Company Gippsland Limited TIDM GIP Headline Quarterly activity report Released 07:00 28-Apr-05 Number 6291L
RNS Number:6291L Gippsland Limited 28 April 2005
GIPPSLAND LIMITED
QUARTERLY ACTIVITY REPORT Period: January - March 2005 28 April 2005
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HIGHLIGHTS
* Abu Dabbab - Abolition of 5% Government Royalty * Granting of Abu Dabbab Free Trade Zone - Zero import duty - Zero sales tax - Zero profit tax * Additional Tantalum off-take agreements * Abu Dabbab Project Finance Progress * Encouraging Wadi Allaqi Exploration Results
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ABOLITION of 5% ROYALTY FOR ABU DABBAB PROJECT
During January 2005 the Company announced the extinguishment of the 5% royalty that was to be levied by the Egyptian government on gross sales revenue arising from production at the Company's Abu Dabbab Project.
The abolition of the Abu Dabbab Project's 5% royalty obligation was approved by the Egyptian Prime Minister His Excellency Dr Ahmed Nazef and the Minister of Petroleum His Excellency Eng Sameh Samir Fahmy.
The extinguishment of the royalty is a significant development since the announcement on 3 November 2004, which released the results of the 2Mtpa Abu Dabbab BFS incorporating the payment of a 5% royalty to the Egyptian Government. The impact of the removal of the 5% royalty has resulted in a substantial financial benefit to the BFS for the Abu Dabbab Project as tabled below.
Key Financial Indicators Without 5% Royalty Gross sales - first 13 years >US$500 million Net Free Cashflow - first 13 years US$153 million Internal Rate of Return on all equity basis 20.2% IRR on 80% debt 20% equity basis 33.2% Capital Expenditure US$80.5 million Capital Expenditure Repayment <4 years
The 2Mtpa BFS was undertaken based upon an arbitrary study period of 13 years however the Abu Dabbab resource base of 40Mt is expected to provide a mine life of approximately 20 years. Based upon a 20-year mine life, the Abu Dabbab Project is likely to generate revenue in excess of US$700 million and a net free cashflow of approximately US$230 million over the 20-year period. The Company's nearby 138Mt Nuweibi deposit is expected to ensure an overall project life well in excess of 20years whilst leaving considerable margin for expansion of production beyond the initial feed rate of 2Mtpa.
The revenue figures above are based upon tantalum and tin sales only and exclude all potential revenue which could be derived from feldspar sales. Testwork undertaken in Australia have demonstrated that the Abu Dabbab Project has the potential to produce approximately 1.5Mtpa of ceramic grade feldspar as a by-product to tantalum and tin production. In-plant testwork conducted by major Italian ceramic tile producers has indicated that the material is ideally suited to the production of both high quality ceramic tiles and white sanitary ware. Italy imports approximately 2Mtpa of a relatively low-grade feldspar from Turkey. Consideration will be given to the production of feldspar immediately following the commencement of tantalum and tin production which is expected to take place during the second quarter of 2006.
GRANTING OF FREE TRADE ZONE
On 12 January 2005 the Directors announced that the Egyptian General Authority for Investment & Free Trade Zones ("GAFI") www.gafinet.org has approved Gippsland's application to have the Abu Dabbab Project operate within a project specific Private Free Trade Zone.
GAFI is Egypt's "One Stop Shop" for investment, easing the way for investors worldwide to take advantage of Egyptian investment opportunities with emphasis being placed upon export oriented industries. GAFI is the primary governmental authority concerned with facilitating foreign investment and assisting with a range of services which are provided at no cost to the foreign investor.
The Private Free Trade Zone will provide a number of significant long-term benefits to the Abu Dabbab Project including but not limited to the following:
* Zero customs import duty for plant & equipment; * Zero customs import duty for project consumables; * Zero sales tax; and * Zero general and Company profit taxation.
The benefits afforded by the Private Free Trade Zone will accrue for the life of the project which based on a mining rate of 2Mtpa is expected to be several decades.
The Private Free Trade Zone will also apply to the Company's nearby 98Mt Nuweibi tantalum deposit which like Abu Dabbab is also covered by a 30-year mining licence which may be extended for a further 30-year period if required.
The Directors consider that Gippsland's ability to reach this milestone agreement with GAFI to establish a project specific Private Free Trade Zone (the first of its kind) provides clear evidence that the Abu Dabbab Project is enjoying a very high level of support from its joint venture partner Egyptian Mineral Resources Authority (formerly named Egyptian Geological Survey & Mining Authority), and all levels of the Egyptian Government.
INCREASED TANTALUM OFFTAKE
During May 2004 the Directors announced that the Company had entered into an off-take agreement for the sale of 320,000 pounds of tantalum per year over a 4-year period.
On 13 January 2005 the Directors advised that the Company has entered into a formal Sale and Purchase Agreement ("Agreement") for an expanded off-take (on a 'take or pay' basis) with the same purchaser ("Purchaser") for a new total of 480,000 pounds of tantalum per year for a fixed period of 5 years. The price of the tantalum, which has been fixed for the whole of the contract period, will remain confidential for commercial reasons. The Directors advise that the agreed price is consistent with that used in the Abu Dabbab BFS completed during November 2004.
