Last checked at 15 Aug 2012 12:09
Anglesey Mining plc LSE:AYM
15 August 2012
Interim Management Statement
LIM first quarter results and operational update
Anglesey's major activity is its 26% share of Toronto-listed Labrador Iron Mines Holdings Limited which holds twenty direct shipping iron ore deposits in western Labrador and north-eastern Quebec and is currently mining the first of these to be developed at the James Mine.
Anglesey also has 100% of the Parys Mountain zinc-copper-lead deposit in North Wales, UK with a total historical resource in excess of 7 million tonnes at over 9% combined copper, lead and zinc. A 2,000 metre exploration programme has been completed and results are being compiled into an updated Scoping Study.
Labrador
During the first quarter ended June 30, 2012, LIM sold three shipments totalling 486,000 dry tonnes of iron ore and subsequently recognized revenue of $38.0 million FOB Port of Sept-Žles from these sales.
For the quarter ended June 30, 2012, LIM reported a loss of $10.6 million, or $0.16 per share, compared to a loss of $4.7 million or $0.09 per share during the corresponding quarter of last year. The net loss reported included an amortization charge of $9.8 million, which was recorded concurrently with the commencement of full-scale mining operations. LIM has filed its first quarter results and its Management Discussion and Analysis on Sedar where they may be accessed in full.
James Mine
The James mine recommenced full-scale operations on April 2, 2012. During the quarter ended June 30, 2012, approximately 648,000 tonnes of ore at a grade of 62.6% Fe were mined. Of the total production during the quarter, approximately 483,000 tonnes were direct rail ore at an average grade of 62.6% Fe. By the end of the quarter, the mine was operating at a rate of 32,000 tonnes per day (ore and waste), in excess of its planned mining rate of 28,000 tonnes per day.
The general mining sequence planned for the current year commenced with mining higher grade (60%+ Fe) DRO during the early months of the operating season while the processing plant was being re-commissioned. This will be followed by mining lower grade plant feed (50%+ Fe) in the summer and fall when the processing plant is operating at full capacity. In accordance with the mining sequence, mainly DRO material was mined at James during the quarter ended June 30, 2012.
Sinter product is planned to be railed and shipped throughout the summer and early fall, followed by railing and shipping lump material in late fall. From previous experience, lump ore is most resilient to freezing in railcars during the late months of the operating season due to its lower moisture content.
Mass recovery of all products from the ore mined during the quarter ended June 30, 2012 was approximately 88%. This very high mass recovery percentage is largely attributable to the mining of DRO during the quarter.
Processing
Dry Process Stream
During the quarter LIM added a dry classifying system to process (crush and screen) lump and sinter fines products as LIM transitions its product mix to produce lump and sinter exclusively. This dry process stream, targeting high-grade (60%+ Fe) ore, has a design capacity of 1,000 tonnes per day with a mass recovery of close to 100%. Moving forward, the additional process equipment will supplement the mining sequence and enhance product yield, especially during the commissioning period of the wet processing plant.
Silver Yards
Start-up of the Silver Yards processing facility commenced in mid-May and the plant was commissioned in five weeks. From mid-May to June 30, 2012, approximately 127,000 tonnes of 55.6% Fe material was fed to the plant, yielding 52,000 tonnes of lump and sinter fines products.
The Silver Yards processing plant operated at approximately 50% throughput capacity and achieved mass yield of 41% during the re-commissioning period. Subsequent to the end of the quarter, July throughput averaged 4,300 tonnes per day and mass yield increased to 58%. Further plant performance improvements are anticipated throughout the current quarter.
The Phase 3 plant expansion is targeted for completion by the end of August. This expansion is intended to increase plant throughput to 12,000 tonnes per day and improve weight recovery to above 75%.
Rail and Port
During the quarter, approximately 532,000 tonnes of iron ore was railed to the Port of Sept-Žles.
Rail operations continued to ramp up in July, with an additional 240,000 wet tonnes railed to the Port. LIM has lengthened two of its train sets, increasing their capacity by over 30%. In addition, a fifth train set is scheduled for delivery later this year and is expected to increase sales volumes for the balance of the 2012 season.
In June 2012, LIM completed a life-of-mine agreement with the Tshiuetin Rail Transportation Inc. ("TSH") railway, replacing its previous annual agreement.
