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Sierra Rutile Ltd (SRX)

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Monday 24 October, 2011

Sierra Rutile Ltd

Sierra Rutile to Expand Production

RNS Number : 6697Q
Sierra Rutile Limited
24 October 2011
 



 

Sierra Rutile to Expand Production

 

London, UK, 24 October 2011:  Further to the announcement on 19 September 2011, Sierra Rutile Limited (AIM:SRX) ("SRL") is pleased to announce two production expansion projects:

·    Dry mining of parts of the Lanti deposit ("Dry Mining Project"); and 

·    Dredge mining of the Mogbwemo tailings ("Mogbwemo Tailings Project").

Construction of these two projects, along with associated infrastructure, will commence immediately with the objective of expanding production by 50,000 to 60,000 tonnes of rutile and 9,000 to 12,000 tonnes of ilmenite per annum.  Production from these projects will commence in 2013 and reach full capacity in 2014.  The capital cost of the projects and associated infrastructure is estimated at approximately $52 million.

Dry Mining Project

The Dry Mining Project will start in the Lanti deposit, close to the existing dredge's operations, focusing on small high-grade pockets of ore which the existing dredge is unable to mine (28.1 million tonnes of resource at 1.5%).  The project will commence immediately, at a capital cost of approximately $20 million1, principally for a mobile concentrator unit and associated infrastructure.  It is expected that the dry mining itself will be outsourced to a contractor through a competitive tender process.  The project is expected to produce an additional 30,000 to 35,000 tonnes of rutile and 6,000 to 9,000 tonnes of ilmenite per annum2, commencing in early 2013 for a period of over 7 years at the Lanti periphery and the Gbeni deposit at an anticipated average operating cost of approximately $680 per tonne3.  Other dry mining deposits are possible following Lanti and Gbeni.

 

1 Includes 20% contingency.

2 Production varies with grade in the particular year of operation.

3Operating cost varies with grade in the particular year of operation and includes byproduct credits for ilmenite but not

 zircon.

Follow the link below to view Map of dry mining area;

 http://www.rns-pdf.londonstockexchange.com/rns/6697Q_-2011-10-23.pdf  

 

Mogbwemo Tailings Project

The Mogbwemo Tailings Project will mine certain tailings that, due to inefficiencies in historical processing techniques (pre-1980), still contain relatively high grades of rutile (22.0 million tonnes of resource at 1.13% rutile).  The project will be commence immediately, at a capital cost of approximately $25 million4, principally for a mobile unit, a small new dredge and associated infrastructure.  The project is expected to result in an additional 20,000 to 25,000 tonnes of rutile production and approximately 3,000 tonnes of ilmenite per annum5. The project will start production during 2013 and will contribute a full year of production from 2014 onwards for a period of 6 years, at an anticipated average operating cost of approximately $580 per tonne of rutile on average6 during the first 3 years of operation.  Subsequent to mining the Mogbwemo tailings, the concentrator unit can be used to process production from the Ndendemoia deposit.

4 Includes 20% contingency.

5 Production varies with grade in the particular year of operation.

6 Operating cost varies with grade in the particular year of operation and include byproduct credits for ilmenite but not zircon.

 

Follow the link below to view Map of Mogbwemo tailings area;

 

http://www.rns-pdf.londonstockexchange.com/rns/6697Q_1-2011-10-23.pdf  

 

 

Supporting Infrastructure

In addition to the capital costs for the Mogbwemo Tailings Project and the Dry Mining Project described above, approximately $7 million of capital expenditure will be required in 2012 to increase the capacity of the land plants and general site infrastructure to accommodate the increased production in 2013.

