News Column

Gippsland Limited - Quarterly Activities Report

July 25, 2014



ENP Newswire - 25 July 2014

Release date- 24072014 - The Directors of Gippsland Limited provide the following Activities and Cash Flow Report for the June 2014 quarter.

The Company's key asset is the large scale Abu Dabbab tantalum-tin-feldspar deposit in Egypt (the Project) held through its 50% shareholding in Tantalum Egypt JSC (TE), which the Company is seeking to bring into production within the next 2 years. In February 2013 TE commenced a small scale alluvial tin operation at the same site to produce a cassiterite (tin) concentrate.

The key focus for the June 2014 quarter was to commence marketing the financing proposal, complete the feasibility study update of the process plant with Lycopodium and to continue the review process of all company activities to minimise expenditure and ensure full attention to the development of the Abu Dabbab tantalum-tin-feldspar project development. This quarterly report provides an update of those core activities.

QUARTERLY ACTIVITIES

1. CORPORATE

An investment strategy has been developed whereby the Company is seeking to attract investment funds through divestment of a portion of Gippsland's 100% owned holding company of its project equity, linked to provision of the project development funding. Introductions and meetings are in progress with a selected group of investors from the Middle East and North Africa region with an encouraging level of interest and support emerging at this early stage.

In early April, the Company relocated its head office in Perth to significantly smaller premises and the exploration office in Eritrea was closed. This is part of an overall restructuring and cost saving process to ensure that the Company is focused solely on the development of the Abu Dabbab Project.

The Company borrowed a further $784,000 from Gandel Metals Pty Ltd, a company controlled by the Company's Chairman, Mr Ian Gandel. The total amount of the unsecured loan outstanding at 30 June 2014 was $2,572,000.

Gandel Metals Pty Ltd has agreed to extend the term of the existing loans from 1 July 2014 to 1 August, 2014. Provision of any further loan funds or extensions to the repayment date are conditional on the Company continuing to make positive progress with respect to financing of the Project, in the opinion of Gandel Metals.

Cash on hand at the close of the Quarter was $277,000.

2. ABU DABBAB TANTALUM-TIN-FELDSPAR PROJECT (50% INTEREST)

The Company continues to work through a Project development and financing strategy centred around a 'low-capital' development model utilising contractors and suppliers to undertake activities such as mining, crushing and screening the ore and supplying water, power and other services on a 'through the fence' basis. During April and May negotiations with preferred supplier and contractor groups continued and the tendered prices have been utilised by Gippsland for its internal modelling and development of its Project Development Plan.

Running in parallel with this process, Gippsland engaged Lycopodium Engineering Pty Ltd in March 2014 to update the operating and capital cost estimates associated with the processing plant of the 2008 Abu Dabbab Feasibility Study which is based on a 2 Mtpa ore treatment rate.

Whilst the estimates are to a feasibility study standard according to Lycopodium, the summations do not represent estimates to complete the entire project; these are 'work in progress figures'. However from a capital cost perspective, given the intent to utilise contractor mining services, they do represent the majority or the core of the expected total expenditure.

The key omissions are capital and operating cost estimates related to mining and smelting. The Lycopodium scope did not include review of the mining plan or the construction or utilisation of an onsite smelter as explained below:

Mining: There appear to be many opportunities to improve on the existing mine design and schedule and with the involvement of a local mining contractor, the Company considered there was little value in undertaking this process prematurely.

Smelting: In regard to the smelter, Gippsland is assessing opportunities to initially utilise toll smelting services as an important risk reduction strategy. There is a strong concern that introducing two major processing plants; the gravity concentrator and the smelter simultaneously introduces major operational and implementation risks.

Aside from the deferral of capital, the Company considers that there may also be opportunities to install a smelter closer to power, labour and transport hubs rather than at the Abu Dabbab site where all of those inputs come at a considerable cost premium. Discussions with potential toll smelting groups include secondment of TE personnel for training and supervision purposes.

Capital Cost Estimates

Comparison of the 2008 FS with the 2014 PPFS indicates an overall escalation in the capital costs covered, of US$52 million between late 2008 and early 2014, focused mainly around the costs of power and water desalination utilities.

