OPERATIONS UPDATE AND FINANCIAL REVIEW FOR SIX MONTHS TO 30 JUNE 2011
25.08.2011 | Globenewswire Europe
Highlights (including post-period)Marampa, Sierra Leone
* Plant commissioning expected in Q3 2011
* First shipment expected in Q4 2011
* Phase 1a construction was 93% complete on 8 August 2011
* Glencore offtake agreed for Phase 1a production
* Transhipment and barging solution in place for 3.6Mtpa
* WHIMS plants for Phase 1b expansion to 3.6Mtpa ordered
* PFS supporting expansion to 16Mtpa complete
* BFS for initial 8Mtpa expansion due in Q2 2012
* Daniel Pop, ex BHP Billiton, Rio Tinto and Northern Iron appointed as
Managing Director, Sierra Leone
Isua, Greenland
* Royalty agreement signed with Anglo Pacific, USD 30 million to fund BFS
* Scoping study concluded for 15Mtpa operation, BFS for 15Mtpa operation expected by Q4 2011
Colombia
* First production from Colombia coke ovens on track for Q4 2011
Corporate
* Standard Chartered corporate debt facility increased from USD 60 million to USD 90 million with full draw down made in August 2011
* Net USD 105.1 million proceeds raised from convertible bond issue in February 2011
* 513,000t of 2012 iron ore production hedged at USD 148/t (net on a 62% Fe basis)
* Oslo delisting confirmed for 30 September 2011
* Cash balance of USD67.5 million at end of June 2011, before draw down of the Standard Chartered facility
Graeme Hossie, CEO of London Mining said "Progress at our Marampa mine in Sierra Leone continues with commercial production and shipments expected to begin in Q4 2011. In addition, procurement has commenced for the Phase 1b expansion to 3.6Mtpa for completion of full Phase 1 capacity in 2012. An expansion of an additional 8Mtpa capacity at low capital intensity using Phase 1 logistics infrastructure is planned, with the bankable feasibility study expected in Q2 2012. At our Isua project in Greenland, the agreement of a 1% royalty with Anglo Pacific provides funding to ensure completion of a BFS in 2011 with minimal dilution for shareholders."
Marampa (100% ownership)
London Mining continues to make significant progress at Marampa, with construction of the initial Phase 1a production module now 93% complete. The JORC drilling campaign continues with a further resource update expected by the end of Q3 2011. A prefeasibility study ("PFS") was completed in April 2011 which indicated the viability of an expansion to 16Mtpa (Phase 2) with a robust post-tax NPV10 of USD 2.2 billion. Phase 2 can be developed in stages, with the initial 8Mtpa able to be developed from cash flow without a strategic partner. The Company can significantly increase production and has several options for funding the entire 16Mtpa expansion. A bankable feasibility study ("BFS") for the initial 8Mtpa expansion is expected to be completed in Q2 2012.
Phase 1
Construction of the Phase 1a operation was 93% complete at 8 August 2011 and plant commissioning is expected in Q3 2011. First shipments are still on track for Q4 2011. Work on finalising the haul road and Thofeyim port continues on schedule in time for first shipment in Q4 2011. The Government of Sierra Leone has confirmed that there are to be no restrictions on access preventing the completion of the second stretch of haul road from the mine to Rogbere, enabling it to be joined with the private road already constructed from Rogbere to London Mining's port at Thofeyim.
At the end of July 2011, USD 136 million of the Phase 1a capital budget had been committed (USD 107 million spent) with the total capital cost prior to production expected to be USD 145 million plus a further USD 2 million contingency. The total capital expenditure for the 3.6Mtpa production module is estimated at USD 208 million, equating to USD 58/t capital intensity. In addition certain preparations and procurement has now commenced for the Phase 1b expansion with the longest lead item, the WHIMS plant, now ordered.
London Mining now has a full transhipment solution in place for its entire 3.6Mtpa Phase 1 production at Marampa. Tugs, barges and a transhipment vessel have been secured. This provides London Mining with a capability to load a range of vessels up to Cape class at a rate of 20,000t per day and allows for an increased rate of 60,000t per day for further expansions. The respective agreements will provide barging capacity in time for first shipments from Marampa, due in Q4 2011, and for the transhipment vessel expected to be in place by Q1 2012, six months earlier than previously envisaged. To allow for rapid expansion to 3.6Mtpa and beyond, a decision was taken to install seaborne logistics and incur and maintain certain increased overhead costs. This involves contracting barging capacity on a yearly fixed cost arrangement, and maintaining fast-track construction capability and continuity. In addition, London Mining has conducted a review of the financing options for the transhipment vessel and has decided to finance the vessel from the Company balance sheet to ensure early delivery in Q1 2012 as well as realising operating expenditure savings. Dredging is expected to be completed in time for first shipment in Q4 2011.
