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
London Mining Plc LOND Q3 2012 IMS AND PRODUCTION REPORT
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