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 USD185m and aims to increase these by some USD90m. 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 USD/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 USD50m at commercial rates until the refinancing programme is in place. 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.
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 USD409m and construction progress was 94% complete at the end of Feb 03. While the development of the underground mine project is on schedule and within budget, production has been limited by the inability 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. Company management will continue to focus on ramping up underground production to achieve design production by the end of 2003.
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