annuoncement

27 November 2009
Manager Announcements
Company Announcements Office
ASX Limited
Level 4
20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam
Annual General Meeting – Chairman’s Address
Attached is a copy of the Chairman’s Address to the Annual General Meeting of shareholders
to be held on Monday, 30 November 2009 at 3.00pm.
Yours sincerely,
Patrick McCole
Company Secretary
An Australian Resources Group
PO Box 158, West Perth, Western Australia 6872
[email protected] www.territoryresources.com.au
ABN 53 100 552 118
CHAIRMAN’S ADDRESS 2009
Annual General Meeting: 30 November 2009
Good morning, Ladies and Gentlemen:
As outlined in the Annual Report, the last financial year was an extremely difficult period for the Company
and the final financial result was most unsatisfactory. The circumstances relating to this outcome, including
the Global Financial Crisis, have been fully detailed and we certainly hope that an outcome like this will never
be repeated.
In turn, as we meet today I would much prefer to concentrate on the positive aspects of the Company and –
more importantly – our plans for the future.
Our Board and Management remain totally committed to rebuilding Territory to a position that not only
provides a positive outcome for our shareholders, but also provides a long-term career path for our dedicated
employees.
Let me be more specific.
At the last AGM – despite the very difficult circumstances prevailing at that time – this Board made three very
important commitments to our shareholders:
• Firstly, that we would establish Frances Creek as an efficient mining operation with a significant
increase in volumes and a substantial decrease in production costs, while also creating a safe and
positive working environment for our employees. At the same time, the Company would maintain a
fully sold position with an increasing market reputation for quality and reliability;
• Secondly, that we would financially restructure the Company, and re-establish a platform that would
allow and encourage future growth; and
• Thirdly, that the Board would completely re-focus the Company with an initial sole dedication to the
Frances Creek mining program. This repositioning included the divestment of all non-core assets
such our holdings in the ASX-listed companies Olympia Resources, India Resources and Northern
Mining.
As our Managing Director Andy Haslam will outline later in his presentation every aspect of this first key
target has been achieved.
Chairman’s Address 2009
An Australian Resources Group
PO Box 158, West Perth, Western Australia 6872
[email protected] www.territoryresources.com.au
ABN 53 100 552 118
The Company has now completed 40 shipments to China totalling over 3 million tonnes of high-grade lump
and fines product. With only one minor exception, every shipment has met contract specification enhancing
our market reputation for quality and reliability.
Our safety performance has also improved dramatically along with a significant improvement in operating
and corporate costs. The Company is now operating positively and we are anticipating even further
improvement as the next year unfolds.
While the opportunity to further reduce operating costs is limited, our income stream has continued to
improve. While it is not our policy to declare actual selling prices, I can tell you that during the past month we
have achieved a further 10% increase in the sales prices of our ore.
Furthermore, the market outlook for iron ore for at least the next year looks very positive. Although we
continue to sell into the spot market – which makes it impossible to guarantee forward price structures – we
now expect that the average selling prices for calendar 2010 will be at least 20% higher than the average
price the Company achieved during 2009.
As indicated, much of this price improvement has already been achieved in the past month, which has had a
positive impact on our financial performance, although clearly exchange rates and the cost of ocean freight
will continue to impact the Company’s profitability.
As far as the second key objective goes, we have recently completed the first stage of our financial
reconstruction program which included the assignment of the debt relating to the previous foreign exchange
hedge book to Noble and the extension of the Noble debt to 31 October 2010.
The Noble debt will be crystallised into one outstanding loan with Noble, with a repayment program that
provides for monthly interest payments and quarterly principal repayment whilst maintaining sufficient cash
for normal operating programs.
This loan agreement also allows for any necessary capital expenditure and exploration programs to support
the existing operation at Frances Creek.
The current outstanding loan to Noble is approximately $63 million. Given that part of this loan is
denominated in US Dollars, the actual amount will vary depending upon prevailing exchange rates.
We have also reached an in-principle understanding with Noble which, at some point in the future, will enable
part of this outstanding loan to be converted to equity. As part of these discussions, we have also agreed that
the most appropriate time for a debt-to-equity conversion would be in conjunction with the acquisition of
additional value-adding projects, which Noble is keen to support.
I will provide further details on these plans shortly.
Turning finally to the third key objective from last year, I am pleased to say that the refocusing strategy
implemented over the course of the year is also effectively complete with the successful sale of several noncore
investments in listed companies.
The sales program for these assets has included the recovery of any outstanding loans. The only remaining
non-core asset is our investment in Matilda Minerals. This Company is currently in voluntary administration
and the investment will be reviewed if and when it returns to normal trading conditions.
Chairman’s Address 2009
An Australian Resources Group
PO Box 158, West Perth, Western Australia 6872
[email protected] www.territoryresources.com.au
ABN 53 100 552 118
Further on the financial matters, I am also pleased to report that the first repayment of $2.96 million from the
outstanding loan to Monarch Gold was received on 8 October 2009.
Now let me turn to the future.
Our Business Development strategy is based around two key elements:
1. Extension of the operational life at Frances Creek
The most immediate challenge for the Company is the remaining operating life at Frances Creek.
While we did enjoy some exploration success during the year and reserves were upgraded for key deposits
like Helene 6/7, the remaining operating life at Frances Creek is currently estimated at less than three years
based on current reserves and production levels.
