17 June 2005 COMPANY UPDATE Further to Giants Reef Mining Limited’s (ASX: GTM) trading halt and subsequent voluntary suspension from quotation, and its “Market Update” announcement dated 24 May 2005, the Company wishes to provide a further update. In earlier announcements, the Company advised that it had requested voluntary suspension in order to complete negotiations for a ‘material transaction’. These negotiations, which have required advice and evaluation from several third parties in relation to possible alternatives open to the Company, have taken longer than anticipated. The Company regrets the delays, which have been necessary in order to ensure that all alternatives have been adequately evaluated. During this period, the Company and its advisers have been focusing on the financial impact of the unforseen changes to the Chariot orebody below 8 Level, initially disclosed in its 11 April 2005 announcement. These changes have now been confirmed by the recently completed infill underground diamond drilling to the bottom of the mine at 15 Level (refer below). The changes at Chariot have impacted the project finance facility with the ANZ Bank, which has been supportive of the Company in defining an outcome that meets Giants Reef’s obligations and protects the interests of shareholders. Whilst Chariot is generating positive cash flow, a capital raising will be required. SUMMARY Capital Raising Over the past month, the Company has been engaged in detailed evaluation of and negotiations in relation to alternative capital raising proposals and structures which, as is normal for such proposals, has involved detailed due diligence by those parties involved. These negotiations remain ongoing but are expected to be concluded before the end of June. In these circumstances, the Company believes continued voluntary suspension is appropriate until full details of the capital raising are finalised and available for release to the market. Chariot Infill Drilling • Further to the Company’s announcement dated 11 April 2005 – (“Chariot Extension and Infill Drilling”), infill drilling between the 8 to 15 Levels at the Chariot Mine is now completed. • This drilling has not confirmed the ore thickness, continuity and gold grades indicated by more broadly spaced surface drilling completed prior to the commencement of mining. This surface drilling was the basis for the ore reserve estimate that was incorporated into the 2002 Chariot Mine Feasibility Study. Giants Reef Mining Limited Page 2 of 4 ASX Release Dated 17 June 2005 • Whilst a revised Mineral Resource and Ore Reserve statement is not scheduled to be completed until late June, it is now apparent that a material down-grade in ore reserves below the 8 Level will result. Completion of Chariot Project • Given this foreshadowed material down-grade in ore reserves, which will reduce mine life, and in order to optimise remaining free cash flow, a decision has been taken to mine the balance of the Chariot deposit as quickly as possible. Chariot continues to generate positive cash margins. • Mining operations above the 8 Level are currently suspended due to poor ground conditions. The ore remaining above the 8 Level is therefore excluded from the current mine plan, however the Company is currently working with geotechnical experts to evaluate methods for the safe extraction of this ore. • Consequently, without ore recovery from above the 8 Level, mining operations at Chariot are now scheduled to be completed in early September 2005. Treatment of ore will continue until the end of the September quarter. Additional ore from above the 8 Level could extend the completion of mining at Chariot until the end of the year. • The Company will then execute an orderly closure of the Chariot mine and place the Warrego treatment plant on care and maintenance. Gold Hedging • Late in May, the A$ spot gold price dipped to A$548.50, which enabled the Company to unwind all existing hedge contracts at no cost. The Company is therefore now unhedged, and all its remaining gold production will be sold at spot. BACKGROUND The Chariot deposit was discovered in 1998 by Normandy Mining, and the Company acquired Normandy’s 57% interest in June 2001, and subsequently Sons of Gwalia’s 43% interest in March 2003. Underground development commenced in June 2003 after the ANZ Bank provided a $16.25 million project debt facility, together with 150,000 ounces of gold hedging. Gold hedging at 31 March 2005 totalled 92,435 ounces, which had reduced to 69,969 ounces at 1 May 2005, following delivery into contracts and the sale of “in the money” put options. Drilling of the Chariot orebody, inclusive of 8 to 15 Levels, was initially carried out from the surface. The geological interpretation, based on this surface drilling, concluded that the highgrade mineralisation was continuous from the 2 to 15 Levels. This drilling was utilised in the preparation of ore reserve estimates by independent consultants, and these reserve estimates were incorporated into the 2002 Chariot Mine Feasibility Study. The results of the recent infill underground drilling, which now extends to the 15 Level, and has only been possible as decline access permitted, have not validated the original geological interpretation. Rather, the drilling has shown that the orebody below the 8 Level breaks up into multiple overlapping lenses of varying sizes. The mineralisation in the lenses is lower grade than above the 