TIDMLOND
RNS Number : 8087G
London Mining Plc
12 May 2014
London Mining Plc
Quoted on London AIM (LOND LN)
("London Mining" or the "Company")
12 May 2014
Q1 2014 PRODUCTION REPORT AND INTERIM MANAGEMENT STATEMENT
2014 production guidance reiterated
Rescheduling of Marampa capital programme to increase financial
flexibility
Potential for strategic partnership to reduce debt and fund
accelerated growth plans
Highlights
Marampa, Sierra Leone (100% owned)
Operations
-- Q1 production of 900kwmt, a 17% increase on Q4 2013
-- 2014 production guidance of 4.9 to 5.4Mwmt/a reiterated
-- Plant upgrades in operation with design rates achieved on a more regular basis
-- 4 months of ROM stocks in place ahead of the wet season in accordance with plan
Rescheduled capital programme
-- USD175 million of "Life of Mine" extension capital programme to be deferred by two years by prioritisation of mining and processing of weathered ore through modified plant
-- 6.5Mwmt/a production capacity maintained post tailings
depletion with minimal effect on all-in unit cost reduction
-- 40 year "Life of Mine" extension capital programme moved from 2016 to 2019
Potential for strategic partnership to reduce debt and fund
accelerated growth plans
-- Process being initiated to secure a strategic partner for a
minority interest at the Marampa asset level in 2014 to reduce debt
and fund accelerated growth plan
-- Potential for Life of Mine extension to achieve 8Mwmt/a for
incremental capital cost of around USD110 million delivering higher
Net Asset Value and further unit operating cost reduction
Commenting on the results Graeme Hossie, CEO, said: "The plant
upgrades installed in Q4 are now operating and achieving design
throughput rates although not yet with the full consistency we
would like. However, Q1 production was in line with our
expectations during commissioning with volumes continuing to
increase and grade now improving. We reiterate our production
guidance of 4.9 to 5.4Mwmt for 2014.
As part of an ongoing expenditure review in the current weak
iron ore pricing environment, we have decided to improve financial
flexibility by deferring USD175 million of capital expenditure for
two years. This plan extends the mine life after depletion of
tailings through processing of weathered ore, maintaining a
6.5Mwmt/a rate and continues to lower Marampa's unit operating
cost. We expect that the increased free cash flow generated from
this capital deferral will allow us to reduce debt and interest
costs.
Our options for growth however remain open and we have
identified a further high return improvement option to the Life of
Mine extension which would establish a 8Mwmt/a operation for low
additional capital intensity. The resultant life of mine unit
operating costs would be expected to fall below the USD39 to 42/wmt
estimated in the September 2013 Life of Mine feasibility study. In
order to de-lever and fund our growth plans the Board has decided
now is the right time to secure a strategic partner at the Marampa
asset level and we are beginning a process to identify the right
partner and financing options for London Mining. We aim to conclude
this process by the end of the year.
The Board and management team remain focussed on balancing
investment needs with shareholder returns and reducing risk in this
current uncertain commodity pricing environment."
Operations
Q1 2014 summary
Q1 2014 % change Q4 2013 Q1 2013
------------------------------------------------ -------- --------- -------- --------
Concentrate produced (wmt) 900 +17 770 706
Sales (wmt) 877 -25 1,162 589
Average concentrate grade sold (Fe%) 63.1 0 63.1 63.5
Average concentrate moisture content sold (%) 8.9 +0.1 8.8 7.1
Average FOB price * including hedges (USD/dmt) 80 -5 84 104
Average freight (USD/wmt) 34 0 34 35
------------------------------------------------ -------- --------- -------- --------
*Free on board ("FOB") prices are net of freight and grade
premium as at loading, but exclude marketing related fees
Production
Production of 900kwmt in Q1 2014, an increase of 17% on the
previous quarter, was in line with expectations during
commissioning and production guidance for 2014 of 4.9 to 5.4Mwmt is
reiterated. Design capacity is being achieved on an increasingly
regular basis although average grade remained flat during the
quarter at 63.1% Fe due to the continued commissioning process.
Return to the design grade of 64 to 65% Fe is expected as ramp up
is completed. Building of the ROM stockpile is progressing well
with 4 months of stocks now in place to provide buffer feed to the
plant during the wet season. Q2 2014 production is expected to show
increased volume following consistent availability and operation of
the spirals and milling circuits with significantly increased
volume expected to be achieved from Q3 when programmes to maximise
plant availability are fully embedded. Logistics continue to
improve according to plan with the first of the new fleet of pusher
barges having arrived in Freetown and commenced operations. Lower
cost benefits from the more efficient barging format will be
realised from Q2 2014 as increased production volumes from the
5.4Mwmt/a plant come online with further incremental export
capacity added as plant capacity builds to 6.5Mwmt/a.
