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Palabora Underground Production Delays Lead To Additional Finance Requirements
Release Date: 31/07/2003 07:00:03 Code(s): PAM
Palabora Underground Production Delays Lead To Additional Finance Requirements
PALABORA MINING COMPANY LIMITED(Incorporated in the Republic of South
Africa)Registration number - 1956/002134/06Share 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 indiscussions
with several leading domestic and international bankers to refinancethe Company.
The requirement to do this is a direct result of the strengtheningof the Rand
against the US Dollar, and the delayed ramp up of the undergroundmine"s
production to design capacity.The Company is in the process of converting from
large-scale open castoperations to an underground mine. Expenditure on the
development of theunderground 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 withinbudget, production has
been limited by the inability efficiently to clear drawpoints that have been
blocked with poorly fragmented, large rocks. Consequently,production levels of
between 10 000 and 12 000 tonnes per day are being achievedagainst an expected
30 000 tonnes per day.The Company uses specialized secondary breaking equipment
to clear the oversizerock and to allow the ore to be taken from the draw points
to the crushers. Pastpractices in the mining industry have allowed oversize rock
hang-ups to be freedby manually placing small explosive charges in the blocked
draw bells. However,this can be a fatally dangerous practice and Palabora"s
management will notexpose its miners to this risk - hence the decision to use
alternative, safemethods of secondary breaking. The effectiveness of current
secondary breakingequipment has, to date, been disappointing and the Company has
taken varioussteps to improve its position.While the ramp up of production has
been slower than planned, these are earlystages of the mine life and experience
at other similar mines around the worldsuggests that fragmentation will improve
as the cave develops and that the needfor secondary breaking will decline
considerably.Notwithstanding the above, the Company cautions that the aggregate
impact of thelimited production from the underground mine and the strength of
the Randagainst the US Dollar, partly offset by the cost saving actions taken by
theCompany, will impact negatively on the earnings of the Company.The cumulative
effect of these issues is that Palabora will require additionalfinance
facilities during 2003. The Company currently has borrowing facilitiesof US$185
million and aims to increase these by some US$90 million. Palabora hastherefore
approached a number of leading domestic and international banks inorder to
commence the process of obtaining these facilities.In light of the current
US$/Rand exchange rate, the low copper price and thedelayed 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 atcommercial rates until the
refinancing programme is in place.The discussions with the bankers are
progressing and indications are that thenecessary refinancing of the business
will be in place during the second half ofthe year. Although the Company has not
yet discussed the covenants associatedwith a possible refinancing, it is
possible that such covenants may includefurther restrictions on dividend payment
to shareholders.In the meantime, Company management will continue to focus on
ramping upunderground production and will use all reasonable endeavours to
achieve designproduction by the end of 2003. Shareholders will be kept informed
ofdevelopments.For further information please contact the Managing Director,
David Sadler, on015-780 2802.
Phalaborwa
27 March 2003
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Limited
Date: 31/07/2003 07:00:05 AM
Produced by the JSE SENS Department
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