Additionally, over the 5-year period, the Purchaser has been granted the first right of refusal for an additional 70,000 pounds of tantalum per year subject to such quantities being available for sale. The price for this additional tantalum off-take is fixed for the 5-year period and is the same as that applicable to the 480,000 pound yearly off-take.
As previously announced, the Company has also entered into a Heads of Agreement with an Asian tantalum consumer for the off-take of 100,000 pounds of tantalum per year.
With the signing of this Agreement with one of the global leaders in the tantalum industry, Gippsland has in effect pre-sold 100% of the Abu Dabbab project's scheduled tantalum production of 650,000 pounds per year for the first 5 years of business.
The Directors are cognisant of the fact that the execution of this Agreement represents a major change in the global tantalum industry that has historically relied largely on tantalum production by Sons of Gwalia Limited which recently entered into voluntary administration.
The Directors consider that the Abu Dabbab Project's zero domestic revenue tax regime, low labour costs, a diesel fuel cost of approximately US$0.10/litre and a mining strip ratio of 1.1:1, supported by a 138Mt resource base, will ensure that the Abu Dabbab Project sets the global benchmark for low tantalum production costs for several decades.
Abu Dabbab project finance
The Company is currently in negotiation with a number of leading banks in relation to Abu Dabbab project finance. The appointment of the lead project finance bank is taking longer than originally anticipated however the Directors are pleased to report such negotiations are progressing in a most positive manner.
Wadi Allaqi exploration
The Company holds exclusive exploration rights to 9 exploration licences located in Wadi Allaqi situated to the southeast of Aswan.
During the quarter, extensive areas around the historical workings were mapped by a consultant structural geologist. Geological maps were completed for the Haimur, Um Garayat, Block A, Block E and Seiga projects. The work identified the structural setting of the deposits and also the geometry of the mineralisation.
Higher resolution satellite imagery (15m) and digital elevation model data was acquired for the whole of the Wadi Allaqi region to assist in the compilation of the database. Very high resolution (1m) IKONOS imagery was acquired for the Um Tiur project where there is very little detailed geological mapping available.
A program of systematic sampling was completed at the Haimur, Um Garayat, Seiga and Um Shashoba projects to assist with the identification of additional drill targets.
Haimur
At Haimur ancient workings are located along a number of sub parallel lodes of mineralisation. The ancients exploited the high grade mineralisation and stoped down to depths of around 30m. In the early 1900s the Nile Valley Company constructed five adits beneath the ancient surface workings and produced a small amount of very rich ore by driving along two of the lodes.
The structural geology mapping indicated the potential for further high grade mineralisation adjacent to the old workings. The mapping confirmed the presence of a large shear structure to the west which had previously been identified and was known from previous sampling to be mineralized.
To test the western shear zone a program of regolith sampling on a 200m x 50m grid over a strike length of 1,400m was completed over an alluvial covered area where some previous wadi bank samples had returned gold values of up to 0.17g/t. Within this area some 100m x 50m sampling was completed in the vicinity of the Haimur South workings.
To test for the presence of gold mineralisation adjacent to the known lodes, rock chip samples were collected from adits 1 & 2 as these provided a profile through the entire width of the historical workings.
Um Garayat
At Um Garayat 28 old trenches were cleaned out, mapped and sampled. The trenches had been dug at interval to test the veins and structures along strike to the south of the main workings. The sampling tests the mineralised structure over a strike length of 1,500m.
The northern extension of the main workings could not be sampled due to the thickness of the alluvial cover which was found to be 4.5m at one location. It is proposed to use an excavator for this sampling during a later exploration program.
A number of previously unknown workings were located to the north of the Um Garayat mine by following lines of ancient placer workings upstream. The workings exploited narrow zones of quartz veins up to 1m wide. It is expected that further prospecting will identify many more small workings.
Seiga
Previous sampling at Seiga had identified significant gold values in the country rock adjacent to the historical workings. Sampling during October 2004 returned 5m at 3.36g/t Au. A series of 13 rock chip samples were collected over a 60m interval across the mineralized zone. This sampling will provide an indication of the potential for a large low-grade deposit rather than the narrow high-grade deposit mined by the ancients.
Um Shashoba
At Um Shashoba ancients workings are located along two northerly trending veins. The veins are 380m apart and occupy the edges of a large shear zone. Previous geochemical sampling has returned gold values of up to 0.63g/t in sheared sediments in an area away from the historical workings.
Regolith sampling on a 200m x 50m grid was completed to test the area between the two lines of ancient workings. Five samples covering a distance of 11.9m were collected from the ancient workings to the east to test the width of the mineralized zone as the old workings were only 1.6m in width.
During the work some previously unrecorded workings were recorded in the northern part of the project area. These workings were traced over a strike length of 350m and have yet to be tested.
The Directors consider the Wadi Allaqi exploration results to date are most encouraging especially as the work has identified some previously unrecorded old workings over a strike length of approximately 300m. It is most likely that further mapping will disclose additional workings.
A copy of this report is available on the Company's website at www.gippslandltd.com.
Note: The geological information in this report that relates to mineral resources and ore reserves is based on information compiled by Gippsland Director Dr John M Chisholm, who is a Fellow of the Australasian Institute of Mining and Metallurgy, with over 25 years experience in the mining industry.
This information is provided by RNS The company news service from the London Stock Exchange END
AR1 Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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