London Mining Plc LOND Q3 2012 IMS AND PRODUCTION REPORT

  London Mining Plc (LOND) - Q3 2012 IMS AND PRODUCTION REPORT

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                           +44 (0)20 7408 7500

Graeme Hossie, Chief Executive Officer

Rachel Rhodes, Chief Financial Officer

Thomas Credland, Head of Investor Relations


Liberum Capital (Nominated Advisor/Broker)  +44 (0)20 3100 2000

Clayton Bush/Christopher Kololian                             


J.P. Morgan Cazenove (Broker)               +44 (0)20 7742 4000

Neil Passmore / Ignacio Borrell


Brunswick Group LLP                         +44 (0)20 7404 5959

Carole Cable / Rosheeka Field





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

END


IMSBPBFTMBIMMTT -0- Nov/08/2012 07:01 GMT
 
Press spacebar to pause and continue. Press esc to stop.