TIDMLOND
RNS Number : 6277Q
London Mining Plc
08 November 2012
London Mining Plc
Quoted on London AIM (LOND LN)
("London Mining" or the "Company")
8 November 2012
INTERIM MANAGEMENT STATEMENT AND PRODUCTION REPORT
FOR THE THREE MONTHS TO 30 SEPTEMBER 2012
Highlights
Marampa operations and ramp up to 5Mtpa
-- Solid operating performance during first wet season
-- Quarterly production of 373,000wmt (343,000dmt) of iron ore concentrate
-- Quarterly sales of 298,000wmt (273,000dmt) as stockpile built
allowing realisation of higher pricing in Q4 2012
-- Full year production target of 1.5Mt retained based on current production rates
-- Expansion to 5Mtpa is on track with the second plant expected
to be completed in Q1 2013 increasing capacity to 3.6Mtpa and
further expansions to 5Mtpa capacity in Q3 2013
Marampa expansion plan beyond 5Mtpa
-- Technical studies (including BFS for initial expansion)
completed on Marampa 9Mtpa project for sinter concentrate
-- Initial capital expenditure of USD 860 million (assuming USD
110 million owner operator fleet) with operating cost of USD39/t
for first five years
-- Potential to reduce initial capital expenditure by an
estimated USD 140 million if contract mining and alternative
tailings management solution are assumed
-- Further investment of USD 550 million after five years
enables plant to process unweathered primary ore for extended 26
year mine life at total capital intensity of USD157/t, an increase
of 6% from the April 2011 prefeasibility study
-- Project NPV10 of USD 1.3 billion assuming premium of USD5/Fe
% over 62% benchmark with IRR of 35% and payback of 2 years
-- Flexibility provided by low cost extended 5Mtpa scenario
increases options for non dilutive financing of future expansions
at the appropriate time
Colombia
-- Quarterly production of 12,937 of coke
Post period highlights
-- Marampa average production of 5,022wmt/d in the fourth
quarter including record production of 7,420wmt/d
-- Permitting process continues for the Isua 15Mtpa high grade
concentrate project, with all public hearings now concluded
Graeme Hossie Chief Executive of London Mining said "Our ramp up
and expansion to 5Mtpa production of premium quality iron ore at
Marampa is on track. Our processing plant and logistics system are
working to design as we have ramped up during the first year of
operations and we have successfully met a number of challenges
during the wet season. The second plant construction is proceeding
in line with budget and planned timing of being in operation in Q1
next year and we maintain our production target 1.5Mt of iron ore
in 2012 based on performance improvements now taking effect in Q4.
We are developing our expansion plans for Marampa to determine the
optimal approach to develop the 1.1 billion tonne resource in order
to ensure a sustainable operation and the best return for London
Mining shareholders. We have now completed detailed technical
studies for an expansion to 9Mtpa which shows competitive capital
intensity against the industry average with initial operating costs
of USD39/t or USD mid-20s on an adjusted Fe equivalent basis. We
are now completing value engineering work to incorporate identified
potential for capex and opex improvements and are investigating the
best approach to finance expansion beyond the 5Mtpa stage which
will be achieved next year. This may involve the use of free cash
flow from the 5Mtpa operation, debt, offtake related finance and/or
the involvement of a strategic partner. We continue to progress
plans to achieve a large volume, low cost operation and are
reviewing opportunities to develop a deep water multi-user port and
rail or pipeline."
Marampa
Q3 production and wet season operations
Q3 2012 Q2 2012 Q1 2012
------------------------------------------------ -------- -------- --------
Concentrate produced (wmt) 373,000 397,000 315,000
Average daily production rate (wmt/d) 4,051 4,358 3,467
Sales (wmt) 298,000 350,000 244,000
Average concentrate grade shipped (Fe%) 64.1 65.3 65.9
Moisture content (%) 8.3 6.7 4.7
Average FOB price * including hedges (USD/dmt) 97 105 108
Average freight (USD/wmt) 39 45 39
------------------------------------------------ -------- -------- --------
*Free on board ("FOB") prices are net of freight and grade
premium but exclude marketing related fees
The ramp up of the Marampa operation continues as expected with
production continuing with limited interruption throughout the wet
season. Although maximum plant capacity was increased over the
quarter as part of the ramp up, overall concentrate production
volumes were slightly lower as a result of reduced availability of
higher grade feed due to restricted access to the Masaboin pit
during part of the wet season. Improved dewatering procedures
identified and implemented during the period and increased
stockpiling of run of mine ore are expected to result in improved
performance in the future and have already led to improved
performance in the latter part of the wet season in Q4. A higher
proportion of high grade material is consequently available in Q4
and our production target of 1.5Mt is maintained for the year based
on improved average daily production volumes of 5,022wmt/d in the
fourth quarter so far including record production of 7,420wmt/d.