Financing

The combined capital cost of the two near-term expansion projects and associated infrastructure, along with the New Dredge Feasibility Study discussed below, is approximately $55 million.  SRL had $4.9 million of cash as at 30 September 2011 and estimates this will increase to $12 million by the end of 2011.  SRL is currently in the process of developing its 2012 budget that will include the expansion projects as well as the cost of a feasibility study into a new dredge (discussed below) and a prudent cash buffer.  Once the forecast cash flow from existing operations and the timing of cash flows for the expansion projects is finalized, the shortfall requiring external financing will be determined.  SRL is considering both debt and equity financing options to fund this shortfall.

New Dredge

In addition to the Dry Mining Project and Mogbwemo Tailings Project, SRL is pleased to announce that it will commission a feasibility study ("Feasibility Study") into the construction of a second large dredge that will initially mine the Gangama deposit ("New Dredge").

The strategic review conducted by SRL that included work by a consortium of consultants headed by the Snowden Group (the "Consultants") (as announced on 11 May 2011) supports the construction of a new dredge ("New Dredge") capable of mining 1,000 tph of ore, and producing 60,000 to 90,000 tonnes of rutile and associated ilmenite (actual production dependent on the grade of the ore being mining).  The Consultants preliminary work suggests the New Dredge would have a capital cost of approximately $90 million7 and operating costs of approximately $500 per tonne of rutile8.  In light of the Consultants' findings, SRL has decided that the existing capsized dredge should not be refloated.  However, during the Feasibility Study, SRL will look at options to salvage parts from this dredge for use in the New Dredge in order to reduce capital costs where possible.  The New Dredge Feasibility Study and construction period for the New Dredge is estimated at 30 months. 

A land plant upgrade will also be required to handle 200,000 tonnes per annum of rutile following the construction of the New Dredge, as well as further improvements to infrastructure.  These improvements are expected to have a capital cost of $18 million and would be implemented to coincide with the commissioning of the New Dredge.  The overall cost for the New Dredge project, including the dredge itself, improved infrastructure, Gangama pond development and working capital increase9 is anticipated to be $125 million.

7 Includes 20% contingency.

8 Operating costs vary with grade in the particular year of operation and include byproduct credits for ilmenite but not zircon.

9 Gangama pond development and working capital increases are expected to cost $17 million.

 

Other expansion initiatives

The Consultants' work also supported the commercial viability of on-stream processing of zircon into a finished or semi-finished product.  This project had a capital cost of approximately $34 million for a finished product and approximately $17 million for a semi-finished product.  While on-stream processing had positive economics, given the significant expansions SRL will be undertaking in its core rutile production combined with the lower incremental value of these projects, the Board of SRL has instead commissioned management to undertake an optimization study into zircon processing options during 2012.  This project will also include further analysis on means of maximizing value from the rare earth oxides contained in SRL's resource.

SRL will continue to batch process zircon in 2012 to the extent the land plant and historical zircon-rich tailings are available to do so.

The combination of the existing dredge currently operating in the Lanti deposit, the New Dredge, the Dry Mining Project and the Mogbwemo Tailings Project are expected to increase production to a level of 200,000 tonnes per annum, once all projects are implemented, at a total capital cost of approximately $177 million.

Commenting on the announcement John Sisay, SRL Chief Executive Officer said.

"We are now entering a very exciting time for SRL as we embark on two immediate expansion projects that we expect to contribute meaningful production in 2013.  Furthermore, we have also refined our analysis on how best to achieve longer-term production growth and meet our target of producing 200,000 tonnes of rutile a year.  We look forward to finalizing the plan for the construction of the New Dredge and to executing these various expansions that we expect will guarantee the long-term success of SRL."

ENDS

For further information:

 

Sierra Rutile Limited

John Sisay, Chief Executive Officer

Telephone: +44 (0) 20 7321 0000

www.sierra-rutile.com 

 

Collins Stewart Europe Limited

Financial Adviser

John Prior/Adam Miller

Telephone: +44 (0) 20 7523 8350

 

Aura Financial

Michael Oke/Andy Mills

Telephone: +44 (0) 20 7321 0000

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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