The impact was to remove US$75.5 million of capital expenditure from the Project schedule, comprising mainly the removal of US$59.4 million for outsourced capital items such as utilities and ore feed preparation. Not included in the adjusted summation above are further reductions that Gippsland considers are available subject to further evaluation which total approximately US$15 million and comprise cost items such as reduced EPCM, utilisation of some second hand equipment and modified tails dam design and construction.

Operating Cost Estimates

This does not include the mining or smelting costs which may be undertaken on a contract or toll basis but does include the cost of running the various utilities.

There is a significant $12.10/t increase in the estimated operating cost, much of which is attributable to the treatment of fuel costs. The 2014 PPFS operating cost estimates above do not assume eligibility to any Government fuel subsidies, which have recently been reduced causing the price of diesel fuel to increase 64% to US$0.25/litre compared to the non-subsidised cost of approximately US$0.98/litre. However, the 2008 FS did incorporate fuel subsidies, explaining a large part of the operating cost increase.

The move to outsourcing is regarded as an important 'de-risking' strategy, however it does not mitigate the ongoing exposure to fuel prices via international price movements or changes to Government fuel subsidies. As with the capital cost estimates, given the move toward outsourcing various inputs such as power, water, mining and feed preparation, these figures are indicative and regarded as 'work in progress' subject to completing the final feasibility study.

Gippsland considers that there are several opportunities to improve these operating cost estimates which are currently under investigation:

Reduced power consumption through design improvements has the potential to reduce operating costs significantly as power accounts for 50 to 55 % of the total operating cost;

Improved recovery of fine grained Ta and Sn minerals as 50% of the Sn and Ta report to the minus 38 micron size fraction and

Reduction in the use of desalinated water, by using raw seawater for dust suppression and possibly process water.

Summary

A complete definitive feasibility study still needs to be completed to bring together an updated mine plan, potential toll smelting agreement, the various supplier and contractor tender pricing and to verify the savings indicated above as well as to update several outstanding statutory project permit requirements. The new technical team has also identified several opportunities to optimise the process flow sheet which may lead to further cost savings.

In December 2013, to expedite the timing of the project development the Company elected to focus on the most advanced and detailed technical data available to it, which generally comprised the estimates around the 2 Mtpa of ore production case. Gippsland had previously highlighted the merits of an expanded ore production rate of 3 Mtpa and the potential to add feldspar recovery to produce a saleable feldspar product to the white-ware ceramic industry.

These opportunities remain 'on the radar' and might be incorporated into the final definitive feasibility study subject to the completion of the financing and collective view of the TE Board in regard to the risk of further technical distractions delaying the project development. Having now updated to a feasibility study standard the 'core' of the project expenditure for the 2 Mtpa case, this provides a very solid platform from which to systematically plan further work to add value to the development case and complete a fully integrated feasibility study within a short time frame.

3. ALLUVIAL TIN OPERATION (50% INTEREST)

Mining of the alluvial tin deposits at Abu Dabbab was completed in late January 2014. During February to April plant feed comprised lower grade, clayey tailings material whilst awaiting the arrival of special crushers to enable the processing of an 81,000 tonne stockpile of coarse (+2.5mm / -4mm) material.

In mid-April, given the poor operational performance treating the tailings material, suspension of concentrate exports and the delays in importing the crushers, management elected to suspend Spiral Plant operations pending resolution of the export permit issues and a review of restarting operations to treat the 81,000 tonnes stockpile.

Following the reinstatement of the import-export permits on 23 April, approximately 45 tonnes of tin concentrate was shipped in early May and the crushers also arrived on site in late May. The crushers have since been installed and commissioned with a small stockpile of crushed material accumulated.

All operations have been suspended for safety reasons during Ramadan and are planned to resume in early August. Treatment of the 81,000 tonne stockpile is planned to be complete in early November at which time the alluvial operation will be decommissioned.

CONTACT:

Mike Rosenstreich

Managing Director

Gippsland Limited

Tel: +61 8 9340 6000

Email: info@gippslandltd.com

www.gippslandltd.com


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Source: ENP Newswire


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