The total Phase 1 operating cost is expected to remain at around USD 30/t FOB at the nameplate 3.6Mtpa run rate but will be around USD 42/t for Phase 1a's 1.8Mtpa as a result of higher fixed G&A and transhipment costs.
Phase | 1a 1a + 1b
--------------------------------+---------------
Production (Mtpa) | 1.8 3.6
--------------------------------+---------------
Mine (USD/t) | 10 9
|
Processing (USD/t) | 7 6
|
Road Haulage (USD/t) | 5 4
|
Barging & Transhipment (USD/t) | 10 6
|
G&A (USD/t) | 10 5
--------------------------------+---------------
Total (USD/t) | 42 30
Offtake and marketing
An offtake agreement for Marampa was signed with the trading house Glencore International AG ("Glencore") on 26 January 2011. The offtake covered 9.5 million wet metric tonnes (WMT) production from Phase 1a of the Company's Marampa project. The five year agreement, which included a pre-payment facility for up to USD 27.0 million, will provide guaranteed offtake and shipping from Sierra Leone for all Phase 1a production, with the option for London Mining to expand the agreement to Phase 1b on the same terms. The offtake will be based on Platts 62% CFR China benchmark, with an upward adjustment for the Fe content of the Company's 65% Fe sinter feed concentrate, and an incentive to place product at locations such as Europe where there is a net pricing benefit through lower shipping costs. The agreement accommodates London Mining's ramp up expectations and is flexible to accommodate varying shipping sizes and frequencies to supply European, Chinese and other markets.
Drilling progress and resource upgrade
In March 2011, Snowden Mining Industry Consultants estimated an overall increase in primary ore resources of 64.4Mt, with total primary resources totaling 971Mt at 31.2% Fe and including an increase in Indicated primary ore resources from 379Mt at 31.5% Fe to 566Mt at 31.5% Fe. Total resources including tailings are now 1,008Mt of which 60% is in the Indicated category.
Resources are reported in accordance with the JORC Code 2004.
Summary of Marampa resource last reported as at March 2011 reported at a 15% Fe cutoff
Ore type|Classification| Mt|Fe (%)| Al2O3| SiO2|CaO (%)| MnO|P (%)|S (%)
| | | | (%)| (%)| | (%)| |
--------+--------------+-----+------+--------+-------+-------+------+-----+-----
| Indicated| 566| 31.5| 4.9| 39.3| 2.79| 0.71| 0.14| 0.01
Primary | | | | | | | | |
| Inferred| 404| 30.8| 5.1| 39.7| 2.61| 0.86| 0.13| 0.01
--------+--------------+-----+------+--------+-------+-------+------+-----+-----
Tailings| Indicated| 38| 22.5| 9.0| 51.4| 0.1| 1.05| 0.05| 0.01
--------+--------------+-----+------+--------+-------+-------+------+-----+-----
Total | |1,008| 30.9| 5.1| 39.9| 2.6| 0.78| 0.13| 0.01
27,763m of drilling was completed over the first half of 2011 as London Mining continues to convert Inferred resources to the Measured and Indicated categories. Drilling has now been completed and the rigs demobilised. An updated resource statement for Marampa is expected by the end of Q3 2011.
Phase 2 PFS results and next steps
On 10 April 2011, London Mining announced the results of a PFS, completed by Ausenco, for an expansion of the Phase 2 Marampa Project to 16Mtpa. The PFS considered the extension of Marampa until 2036 and consisted of three further stages:
Phase 2a : low capex expansion
Initial expansion of 8Mtpa for an estimated capital cost of USD 659 million. The utilisation of softer weathered material, use of an upgraded tarmac haul road and expanded transhipment capacity is forecast to produce a low capital intensity of USD 82/t of capacity. The low capital cost of Phase 2a provides London Mining with a number of options to finance the expansion, including funding from project cash flow.
Phase 2b : hard rock expansion
A further expansion of up to 8Mtpa of pellet feed, to a total of 16Mtpa, based on the mining and processing of the unweathered portion of the Marampa ore body for an estimated capital cost of USD 1,187 million. The higher capital intensity of USD 148/t of capacity reflects the processing of harder ore as well as the construction of a pipeline, a coal fired power station and a new port.
