| Fri 8 Oct 2004, 17:09 | | Metorex - Update On The Ruashi Project, Trading Up |
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Release Date: 08/10/2004 17:02:37 Code(s): MTX
Metorex - Update On The Ruashi Project, Trading Update And Renewal Of Cautionary
Announcement
METOREX LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1934/005478/06)
Share code: MTX
ISIN : ZAE000022745
(`Metorex` or `the company` or `the Group`)
PRESS RELEASE
UPDATE ON THE RUASHI PROJECT, TRADING UPDATE AND RENEWAL OF CAUTIONARY
ANNOUNCEMENT
Introduction
Further to the announcement published on 20 May 2004 regarding the Ruashi
Copper/Cobalt project, shareholders are hereby provided with further information
on the progress of the project.
In line with its strategic objective to develop larger, longer life, high
quality orebodies, Metorex reached agreement with the Government of the DRC, La
General des Carrieres et des Mines `Gecamines`Ù and Sentinelle Global
Investments (Proprietary) Limited `Sentinelle`Ù to mine and treat the high
grade copper/cobalt Ruashi orebody and the Ruashi and Etoile stockpiles situated
in the Katanga Province of the DRC, approximately 10 kilometres from Lubumbashi.
Metorex now owns 68% of Ruashi Holdings (Pty) Ltd, which company owns 80% of
Ruashi Mining SPRL, with the balance of 20% being held by Gecamines, giving
Metorex a 54.4% indirect interest in the project. In addition, Metorex has an
option to increase its shareholding in Ruashi Holdings (Pty) Ltd to 84% with a
resultant indirect interest of 67% in the project. The project mining site is in
the Katanga Province in southern DRC (an area of the DRC which has been conflict
free for many years) and is 1 500 km from Johannesburg and 100 km from the
Zambian border. The site is also approximately 10 km from Lubumbashi, a well-
established town in the DRC which offers a sound infrastructure.
Project overview
The project will be implemented in two-phases.
An in depth Feasibility Study for Phase 1 has been coordinated by the Metorex
team with independent engineering reports commissioned and received from Bateman
and GRD Minproc. These studies have confirmed the reasonableness of original
estimates and the overall attractiveness of the project.
In addition, Metorex has completed a technical in-house feasibility study on
Phase II, with focus on the capital costs, operating costs and metallurgical
balances. Independent engineering reports will be commissioned to confirm these
forecasts.
Mineral Resource
The project envisages the exploitation of the Ruashi and Etoile stockpiles and
ore-bodies.
The mineral resources are summarised below
Phase I - Stockpiles
Tons % Cu % Co
Ruashi and Etoile 3.2 1.9 0.6
Stockpiles million
These reserves constitute probable reserves and inferred resources.
Phase II - Ruashi Orebodies
Tons % Cu % Co
Ruashi 31.9 3.5 0.35
million
These reserves constitute proved and probable reserves.
Diamond drilling in excess of 100,000 metres has been carried out on the
orebodies.
Potential exists to exploit the sulphide orebody below the oxides and an
evaluation will be undertaken on the sulphides during Phase I and Phase II.
Phase 1
Phase 1 will mine and process the oxide stockpiles at Ruashi and Etoile with
operations strategically separated between Zambia and the DRC to reduce capital
cost exposure and mitigate risk.
A concentrator will be constructed at Ruashi to treat the oxide stockpiles.
This will include the translocation of suitable plant currently on care and
maintenance at O`okiep Copper Company (Pty) Ltd (`O`okiep`). The concentrate
produced will then be processed at the Metorex-owned Solvent
Extraction/Electrowinning (SX/EW) plant in Zambia to produce a copper metal and
cobalt salt. The SX/EW plant in Zambia may also later provide toll treatment
services to other concentrate producers.
Mining and concentrator operations will treat 70,000 tons of ore per month
producing approximately 8,000 tons of copper and 1,200 tons of contained cobalt
in salt per annum.
GRD Minproc have confirmed an expected capital cost of circa US$20million for
the concentrator to be erected at Ruashi to produce a copper-cobalt concentrate.
This is consistent with Metorex`s original estimates.
Agreement has been reached to purchase an existing SX/EW plant in Zambia with a
treatment capacity of approximately 5,000 tons per month of concentrate. This
plant is to be upgraded and expanded to produce copper metal and a cobalt salt
from the Ruashi-produced concentrates. The capital cost of the Zambian plant
will be US$15million. Importantly, the plant will utilise existing
infrastructure and assets which will significantly reduce the overall capital
cost of the plant.
Total capital expenditure for Phase 1, including the work required to upgrade
planning for Phase 2 to Bankable Feasibility Stage is thus estimated at US$40
million.
