To All,I think the report is encouraging for the future, but...

To All,

I think the report is encouraging for the future, but disappointing to-date.

Let's break it down.

Activities Report

The opening paragraph really does set the tone about where the plant is at and who is ultimately responsible for the issues they have - Outetec.

"concluded a settlement agreement with Outetec with respect to rectifications for plant deficiencies and performance"

"critical to achieving nameplate is the completion of fixes including modifications and additions to the wet and dry plant due to Outetec's design and equipment faults"

"the majority of the capital costs for these will be borne by Outetec"

"IDM is currently impacted by the reduction in efficiencies"

"....intermitten stoppages for equipment servicing, adjustment and in some places replacement"

I hope for Outetec's sake they get this fixed, Barry Bolitho is one of those people you wouldn't want to meet in a dark alley. I'd rank him as the best head-kicker in the mining game.



Now as I have highlighted in previous posts, all mineral sand projects like this would be performance guaranteed. There would be multiple KPI's for each part of the plant. The basic ones would be related to throughput and recoveries percentages and obviously these are not being met and thus Outetec are having to fork out for the changes.

Just knowing how a plant works I think the issues are related to the variability of the high grade feed and the plant being unable to run it through effectively. I would think many of the problems would be wet mill related. They talk about the wet mill availability decreasing to 81.9%, a normal KPI would be 90% and brand new plant you would hope for something up near 95%. This recovery difference is massive and IDM would be missing out big time. They also talk about "intermitent" and the plant only running for 69 of 90 days.

Now the company have not mentioned the changes being made, but I would be guessing a "pre-wet mill" could be on the cards to make a concentrate, then run it through the current wet mill and then onto the dry mill. I also think changes will be made to the dry mill with recoveries rates decreasing to 87%. I have outlined the possible dry mill changes in previous posts.


Exploration
They are dealing with private land owners and the county and there would be heaps of options open to them, it's all about signing them up on the right terms. I see that another 2,546 acres are close to be signed, this alone would be 10+ years onto the resource.

Environment Health and Safety
Small accident regarding loud noise. While not good, that could happen anywhere.

Marketing
Downturn in the sand market was evident three months ago and many of these issues are related to the european crisis. The price yesterday for foundry grade out of South Africa is $480t, so it's still reasonably strong. Also the chinese will all be coming back from new year celebrations and most commodities rise at this time.

There has also been a huge amount of speculation that South Africa and India may stop all Chromite exports to China and internalise ferrochrome production, just like Zimbabwe did in April 2011. The benefits that have come from this for Zimbabwe have been widely talked about in their newspapers and many South African governments officials have backed this idea. The Chinese have no Chromite resource in their country.

Marketing - Chromite
I have spoken in previous posts about the trials that would be required by the foundries before using a new product such as Spherichrome. Management confirm that they are going well and the foundries agree with the benefits. I would be guessing many foundries in North and South America will be asking for samples for testing, especially with the current quality and logistic issues coming from South Africa.

Zircon
No-brainer. They could flog this from a local deli.

Litigation
It's been thrown out twice before and yet they are appealling on exactly the same grounds. I've read the judgement ten times and the argument is ridiculous. In the U.S. it's all about litigation, the green movement provide funds to all the environmental lawyers. These lawyers then appeal every project within their area - and then get paid. It's all about money and this will probably go on forever.

The worst thing that can happen is the judge (the same judge that has thrown it out twice) can order the government authorities to do another study.


Cashflow Report
Good to see revenues of nearly $4m for a plant that obviously is not anywhere near capacity. We would hope that these numbers will increase over the coming quarters. Operating cashflow is positive, but this figure can be misleading, but it's better than negative. Other fixed assets at $6m, this must be upgrades that are being done beyond the changes that Outetec are making, maybe even last payments on equipment.

They raised money out of the two biggest shareholders - Sentient and MacBank. Obviously still happy with the project.

Cash is low at $2.5m, but sales are starting to come through, a small raising could well be on the cards, but I wouldn't be surprised if it doesn't eventuate.


My view
It's normal practice with 'new plant' issues that both companies have detailed analysis of the plant done by independent contractors/companies. This project would be no different.

Barry Bolitho is no idiot and he has been involved with sand projects before, so I would be guessing he would have sent some cluey sand miners from Perth and they would have submitted their understanding of the issues to the company and Outetec.

Now we can see the parties have agreed on the changes and they are currently being done, so I would think we will see good news flowing in the next few months and this will translate into the share price.

Pep

Just my thoughts - DYOR.