Phase 2c : reconfiguration of Phase 2a following weather ore depletion Addition of regrinding and flotation capacity to the sinter concentrate circuit to allow for processing of unweathered ore once soft weathered ore has been depleted. The estimated capital cost of Phase 2c is USD 523 million, equivalent to USD 65/t of capacity. Phase 2c will utilise Phase 2b logistics but will require an expansion of the new port and power facilities
A dual track is being applied to the expansion BFS. An initial study, expected in Q2 2012, is intended to capture the Phase 2a self-funded expansion of an additional 8Mtpa of sinter feed concentrate production from weathered ore from 2014 with Phase 2c reconfigured to process unweathered material from 2020 using existing infrastructure. Following the Phase 2a BFS, a second BFS will be undertaken to define expansion to a 16Mtpa operation from the entire Marampa resource.. London Mining intends to consider strategic partner options once production from Phase 1 has commenced.
Mining Lease Agreement ("MLA") and review of fiscal incentives
The review of the MLA covering London Mining's development of the Marampa mine, including the fiscal incentives for Phase 1, has been concluded between London Mining and the Government of Sierra Leone ("GoSL"). The draft MLA and fiscal incentives for the initial 10 year period is subject to Presidential approval prior to its submission to Parliament for ratification. The results of the review will be disclosed once Presidential approval has been obtained. London Mining does not expect any material impact to the economics of the project and as such, no changes to the development of the project have been made.
Appointment of new Managing Director for Sierra Leone
In August 2011, Daniel Pop was appointed as Managing Director for Sierra Leone. A mining engineer with over 18 years experience, Daniel formerly held senior management positions with Northern Iron, Rio Tinto Iron Ore (Hamersley Iron and IOC) and BHP Billiton Iron Ore (Area C) and has notable expertise in all aspects of the production of iron ore.
Isua (100% ownership)
In February 2011 London Mining released the results of a 15Mtpa scoping study completed by SNC Lavalin. The scoping study considered a 15Mtpa open pit and processing operation with a 15 year initial mine life for estimated capital expenditure of USD 2.0 billion, representing a 22% reduction in capital intensity from that previously reported in the pre feasibility study of a 10Mtpa operation released in June 2010. Estimated operating costs increased from USD 27/t to USD 29/t mostly due to a 20% increase in fuel costs. The scoping study was based on capital and operational cost estimates to a level of accuracy of -30% to +40% with Chinese contractors CCCC and Sinosteel providing engineering support and cost estimates for certain capital items.
The 15Mtpa scoping study and detailed work undertaken for the 10Mtpa PFS is to form the basis of a 15Mtpa BFS which has already commenced and is scheduled to be completed by the end of 2011
In August 2011, London Mining announced that it had entered into a royaltyagreement with Anglo Pacific Group plc ("Anglo Pacific") regarding future iron ore production at Isua.
Under the terms of the royalty agreement, Anglo Pacific paid USD30 million toLondon Mining's subsidiary London Mining Greenland A/S ("London Mining Greenland") (received in August 2011) in return for 1% royalty over all consideration received from the sale of iron ore concentrate from the Isua Project. The proceeds received from the transaction are to be used primarily to fund the BFS on the Isua Project, which has already commenced and is scheduled to be completed by the end of 2011. In the event London Mining Greenland does not fulfill certain milestones, of which the earliest is completion of a BFS by no later than 31 December 2012, Anglo Pacific can demand repayment of the USD30 million, which can be satisfied in cash or London Mining shares at the Company's discretion.
In addition to the Anglo Pacific royalty, Isua is subject to a payment of USD0.40/t of ore mined payable to the original vendor of the mine. The Government of Greenland does not currently levy a royalty on iron ore mines.
The Isua project BFS is considering a 15Mtpa open pit and processing operation with a 15 year initial mine life. First production is targeted in 2015.
An extensive drilling campaign is ongoing at Isua to upgrade further resources to the Measured and Indicated categories.
Colombia (100% ownership)
Construction of the first 60 ovens (200kt coking capacity) continues with first production expected in Q4 2011. The coke test oven has been completed and has commenced production of coke test batches for marketing purposes and product optimisation. Capital expenditure is currently expected to be USD 34 million up from USD 30 million primarily as a result of increased drainage costs as a result of La Nina and also due to a weaker US currency.
London Mining is close to securing a 10 year deal for port capacity, and is in discussions regarding haulage and offtake agreements.
London Mining has secured three concessions with potential to supply coking coal feedstock to the ovens and is reviewing two more. These concessions have the otential to provide all the feedstock for the expanded 120 oven scenario for at least the next fifteen years. London Mining continues to explore for coking coal resource potential with 6,177m of drilling completed in the first seven months of 2011.
Wadi Sawawin, Saudi Arabia (25% ownership)
National Mining Company and London Mining are working jointly to secure the expansion of the existing exploitation licence to serve the proposed 5Mtpa, 20 year operation The application is with the Deputy Ministry for Mineral Resources for processing.