To assist in extending the current level of reserves and the operating life of the mine, we are currently in the
process of adopting a three-part mine extension plan. This plan includes:
1) Undertaking a comprehensive gravity survey of all our prospective tenements in the region. Historically
all exploration programs at Frances Creek have been based upon either outcropping iron ore or the
use of traditional drilling programs. While success cannot be guaranteed, we remain hopeful that a
gravity survey may identify some additional resources that will add to the economic life of the mine.
2) Our second focus is on developing a sales program for high-manganese iron ore deposits within the
Frances Creek area. This specifically includes the Miller’s Deposit, which is estimated to contain
approximately 1.2 million tonnes of ore. Initial discussions have already been held with the Noble
marketing team regarding the saleability of this material, and it now appears highly probable that a
suitable market position can be confirmed. These high-manganese deposits have not been reported in
the reserve statements but have previously been disclosed separately in the resource statements, and
will only be included once a confirmed production program has been completed that matches required
product specifications for sale to selected steel mills in China.
3) The final aspect involves a review of all lower grade iron ore deposits in the Frances Creek region, with
a specific focus on deposits with grades ranging from 48% to 52% Fe. When reviewing these deposits
for potential development, appropriate metallurgical beneficiation programs will be reviewed including
actual upgrading costs. Given that much of the necessary infrastructure is already in place, and with
the recent improvement in iron ore prices, it is reasonable to believe that even with a higher operating
cost these lower grade deposits may add to the economic life of the mine.
2. Corporate growth through acquisition.
Even if the Company is successful with the mine extension program at Frances Creek, the fact remains that
the operating life of the mine is limited and will not be sufficient to support our aspiration to become a major
supplier of raw materials to the rapidly-expanding Asian steel industry over the next decade.
We firmly believe that it is now time to spread our wings and develop a resource base for the future,
underpinned by our market position and the expertise we have developed at Frances Creek.
During November, Territory’s senior management and I held a strategic discussion with Noble Resources in
Hong Kong.
Chairman’s Address 2009
An Australian Resources Group
PO Box 158, West Perth, Western Australia 6872
[email protected] www.territoryresources.com.au
ABN 53 100 552 118
Noble’s position in the Chinese steel industry is unique. They are the world’s largest independent seller of
iron ore, this year selling over 30 million tonnes. They are also very active in the market with a number of
other steel-related products including coal, manganese and chromite. Like us, Noble’s view of the forward
market for these products is extremely positive, and the major challenge is to secure increasing quantities of
high quality raw materials.
Noble is therefore keen to expand its partnership with Territory Resources to develop an increased supply
program for carbon steel-related raw materials from Australia. Noble has offered to provide a high level of
financial and corporate support, and particularly to assist with the early acquisition of suitable exploration and
near-term mining projects.
The mutually agreed criteria for these investments is that the products must be centred on supply to the steel
industry and that projected operating and supply costs must fit reasonably on the forward cost curve versus
other major suppliers.
As previously indicated, Noble has agreed in principle to at least partially convert some of its outstanding
debt to equity to support this program. The timetable for this conversion will depend on our success in
identifying and acquiring suitable projects.
This business development program is now underway and we are in the process of recruiting business
development resources to assist with identifying and targeting suitable opportunities. Initial acquisition targets
will primarily be in iron ore, however quality opportunities in manganese and chromite ore are also currently
under consideration.
During the next two years, our target will be to secure one advanced project ready for production within a 2-3
year timeframe. We will also consider securing a number of preliminary exploration projects that can be
developed at a later date. The expertise we have developed at Frances Creek and our understanding of the
forward product markets will be the guideline for these acquisitions.
This is an exciting development for Territory Resources, and we are very much looking forward to the
challenge.
Conclusion
In closing, I would like to summarise our position as follows:
• Territory Resources has been financially and corporately stabilised. Based upon improving market
conditions for iron ore, we have a strong expectation that the Company’s cash flow will continue to
improve over the next 12 months;
• A mine extension program is being developed and implemented at Frances Creek to ensure that the
economic life of mine is maximised. This program will potentially include the sale of high-manganese
ore and the beneficiation of lower grade deposits; and
• In partnership with Noble in Hong Kong, and based upon our mutual understanding of the forward
strong demand for steel-based raw materials, the Company is planning to embark on an acquisition
program, and to position ourselves as a major supplier of steel based raw materials to Asia.
Chairman’s Address 2009
An Australian Resources Group
PO Box 158, West Perth, Western Australia 6872
[email protected] www.territoryresources.com.au
ABN 53 100 552 118
In conclusion, I would like to thank my fellow Directors for their support, guidance and input during what has
been at times a difficult and trying year.
The Board has had to work extremely hard during the year to deal with legacy issues faced by the Company
and the Global Financial Crisis, and to ensure that we implement and maintain high standards of corporate
governance.
I would also like to congratulate Andy Haslam, Alan Cumming and their senior management team for the
energy and commitment with which they have tackled the challenges we faced.
Territory is much better for having people like this driving its future growth, and I look forward to the impact
they will have in the future.
My thanks also go to the hard working men and women of Territory who have pulled together to help us
achieve our goals during what has been a challenging year and, last but definitely not least, to Richard
Elman, Harry Banga and the team at Noble for their unwavering support – without which we would not be
here today.
Finally I would also like to take this opportunity to extend a special note of thanks to our shareholders for their
patience and support during what has been an exceptionally difficult two years for the Company.
Thank you for your attendance today.
Andrew Simpson
Chairman