Phase 2
Phase 2 will involve the mining and processing by direct leaching of the high
grade copper / cobalt oxide ore resources for the production of copper and
cobalt metals on the Ruashi mine site on the outskirts of Lubumbashi. Phase 2,
giving higher copper and cobalt recoveries than in Phase 1, has an estimated
life in excess of 30 years, which life excludes the sulphide resources
underlying the oxide ore.
Mining is envisaged at a rate of 120,000 tons per month with the higher copper
and cobalt recoveries resulting in an estimated 40,000 tons of copper metal and
3,000 tons of cobalt metal being produced annually.
Capital expenditure estimates for Phase 2 amount to US$110 million and
indications are that this can be financed from the cash flows from Phase 1,
provided that Phase 1 is equity financed.
Project Economics
Based on consensus long-term commodity prices derived from prominent industry
commentators and in-depth independent capital and operating cost analyses
performed by the independent consultants, the combined project has a
conservatively estimated NPV of over US$200 million at a real discount rate of
15% and an accompanying IRR in excess of 60%. Payback periods for both Phases 1
and 2 are forecasted at less than 2 years after start up.
At full production and at constant long term prices of US$2000/t for copper and
US$10/lb for cobalt, the project is forecasted to produce average after tax
annual earnings of US$58 million, of which Metorex`s attributable share is US$39
million (R253 million) pa.
Risk Mitigation
The overall risk of the project is mitigated by the following factors:
- the high grade of the ore at Ruashi;
- management`s experience in establishing and operating similar projects in
Southern Africa, including Zambia);
- the phased nature of the project;
- the split of operations between Zambia and the DRC;
- lower project capital cost through utilisation of existing assets and
infrastructure;
- short payback periods; and
- the availability of political risk insurance.
Financing of the Ruashi / Etoile project
The company intends to raise an amount of US$40million to fund the project and
discussions have commenced with potential financiers.
In the opinion of the directors of Metorex, the current market capitalisation of
the company on the JSE Securities Exchange South Africa (`JSE`) is materially
less than the fundamental value of the existing operations of the company and
this under-valuation becomes more pronounced when the value of Ruashi / Etoile
is included.
This pronounced under-valuation is being addressed in considering the optimal
manner of raising the required funds.
Impact of Ruashi on the Metorex Strategy
Metorex has embarked on a strategy of targeting, developing and exploiting long
life, high quality mineral resources and expanding each of its operating
divisions to reach critical scale, thus positioning itself as a diversified mid-
tier mining company.
Pursuant to this strategy:
Gold:
Following the acquisition of Barberton Mines, the gold division of Metorex now
produces 130,000 oz of gold annually.
Copper and Cobalt:
At Chibuluma South, production of copper from the high grade ore-resource has
commenced and is forecasted to reach target capacity of 15,000 tpa of copper
during 2005.
The development and exploitation of the long life and high quality mineral
resources at Ruashi / Etoile will position this division as a mid-size and low
cost producer of copper in world terms.
Coal:
Annual sales of 3.0 million tons are targeted for the year to June 2005 compared
to 1.6 million tons in 2004. This positions the coal division as a significant
domestic producer.
Industrial Minerals:
At Vergenoeg Fluorspar, capitalising upon the long life, high quality mineral
resource, the state-of-the-art metallurgical plant producing top-end product
specifications for sale to a blue chip international customer base, annual sales
have increased from 115,000 tpa in 2000 to 140,000 tpa forecasted for the year
to June 2005. Sustained annual growth in sales volumes is targeted for the
future.
Trading update
Shareholders are aware that Metorex incurred an 8 cents loss per share for the
year ended 30 June 2004. This loss was exacerbated by retrenchment costs and
impairment charges at O`okiep and Maranda Mining Co. (Pty) Ltd which, subsequent
to year end, were discontinued.
Whilst, for a significant portion of the year the Group was affected by soft
minerals prices and a strong Rand/Dollar exchange rate, the Group generated R109
million of cash from operations, which was 16% higher than the previous year.
Notwithstanding the continued strong Rand and the fact that the operations at
Chibuluma South will not contribute to Group profitability until the 2006
financial year, trading conditions have improved subsequent to year end and the
directors expect a turnaround from a loss to a profit in respect of the six
months ending 31 December 2004.
Shareholders are advised that the above financial information in respect of the
six months ending 31 December 2004 has not been reviewed and/or reported on by
the company`s auditors.
Renewal of cautionary announcement
As stated, the company is in the process of raising finance for the development
of Ruashi / Etoile.
Shareholders attention is drawn to the cautionary announcement published on 29
September 2004 and are advised to continue to exercise caution when dealing in
the company`s shares on the JSE until a further announcement is made.
Johannesburg
8 October 2004
Sponsor:
Barnard Jacobs Mellet Corporate Finance (Pty) Limited