Slightly lower concentrate grades over the third quarter were due
to trials to optimise grade versus product volume but grade has now
reverted to previous levels of over 65.5% Fe.
Sales volumes were lower over the quarter as we deferred one
shipment to build inventory ahead of commissioning of the floating
offshore transhipment vessel which is permitted under the offtake
agreement with Glencore at no penalty. The average unhedged
received price after deduction of freight, over Q3 2012 was
USD77/dmt FOB as the Platts 62% Fe price deteriorated significantly
in Q3 from an average of USD139/dmt in Q2 2012 to USD117/dmt in Q3
2012. However after hedging, the realised FOB price for Q3 2012 was
equivalent to USD98/dmt (USD105/dmt in Q2 2012).
Average moisture content of shipments during the quarter was
8.3%. The excellent drainage properties of Marampa concentrate as
well as London Mining's procedures to transport and load iron ore
concentrate cargos as required by the International Maritime
Organization Solid Bulk Cargoes ("IMSBC") code meant ship loading
continued without interruption due to moisture related issues
throughout the wet season.
Transhipment and freight rates
Performance of the floating offshore transhipment platform
(FOTP) continues to be disappointing. Although partial loading of a
geared vessel was completed in Q3 2012 after completing structural
repairs, additional remedial work was identified as being necessary
to achieve full performance. The main issues have been under
designed conveyor drives and take up mechanisms. In order to ensure
full reliability at designed volumes, we are continuing to work
with the manufacturer and shipyard to rectify all design and
operational issues that have arisen during commissioning under a
scope of the FOTP performance guarantee. These works are expected
to be completed by the end of 2012 and all costs are being met by
the shipyard. The continued delay of the FOTP has however been
mitigated to some extent by improved rates for geared supramax
vessels which have ranged between USD32/t to USD35/t since the
middle of August.
Construction of second plant and gravity circuit
Construction of the second plant continues on schedule with all
steelwork now erected, WHIMS units installed and mechanical
completion expected during Q4 2012. A run rate of over 3.6Mtpa is
expected to be reached in Q1 2013 with plant capacity to be
increased further to 5Mtpa following further equipment
installations to beneficiation capacity in Q3 2013.
Results of BFS for expansion to 9Mtpa
A bankable feasibility study for the initial expansion to 9Mtpa
was completed by Tenova Bateman ("Bateman"). The study considered
the expansion of the 5Mtpa plant to 9Mtpa to process weathered ore
as well as the upgrading of the existing logistics solution to
produce a high quality sinter 65.5% Fe concentrate. Bateman
estimate initial capital expenditure of USD 860 (-5/+15%) million,
which includes USD 110 million for owner operator mine fleet, to
expand the operation within 2 years to process weathered ores.
Operating costs were USD39/t for the first five years or USD21/t on
an adjusted 62% equivalent basis assuming the grade premium
estimated by Raw Materials Group (RMG). An updated PFS on the
extension of the mine life to incorporate unweathered resources
showed that a further investment of USD550m (+/-35%) after five
years would extend the total Marampa mine life to around 30 years
with an average life of mine operating cost of USD40/t.
Using price estimates from RMG, a project NPV of USD 1.3 billion
and IRR of 35% is calculated for the project using a 10% discount
rate. This assumes a long term grade premium of USD5/Fe % above the
Platts 62% Fe benchmark and conservatively assumes 100% of sales to
China with 50% panamax and 50% capesize vessels assumed resulting
in a long term freight rate of USD24/wmt.
Marampa 9Mtpa production plan highlights
Mine life 26 years
--------------------------------- ----------------
Mineable resource 542Mt
--------------------------------- ----------------
Grade 33% Fe
--------------------------------- ----------------
Concentrate produced 238Mt
--------------------------------- ----------------
Concentrate grade 65.5% Fe
--------------------------------- ----------------
Mass recovery 44%
--------------------------------- ----------------
Initial capex USD 860 million
--------------------------------- ----------------
Post production capex USD 550 million
--------------------------------- ----------------
Average life of mine opex USD 40/t
--------------------------------- ----------------
Project NPV (10% discount rate) USD 1.3 billion
--------------------------------- ----------------
IRR 35 %
--------------------------------- ----------------
Payback 2 years
--------------------------------- ----------------
(1) Based on RMG long-term benchmark 62% Fe prices and premium of USD5/% Fe above benchmark
The principle drivers of increased capital costs over the April
2011 PFS (USD 660 million for a standalone expansion 8Mtpa,
followed by a USD 520 million upgrade to process unweathered ore)
were an increase in throughput rate from 8Mtpa to 9Mtpa, earlier
purchase of mining fleet for faster ramp up, resizing of the plant
based on our experience of operating in Sierra Leone, inclusion of
additional filtration capacity to allow dry stacked tailings
storage on the existing licence area and allocations for
resettlement costs. This represents an increase in capital
intensity of 6% from the USD148/annual tonne of capacity estimated
by the PFS. The main drivers of higher operating costs were the
assumption of higher fuel costs, more conservative productivities
requiring additional personnel and additional operating costs
related to the dry stack tailings method.