Sales
Sales volumes were 877kt, 25% less than Q4 2013 following full
draw down of concentrate stockpiles in December 2013. Bulk freight
rates remained consistent with 2013 levels in Q1 2014 but loading
of our first baby cape vessels (90 - 120kt) in the inner harbour in
March, combined with lower panamax rates of around USD27/wmt is
expected to result in lower freight rates in Q2. A dredging
programme is planned to allow loading of larger cape size vessels
in the inner harbour by the end of 2014, which is expected to
result in a structural lowering of seaborne freight costs.
Realised pricing was impacted by premium decrease and related
penalty charges due to lower iron content, demurrage and the
negative impact of hedging. However, two spot sales undertaken in
Q1 realised a USD7/dmt premium to existing offtake pricing.
0.56Mdmt of Q1 sales were hedged at USD119/dmt CFR. At the end of
March, 1.01Mdmt of 2014 sales remain hedged at an average price of
USD118/dmt CFR. Reported pricing on a quarterly basis will have the
potential to be impacted by the actual realised price for the
portion of sales which are priced based on the CFR iron price two
months post loading.
In March, London Mining agreed a five year offtake agreement
with Cargill for 1Mwmt/a of Marampa concentrate which will realise
materially higher net pricing for 64 to 65% Fe product due to
London Mining gaining full Platts Fe premiums and incurring no
marketing fees. The agreement also provides USD20million of
additional liquidity in the form of a prepayment facility.
Deliveries into the Cargill offtake contract will commence in H2
2014. Further pricing improvements are expected as grade improves
and from reduced demurrage as volumes stabilise post ramp-up.
Health and safety
We continue to see an improvement in health and safety following
the implementation of improved safety systems and training. We are
now employing the All Injury Frequency Rate to monitor safety
performance.
Q1 2014 Q4 2013 Q1 2013
--------------------------------- -------- ------- --------
Fatalities 0 0 0
-------- ------- --------
LTI 1 0 0
-------- ------- --------
All Injuries 18 30 7
-------- ------- --------
LTIFR (12mth rolling average) 0.33 0.21 0.94
---------------------------------
AIFR (12 month rolling average) 8.2 8.4 9.8
--------------------------------- -------- ------- --------
Rescheduled capital programme
Due to continued uncertainty in the short and medium outlook for
iron ore pricing, a revised development plan is being implemented.
In the short term, some early works to deliver 6.5Mwmt/a have been
delayed in 2014 to achieve delivery in H2 2015. In the medium term,
London Mining will upgrade the processing plant to enable
processing of 100% weathered ore following depletion of the
tailings portion of the reserve in 2016. This allows deferral of
USD175 million of the USD240 million Life of Mine extension capital
programme for two years whilst maintaining 6.5Mwmt/a production
capacity for five years from H2 2015 and continuing the downward
operating cost trajectory from current levels towards the USD39 to
42/wmt level envisaged for the 40 year Life of Mine extension. The
revised plan is based on existing feasibility work, operating
performance data of current crushers and ball mills and
incorporates the expanded licence area granted by the Government of
Sierra Leone during the quarter which allows for greater mining
flexibility and efficiency.
In order for Marampa to maintain the nominal production rate of
6.5Mwmt/a post tailings depletion, the plant will be reconfigured
in 2016 to incorporate a new crushing and screening circuit at a
capital cost of USD35 million. Regrind mills previously scheduled
as part of the Life of Mine programme, will also be installed in
2016 at a cost of USD30 million. The regrind mills will be
incorporated into the Life of Mine flow sheet for unweathered ore
after depletion of the weathered ore. A power requirement of 18MW
(an increase of 6MW from currently installed capacity of 12MW) is
anticipated, significantly less than the 50MW required for the
processing of unweathered ore. Increased stripping is required
during the weathered ore period (average 0.65:1 over 3 years) but
will revert to the 0.5:1 life of mine average.
