a guide to future performance. For our mutual
protection, telephone calls may be recorded and such
recordings may be used in the event of a dispute.
Please refer to www.wh-ireland.co.uk for a summary
of our conflicts of interest policy and procedures.

WH Ireland

Within the past 12 months, WH Ireland has received compensation for investment banking services from this
company.
Analyst Certification
The research analyst or analysts attest that the views expressed in this research report accurately reflect his or her
personal views about the subject security and issuer.
Companies Mentioned
Company Name

Recommendation

Price

Price Date/Time

Speculative Buy

5.8p

4 October 2016 4:30 PM

BMR Group

Summary of Company Notes

Headline

Date

Resuming zinc-lead production in Zambia

19 October 2015

Considerable progress achieved; Site civil construction works started

Clarification of Production assumptions for Kabwe

6 October 2016
6 December 2016

Summary of Security Recommendations

Recommendation
Speculative Buy
Buy

From

To

Analyst

July 2014

October 2016-

CA

October 2016

CA

Current Analyst (CA), Previous Analyst (PA)

15

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property name.

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