re: Ann: September quarter financial statemen... MD & A Highlights
In July the Plant continued to be commissioned. On August 1, 2011, the Plant was considered to be in commercial
production, though continuing its program of ramp-up to design capacity. Throughout the September quarter, mining
continued on the cutback program in the central pit to expose access to ore which resulted in approximately 1.1 million tonnes of waste being mined, the majority of which was used for the raising of the embankments at the Stage II tailings storage facility. The Plant produced 8,718 tonnes of copper cathode during the three months ended September 30, 2011, 6,549 tonnes of which was during the pre-production phase. Performance in respect of copper recovery is nearing design capacity, recording 86.4% for the three months ended September 30, 2011, compared to design capacity of 92.1%.
Operation of the Plant during the quarter was subject to tankhouse current efficiency issues and problems with rectifiers and transformers. Cathode cash cost (C1) was higher than anticipated due primarily to lower than expected production and higher grid-power costs.
Kinsevere Expansion Project
The Group is proceeding with a stepped development plan for the expansion of the Plant, focused on achieving
production significantly above the current design capacity of 60,000 tonnes of copper cathode per year. The first step in the development process involves ordering of long lead-time capital items and in this respect, a second stripping
machine has been ordered for a cost of $1.9 million.
The second step involves de-bottlenecking of the Plant as part of an upgrade and optimization process that involves
capital works for the installation of the second stripping machine; procurement of additional items required to enhance Plant performance; a front-end engineering design study to consider an expansion of the mill-leach-CCD facility; a structured heap-leach test-work program in order to confirm heap-leach process parameters; and a metallurgical simulation that is currently under way and expected to be completed by the end of 2011 which will identify further refinements to the Plant necessary to improve overall Plant performance.
The next steps include expansion of the back-end of the Plant with an additional electrowinning unit and second lowgrade SX facility and an upgrade of the leaching circuit in order to provide additional copper in solution to support any back-end expansion.
The Company has a project team focused on Plant expansion, with the current effort targeted to steps one and two in
order to maximize production from the existing Plant.
Pre-production costs and revenues of the Plant during testing and commissioning from May 2011 to July 2011 were
capitalized. From August 1, 2011, the Plant was considered to be in commercial production according to accounting
standards and thus revenues, operating costs and depreciation relating to the Plant was recorded in the income statement. During the pre-production phase, the Plant produced 6,549 tonnes of copper cathode, for sales of 4,793 tonnes. The revenue and the costs associated with sale of copper cathode during pre-production was a net positive contribution of $33.2 million.
EXPLORATION
Kinsevere Sulfides Project
As reported in the Company’s latest AIF, results from previous drilling at Kinsevere have identified a Measured and Indicated Resource from sulfide material of 11.86 million tonnes with a total copper grade of 2.7% for approximately 317,000 tonnes of contained copper and a similar-sized Inferred Resource. During June, the Company commenced drilling, the objective of which is to improve confidences and extensions of the defined sulfide mineral resource that is compliant with Canadian National Instrument 43-101 to allow for an evaluation of development options during the first half of 2012.
As at September 30, 2011, a total of 5,530 metres in 34 holes had been drilled, with core being logged and stored for assaying at an on-site laboratory operated by an international laboratory services company and overseen by African Mining Consultants.
Kinsevere Regional Project
The Group continues to target the area within a 50km radius of its Kinsevere project to identify tenement acquisition
opportunities. No further agreements were entered into during the quarter, however investigation of opportunities within the target area continues. On those tenements in the Kinsevere surrounds in which the Group has acquired an interest, further termite mound sampling and geochemistry programs have been carried out, with drill programs to be selected from any significant geochemical anomalies. Assay results from work carried out to date are expected to be available before year-end.
Following review of a copper anomaly identified in an area located immediately to the east of the Kinsevere Hill deposit, it has been determined that further drill testing is appropriate, in order to target the source of the anomaly at depth. A drilling program is currently being prepared and is expected to commence in December.
A reconnaissance drilling program has been completed at Likasi, located approximately 80 kilometres north-west of
Kinsevere, where the Group has held an exploration property for some time. The drilling program targeted geochemical
anomalies identified from a soil and termite mound sampling program undertaken in 2008. A total of 75 holes were drilled
for 4,093 metres, with an average depth of 50 metres. Malachite mineralization was identified in four holes from a depth of 18 metres in the Kapolwe South prospect area and appears to be structurally controlled. Where intersected, malachite mineralization was present to the end of the hole at 85 metres and is therefore open at depth. Samples are currently being prepared prior to dispatch for analysis in South Africa. No assay results have yet been received. Further work is planned to delineate the structural zone and target additional mineralization, with further drilling to be undertaken during the 2012 dry season.
Mutoshi Project
The in-fill drilling program at Mutoshi commenced in September, with two diamond-drill rigs in operation. As at October 31, 2011, a total of 810 metres in seven holes had been completed. The in-fill drilling program, the initial phase of which involves15,000 metres of drilling, is focused on the Mutoshi North and Mutoshi North West project areas. Data from the drilling program will be used to update the geology model for Mutoshi and to support Mineral Resource estimates at a sufficient level of confidence to enable evaluation of mining development options.
Borrowings
As at September 30, 2011, principal outstanding under the Loan Facility was $43.0 million, compared to $57.0 million as at June 30, 2011. During the three months ended September 30, 2011, the Group repaid $14.0 million of principal under the Loan Facility, $7.1 million being a scheduled repayment, and the balance of $6.9 million representing an accelerated repayment. The Group drew down $15 million in the first quarter of 2011. Deferred financing fees, which is offset against the Loan Facility on the Balance Sheet, has decreased to $1.3 million mainly due to acceleration of the amortization of the Loan Facility establishment fees ($3.3m) arising from a reassessment of the loan redemption period.
Social Development
The Group’s social development activities continue to target the area surrounding Kinsevere, with projects in a range of areas and a focus on food security. The farmers’ assistance program covering 500 hectares provides support for grain farming through the provision of seed, fertilizer and training and the collection of grain, along with reimbursement of farmers for grain production. Evaluation sessions have been held in preparation for the upcoming planting season.
Further progress was made with a vegetable growing project in a number of villages surrounding Kinsevere, with
produce from the project purchased by the Company for use in its mess facilities. Education on the application of
watering, the spraying of insecticides and the management of seedbeds also took place, with assistance provided to over 100 farmers. The Company has undertaken a study of a pilot vegetable farming project using over 10 hectares of land and expects to reach a decision on this project during the fourth quarter.
Various other projects continued in the areas of education, water infrastructure, community consultations and livelihood
improvements, an example of which is the purchase by Kinsevere of over 90 cubic metres of aggregate material, from Company supported rock crushing operations in surrounding villages, for use in various projects around the mine.
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