Subsequent to the end of the quarter, LIM announced two important developments that will enhance and provide optionality for long-term rail and port access of LIM's iron ore. The first was participation in the development of the new multi-user dock at the Port of Sept-Žles, which will be dedicated exclusively to iron ore shipments. Under the terms of the agreement with the Port Authority, LIM has reserved an annual capacity of 5 million tonnes of iron ore with a right to secure additional residual capacity. Construction of the new dock is expected to be completed by March 31, 2014.
LIM also announced its collaboration in working with CN on a feasibility study to develop a new, continuous multi-user rail line and a new terminal handling facility located at the Port of Sept-Žles, which would complement the planned development of the new multi-user dock previously mentioned.
Sales
During the quarter ended June 30, 2012, LIM sold three capesize shipments totalling 486,000 dry tonnes of direct rail ore with a grade of 63.2%Fe at a weighted average price of approximately US$122 per tonne on a CFR China basis. Direct rail ore is a mixed-size fraction product that requires additional crushing and screening by the customer and, as such, is sold at a discount to the benchmark price. Subsequent to the end of the first quarter, one additional capesize shipment of direct rail ore was sold in July and another capesize shipment of direct rail ore is currently stockpiled at the Port. After this stockpile is sold, all remaining sales during the year are planned to be lump and sinter fines products.
Production and Operating Costs
LIM is on track to meet its 2012 saleable production target of 2 million tonnes of iron ore. During the quarter ended June 30, 2012, operating costs of product sold, unloaded at the port, were approximately $72 per tonne. Included in this amount were approximately $7.50 per tonne sold in non-recurring charges related to contractor mobilization, railway take-or-pay fees in April, and certain one-off charges related to port facility set-up in 2011 at the Pointe aux Basques wharf, which is no longer being pursued. In addition, fixed costs per tonne were higher than planned due to revenue recognition on three sales rather than the four anticipated for the quarter. Excluding these non-recurring charges, operating costs were approximately $64.50 per tonne of product sold. Cash operating costs per tonne of product sold in June and July were lower and within LIM's 2012 guidance of $60 to $65 per tonne, unloaded at the port.
LIM's operating results for the quarter ended June 30, 2012, is outlined in the table below.
Production for the Quarter Ended June 30, 2012
(all tonnes are dry metric tonnes) Tonnes Grade (% Fe)
Total Ore Mined 668,193 62.6 Direct Rail Ore portion 483,444 62.6 Waste Mined 1,369,398 - Ore Processed 127,463 55.6 Lump Ore Produced 17,728 60.2 Sinter Fines Produced 34,711 65.6 Total Product Railed 532,329 62.6 Tonnes Product Sold 486,506 63.2 Port Product Inventory 223,492 63.0 Site Product Inventory 65,372 64.0 Run-of-Mine Ore inventory 273,503 58.8 Houston Development
During the quarter ended June 30, 2012 and subsequent thereto, LIM has been preparing and submitting applications for permits and regulatory approvals required for the construction of mine infrastructure and related facilities to enable the development and construction at the Houston deposits in the remainder of 2012 and the first half of 2013. Development work to date includes completion of forestry work clearing the planned Houston access road route and commencement of forestry work clearing the planned Houston rail siding route. Engineering consultants have been chosen to design the Houston access road, bridge and rail siding, and their design work has commenced.
LIM remains committed to executing on its development plans for the Houston deposits. To the end of June 30, 2012, approximately $1 million had been expended on the Houston project. LIM is currently reviewing its capital expenditure programmes for the balance of 2012.
2012 Exploration Programme
Fieldwork for the 2012 exploration programme began in June with the mobilization of LIM's contract drillers targeting improved delineation of the Houston 1 and 3 resources.
In addition, LIM completed its first diamond drill hole on the Houston 3 deposit at a depth of 140 m. This part of the drilling programme is aimed at proving up the potential use of diamond drilling to recover core needed to better understand the geological, geotechnical and various metallurgical parameters of the Houston, James and Malcolm deposits.
The overall 2012 exploration programme plans for the completion of approximately 10,800 m of drilling, of which 8,000 metres could be achieved by diamond drilling. By the end of July, two drill rigs were mobilized and drilling activities ramped up significantly for a total of about 2,000 m of RC and diamond drilling completed. Two additional drill rigs are expected to be added by the end of August, which will further advance these drill programmes.
