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Palabora Underground Production Delays Lead To Additional Finance Requirements
PALABORA MINING COMPANY LIMITED
(Incorporated in the Republic of South Africa)
Registration number - 1956/002134/06
Share code: PAM ; ARC ISIN: ZAE000005245
("Palabora" or "the Company")
PALABORA UNDERGROUND PRODUCTION DELAYS LEAD TO ADDITIONAL FINANCE REQUIREMENTS
The Board of Palabora Mining Company announced today that they are in
discussions with several leading domestic and international bankers to refinance
the Company. The requirement to do this is a direct result of the strengthening
of the Rand against the US Dollar, and the delayed ramp up of the underground
mine"s production to design capacity.
The Company is in the process of converting from large-scale open cast
operations to an underground mine. Expenditure on the development of the
underground mine has been US$409 million and construction progress was 94%
complete at the end of February 2003.
While the development of the underground mine project is on schedule and within
budget, production has been limited by the inability efficiently to clear draw
points that have been blocked with poorly fragmented, large rocks. Consequently,
production levels of between 10 000 and 12 000 tonnes per day are being achieved
against an expected 30 000 tonnes per day.
The Company uses specialized secondary breaking equipment to clear the oversize
rock and to allow the ore to be taken from the draw points to the crushers. Past
practices in the mining industry have allowed oversize rock hang-ups to be freed
by manually placing small explosive charges in the blocked draw bells. However,
this can be a fatally dangerous practice and Palabora"s management will not
expose its miners to this risk - hence the decision to use alternative, safe
methods of secondary breaking. The effectiveness of current secondary breaking
equipment has, to date, been disappointing and the Company has taken various
steps to improve its position.
While the ramp up of production has been slower than planned, these are early
stages of the mine life and experience at other similar mines around the world
suggests that fragmentation will improve as the cave develops and that the need
for secondary breaking will decline considerably.
Notwithstanding the above, the Company cautions that the aggregate impact of the
limited production from the underground mine and the strength of the Rand
against the US Dollar, partly offset by the cost saving actions taken by the
Company, will impact negatively on the earnings of the Company.
The cumulative effect of these issues is that Palabora will require additional
finance facilities during 2003. The Company currently has borrowing facilities
of US$185 million and aims to increase these by some US$90 million. Palabora has
therefore approached a number of leading domestic and international banks in
order to commence the process of obtaining these facilities.
In light of the current US$/Rand exchange rate, the low copper price and the
delayed ramp up to full production, Palabora"s major shareholder, Rio Tinto plc.
has agreed to provide a short-term loan facility of up to US$50 million at
commercial rates until the refinancing programme is in place.
The discussions with the bankers are progressing and indications are that the
necessary refinancing of the business will be in place during the second half of
the year. Although the Company has not yet discussed the covenants associated
with a possible refinancing, it is possible that such covenants may include
further restrictions on dividend payment to shareholders.
In the meantime, Company management will continue to focus on ramping up
underground production and will use all reasonable endeavours to achieve design
production by the end of 2003. Shareholders will be kept informed of
developments.
For further information please contact the Managing Director, David Sadler, on
015-780 2802.
Phalaborwa
27 March 2003
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Limited
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