New mine life extension plan timing and capex
Resource Process Concentrate Installed Capital Estimate
(Mwmt/a) Date (USDm)
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
Installed Tailings/ Magnetic separation 1.6 Dec 2011 340
weathered ore (first plant) (spent)
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
Magnetic separation 4.0 Jan 2013
(second plant)
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
Addition of spirals and 5.4 Q4 2013
ball milling
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
Tailings/ Additional WHIMS and
Low cost expansion weathered ore spirals 6.5 2014/15 15
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
Weathered ore Additional crushing and
Life Of Mine extension (to 2019) regrind mills 6.5 2015 and 2016 90
------------------------ ----------------- ------------------------- ----------- --------------- ----------------
All ore types Addition of primary crusher, SAG mill and
(to 2055) regrind mills 6.5 2019 190
----------------- -------------------------------------------------- ----------- --------------- ----------------
Old and revised guidance
Expansion capital programme Operating cost (USD/wmt)
(USDm)
Year Old Revised Old Revised
--------------- ---------- ------------------ ------------- ------------
At or under At or under
2014 40 15 50 50
---------- ------------------ ------------- ------------
2015 and 2016 240 90 No guidance 42 - 47
---------- ------------------ ------------- ------------
2017 to 2019 - 190 39 - 42 39 - 42
---------- ------------------ ------------- ------------
2020 onwards - - 39 to 42
--------------- ---------- ------------------ ------------- ------------
Potential for strategic partnership at the asset level to reduce
debt and accelerate growth plans
A further low cost incremental expansion to 8Mwmt/a has been
identified as part of the Life of Mine extension optimisation
programme using existing logistics infrastructure and expansion of
the 6.5Mwmt/a plant for around an estimated additional USD110
million (approximately USD70 per annual tonne of capacity) by
installing a secondary crushing circuit, additional spirals and wet
high intensity magnetic separation capacity. This is expected to
deliver a further reduction in operating cost below the
USD39-42/wmt estimated by the September 2013 feasibility study and
a significant increase in NAV. The expansion to 8Mwmt/a could be
accelerated to late 2016 resulting in significant capital and
operating cost savings.
In view of ongoing pricing volatility and the potential now
identified to deliver increased production and reduced operating
cost with further investment, London Mining's board considers that
it is the right time to consider the involvement of a strategic
investor for a minority interest at the Marampa asset level to
reduce debt and accelerate growth plans. London Mining is exploring
interest from potential strategic partners and expects to complete
this process by the end of 2014.
In the near term, following the fall in the iron ore price and
with pricing environment uncertain, the company considers it
prudent to increase liquidity and to this end, as previously
advised, is in discussions with IFC, offtakers and other providers
of finance.
Webcast and conference call
There will be a webcast and conference call for analysts and
investors hosted by Graeme Hossie (CEO), Benjamin Lee (CFO) and Jim
North (COO) at 8.30am BST today.
The presentation will be available via a live webcast, a link to
the webcast can be found on London Mining's website here:
http://www.londonmining.com/investors/reports-and-presentations/.
The webcast will include audio from the conference call and
synchronised power point slides. You will not be able to post
questions through the webcast.
Please use the following numbers and conference ID to dial in to
the conference call:
Country Number
International dial-in +44(0)20 3427 0503
UK Toll Free 0800 279 5004
USA Toll Free 1877 280 2342
Confirmation code 7220022
There will be a replay facility available on London Mining's
website after the webcast.
For more information, please visit www.londonmining.com or
contact:
London Mining Plc
Graeme Hossie, Chief Executive Officer
Benjamin Lee, Chief Financial Officer
Thomas Credland, Head of Investor Relations +44 (0)20 7408 7500
Liberum Capital (Nominated Adviser/Broker)
Richard Crawley / Tom Fyson / Ryan de Franck +44 (0)20 3100 2000
J.P. Morgan Cazenove (Broker)
Ben Davies / Ignacio Borrell +44 (0)20 7742 4000
Brunswick Group LLP
Carole Cable / David Litterick +44 (0)20 7404 5959
About London Mining
London Mining is an expanding producer of high specification
iron ore concentrate for the global steel industry and is focused
on identifying, developing and operating sustainable mines. London
Mining commenced sales from its 100% owned Marampa Mine in Sierra
Leone in 2012 producing 3.4Mwmt/a in 2013 and expanding to a
capacity of 6.5Mwmt/a over the next few years. Marampa has
sufficient resources to support a staged expansion to up to
20Mwmt/a. London Mining has also completed bankable feasibility
studies outlining plans for a further 20Mwmt/a of iron ore
production by developing mines in Greenland and Saudi Arabia. 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.com.
This information is provided by RNS
The company news service from the London Stock Exchange
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