Further work
A value engineering process is underway which will include a
further review of cost estimates for 9Mtpa based on alternative
tailings disposal solutions and use of contract mining which could
realise potential capital expenditure savings of an estimated USD
140 million. Other scenarios including a second expansion to over
16Mtpa and further investment in logistics including a deepwater
port and use of pipeline or rail transportation are also being
considered.
Based on the detailed technical work undertaken for the
expansion to 9Mtpa, work on a low capital expenditure production
plan to maintain the 5Mtpa production rate after exhaustion of the
tailings resource has been developed to provide flexibility on the
timing of any expansion. This work shows that the 5Mtpa plant can
be modified for an estimated investment of USD 250 million to
process both weathered and unweathered ore types extending mine
life to over 30 years.
Isua
The Isua Project in Greenland is at the permitting stage after
we completed a bankable feasibility study for the project in March
2012. Isua has a resource of 1.1 billion tonnes and has the
potential to produce 15Mtpa of premium quality 70% Fe pellet feed
concentrate.
The first stage of the permitting process, the public hearings,
has been completed and London Mining has submitted the applications
for construction of the project in accordance with the Mineral
Resources Act of Greenland. It is expected the approval process
will be completed to enable construction to begin in 2013, subject
to the availability of funding from a strategic partner.
Colombia
In Colombia, we are working on developing an integrated coking
coal and coke business by delineating coking coal resources,
constructing and operating a coking plant and developing logistics
and port access to facilitate the export of both coke and coking
coal.
12,937t of coke was produced over the third quarter at London
Mining's Colombian operations. Construction of the second 100ktpa
of ovens has been postponed pending the review of the
operation.
Q3 2012 Q2 2012 Q1 2012
------------------- -------- -------- --------
Coke produced (t) 12,937 12,616 5,800
------------------- -------- -------- --------
Graeme Hossie, Chief Executive Officer, and James North, Chief
Operating Officer will be hosting a conference call for analysts
and investors today at 8:30am GMT (UK). Details for the conference
call are below:
Date: Thursday 8 November 2012
Time: 08.30am GMT
International dial-in: +44 (0)20 3364 5381
UK Toll Free: 0800 279 4841
Confirmation code: 4683570
There will be a replay facility available on London Mining's
website for seven days after the call, www.londonmining.co.uk.
For more information, please contact:
London Mining Plc
Graeme Hossie, Chief Executive Officer
Rachel Rhodes, Chief Financial Officer
Thomas Credland, Head of Investor Relations +44 (0)20 7408 7500
Liberum Capital (Nominated Advisor/Broker)
Clayton Bush/Christopher Kololian +44 (0)20 3100 2000
J.P. Morgan Cazenove (Broker)
Neil Passmore / Ignacio Borrell +44 (0)20 7742 4000
Brunswick Group LLP
Carole Cable / Rosheeka Field +44 (0)20 7404 5959
About London Mining
London Mining is an expanding producer of high specification
iron ore for the global steel industry and is focused on
identifying, developing and operating sustainable mines. London
Mining commenced sales from the Marampa Mine in Sierra Leone in
2012 and expects to reach production capacity of 5Mtpa in 2013. A
bankable feasibility study was completed in 2012 on an expansion
plan to 9Mtpa and a prefeasibility study was completed in 2011
which shows that Marampa has resources to support a staged
expansion to over 16Mtpa. London Mining has also completed bankable
feasibility studies outlining plans for a further 20Mtpa of iron
ore production by developing two other mines in Greenland and Saudi
Arabia. London Mining is also producing from a coke operation with
coking coal resource potential in Colombia. The Company listed on
AIM in London on 6 November 2009. It trades under the symbols
LOND.L (Reuters) and LOND LN (Bloomberg). More information about
London Mining can be found at www.londonmining.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
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