The process to secure the funding of the Wadi Sawawin project continues. There have been initial positive discussions with the power, water and port authorities in Saudi Arabia regarding the provision of those services. In the event that agreements are reached, this would materially reduce the capital expenditure requirement of the project. There have also been initial discussions with offtake partners and contractors.
London Mining has produced 10 tonnes of Wadi Sawawin iron ore concentrate at a small scale production plant built in Perth, Australia, of which a portion is currently being transported to Metso in the USA for the production of direct reduction pellets which will be used to provide samples to potential offtake partners.
Corporate
Group cash at the end of June 2011 was USD 67.5 million. This includes proceeds raised from the USD110.0 million 5 year 8.0% convertible bonds that were issued in February 2011. The issue was oversubscribed and priced at a 38% premium to the reference share price.
In August 2011, the Company increased its corporate debt facility with Standard Chartered from USD 60 million to USD 90 million.
The increased facility was secured primarily as a result of the delay in the receipt of the USD 24.8 million proceeds from the 2010 agreement to sell the Company's shares in Delta Mining Consolidated to Sable Mining, which is now expected to complete in Q4 2011, and provides London Mining with the necessary cash resource to fund the increased pre-production capital expenditure at Marampa and Colombia and takes into account the slight delay to production start date, both which were announced in Q1 2011.
Draw down of the increased Standard Chartered facility was subject to the receipt of a desk top scoping study conducted by an independent engineering company, SNC Lavalin. The scope of the study included the confirmation of remaining Phase 1 capital costs for Marampa and estimated operating costs; the anticipated product profile and production ramp up; the viability of the logistics route and the expected critical path for completion. This was completed in August 2011 and as a result the full facility was drawn down, net of transaction costs, on 10 August 2011
Under the terms of the Standard Chartered facility, London Mining has hedged 513,000 tonnes of 2012 production. The majority of this hedging, which based on the 62% Fe CIF China instrument, has been concluded at pricing net to London Mining of USD 148. London Mining expects to realise a grade premium to the benchmark price as a result of the production of a 65% Fe product at Marampa.
The Oslo delisting is confirmed for 30 September 2011. The delisting is expected to result in improved liquidity in London and is not expected to result in significant flowback as only 5,621,903 shares of 113,883,794 total issued shares are currently registered in Oslo with the majority of shareholders able to hold AIM listed shares.
We note also that currently the Company provides full interim financial statements at each quarter. As part of the Oslo delisting, London Mining intends to move to half yearly interim financial reporting, in line with Main Board listed companies and will provide operations updates with selected financial metrics each quarter.
The Group is fully funded to first production and expects to have around USD 50 million residual cash balance at year end.
Russell Turner, Principal Consultant, Snowden Mining Industry Consultants MAIG, who has 10 years experience in Iron Ore and is familiar with the deposit types in question in order to be considered as a competent person in accordance with the JORC code requirements, has reviewed and approved the information that relate specifically to the resources figures contained within this announcement.
Please find the full operations and financial review, as well as the company's presentation of the period enclosed.
London Mining will be hosting a webcast and conference call for the results of the first half 2011 today at 9:00am GMT (UK)/10:00am CET (Norway). Details for the webcast and conference call can be found on London Mining's homepage,
www.londonmining.co.uk.
About London Mining
London Mining is focused on identifying, developing and operating scaleable mines to become a mid-tier supplier to the global steel industry. London Mining is developing three iron ore mines in Sierra Leone, Saudi Arabia and Greenland as well as an early stage coking coal project in Colombia. All London Mining's assets have deliverable production with potential for expansion. The Company is currently listed on the AIM in London and Oslo Axess and trades under the symbols LOND.L and LOND.NO (Reuters) and LOND LN and LOND NO (Bloomberg). The Company's shares will be delisted from Oslo Axess on 3 October 2011.
For more information, please contact:
London Mining Plc +44 207 408 7500
Graeme Hossie, Chief Executive Officer
Rachel Rhodes, Chief Financial Officer
Thomas Credland, Head of Investor Relations
Liberum Capital (Nominated Advisor/Broker) +44 203 100 2000
Clayton Bush/Christopher Kololian
J.P. Morgan Cazenove (Broker) +44 207 742 4000
Adam Brett / Neil Passmore
Brunswick Group LLP +44 20 7404 5959
Carole Cable / Daniel Thöle
Crux Kommunikasjon AS +47 97 56 19 59
Charlotte Knudsen
Results for six months ending 30 June 2011 report:
http://hugin.info/137683/R/1541076/471325.pdf
Results for six months ending 30 June 2011 presentation:
http://hugin.info/137683/R/1541076/471326.pdf
This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: London Mining Plc via Thomson Reuters ONE
Unternehmen: London Mining Plc - ISIN: GB00B1VZK334
[HUG#1541076]