8 Level and their aggregate volume is less than the feasibility study estimates. Collectively, these factors are likely to result in a material diminution of reserve ounces from those previously estimated for the 8 to 15 Levels. The infill drilling program is now complete. Updated Mineral Resource and Ore Reserve estimates, currently being prepared by an independent consultant in conjunction with the Giants Reef Mining Limited Page 3 of 4 ASX Release Dated 17 June 2005 Company, will be available in late June, following completion of detailed geological interpretation, geostatistical modelling, mine design, scheduling and documentation. CURRENT SITUATION ANZ Bank Facility The Company has advised the ANZ Bank of the changed circumstances at Chariot, and the bank remains supportive of the Company. The total ANZ debt is currently $9.87 million, comprising $9.21 million principal, $0.5 million working capital facility, and a $0.16 million guarantee facility. Gold Hedging At the end of May 2005, the A$ spot gold price dipped to A$548.50, which enabled the Company to unwind all existing hedge contracts at no cost. This equated to 69,969 ounces of gold hedging extending from May 2005 until March 2007. The Company is therefore now unhedged, and all its remaining gold production will be sold at spot. This transaction, was planned and efficiently executed by the ANZ Commodies Group Melbourne, in conjunction with the Company. Chariot Mine Operations At Chariot, ore is being drawn from the 9 to 11 Level stope. The decline heading is almost at the 14 Level and development of the 13 Level ore drives has been completed. Detailed design work of the 12 to 14 Level stopes, which are scheduled for production in the September quarter, is well advanced. Mining operations above the 8 Level are currently suspended due to poor ground conditions, which have caused several incidents in the past that have resulted in damage to equipment and lost production (refer ASX release “Jumbo Damage” dated 14 February 2005 and previous announcements). The high-grade ore remaining above the 8 Level is therefore excluded from the current mine plan, however the Company is currently working with geotechnical experts to evaluate methods for the safe extraction of this ore. Otherwise, operations are proceeding as normal. Small Mines Due to the changed circumstances at Chariot and their impact on the Company’s project cash flow, mining operations have been suspended for the time being at Edna Beryl and Cat’s Whiskers, both of which require capital for further mine development. Similarly, at Black Snake and Golden Kangaroo East, resource definition drilling has been postponed, which will preclude economic assessment, permitting and development of these projects before the closure of Chariot. They will, however, be available for future development, subject to the recommencement of ore treatment at Warrego. Giants Reef Mining Limited Page 4 of 4 ASX Release Dated 17 June 2005 June Quarter Forecast In the March quarter report, the Company forecast gold production for the June quarter in the range of 18,000 to 20,000 ounces. With the suspension of mining above the 8 Level at Chariot and at Cat’s Whiskers and Edna Beryl, and the generally lower grade mineralisation below 8 Level, June quarter gold production is now forecast in the range of 13,000 to 15,000 ounces. Exploration Field exploration activities have been curtailed. However, the Company’s exploration team has largely been maintained and has continued with the generation of large, new, primary gold targets, the evaluation of brownfields high-grade oxide gold opportunities and preparation of land packages for joint venture. The Company has received several approaches from established mining companies to joint venture selected land packages within its substantial landholding. Discussions have commenced with a number of these groups. At Chariot two underground exploration targets have been identified based on interpretation of recently collected structural data. These targets, which could represent potential new ore positions, are located 100 metres east and down plunge of 13 Level. The drilling of two reconnaissance holes from underground has been completed and assay results are awaited. MOVING FORWARD The Company’s immediate priorities are to:- • Finalise the terms of and proceed with a capital raising; • Optimise production from the Chariot mine to maximise free cash flow; • Plan and execute an orderly closure of the Chariot mine and place the Warrego treatment plant on care and maintenance; and • Continue to generate new drill targets and the preparation of joint venture packages within its prospective Tennant Creek tenements. The information in this report that relates to Exploration Results, Mineral Resources and Ore Reserves is based on information compiled by Mr Kim Bischoff (Exploration Manager), a full time employee of the Company, who is a member of the Australasian Institute of Mining and Metallurgy. Mr Kim Bischoff has sufficient experience, which is relevant to the styles of mineralisation and type of deposit under consideration, and to the type of activity, which he is undertaking, to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Kim Bischoff consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Enquiries: GV Ariti Managing Director & CEO Telephone: (08) 9483 5700 E-mail: [email protected]
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