Ground geophysical surveys were also carried out during the quarter to determine drill target locations on recently identified taconite iron mineralization - the Gagnon and Elizabeth taconites. The Schefferville/Menihek area has a number of taconite deposits being explored by other companies and these deposits, which usually average about 30% Fe, can often show very significant tonnages. Ground geophysical surveys were also carried out on the Houston, James and Howse deposits and were completed in July.
A bulk sampling programme of some historic stockpiles will be initiated this month with a view to providing supplemental plant feed to the Silver Yards processing plant. Metallurgical test work aimed at evaluating historical manganese resources will also be carried out with a view to ascertaining compatibility with the Silver Yards processing plant flow sheet.
LIM recently completed a ground gravity survey on the James deposits. This survey identified a positive anomaly extending approximately 400 m southeast of the James South orebody, containing similar characteristics to that of the James deposits. This anomaly will be drill tested later this year.
Iron ore Price Outlook
Iron ore spot prices continued to soften throughout the second quarter of the calendar year, with port inventories in China remaining high, while Chinese steelmakers experienced a squeezing of operating margins. Recently, Chinese traders were apparently liquidating inventories. By early August, spot prices have continued to decline and have reached US$111 on a CFR China basis.
Market commentators are speculating that a bottom could be reached this quarter, as the current spot price is below the assumed marginal cost of Chinese production. LIM believes this is likely and anticipates that prices will recover to the US$130 to US$140 range on a CFR China basis later in the year.
Financial Review
During the fiscal first quarter ended June 30, 2012, LIM sold three shipments totalling 486,000 dry tonnes of iron ore and subsequently recognized revenue of $38.0 million (FOB Port of Sept-Žles) from the sale of these shipments.
Operating costs, including mining, processing, transportation and site expenses, were $35.1 million or $72 per tonne of iron ore sold during the quarter. Operating costs for the quarter included non-recurring charges related to contractor mobilization, railway take-or-pay fees in April, and certain charges from 2011 related to port facility set-up. Operating costs per tonne sold in June and July have been lower and are within LIM's 2012 guidance of $60 to $65 per tonne, unloaded at the Port.
For the quarter ended June 30, 2012, LIM reported a loss of $10.6 million, or $0.16 per share, compared to a loss of $4.7 million or $0.09 per share during the corresponding quarter of last year. The net loss reported included an amortization charge of $9.8 million, which was recorded concurrently with the commencement of full-scale mining operations. This amortization represents a period charge, primarily on a units-of-production basis, of the cost of the James mine (including capitalized stripping and dewatering), Silver Yards processing plant, transportation equipment and infrastructure, and site administration properties associated with the operational activities of the James mine. There was no such comparable amortization charged in the same quarter of the previous year, as LIM's mining operations were still in a start-up phase during that period.
During the quarter LIM invested approximately $2.7 million in its mineral property interests. This investment was mainly exploration and development and operating expenditures on deposits other than the James deposit. The equivalent investment in the same quarter of the previous year was $4.1 million.
Also during the quarter LIM invested approximately $19.0 million in property, plant and equipment, which consisted mainly of investments in procurement and construction activities for the Phase 3 expansion of Silver Yards, grid connection infrastructure, railcar modifications and expansion of the mine accommodation camp.
As at June 30, 2012, LIM had current assets of $89.0 million, including inventories with a carrying value of $16.5 million and accounts receivable and prepaid expenses of $49.1 million. At June 30, 2012, LIM had a total of $22.0 million in unrestricted cash and cash equivalents and an additional $7.6 million in restricted cash.
LIM had working capital of $42.8 million as at June 30, 2012. LIM has no debt.
Management regularly monitors conditions in the iron ore market and in particular, price trends for iron ore. Proposed capital expenditures are therefore reviewed on a regular basis in comparison to budgeted and projected operational cash flow in order to prudently manage cash balances.
Parys Mountain
In 2012 a 12 hole 2,000 metre diamond drilling exploration programme at three separate sites at Parys Mountain has been completed. These holes were in the upper portion of the Engine Zone adjacent to the White Rock Zone, in the Great Open cast area, and at the Pearl Engine House area. All the stages of this programme are considered to have been successful. The Pearl area drilling is particularly encouraging as it opens up an area that is more than one kilometre away from the Morris Shaft and in conjunction with previous results from the Garth Daniel area which lie midway between the Pearl Engine House and Morris Shaft locations demonstrates that mineralisation at potentially economic grades and widths persists across the entire property. This can only generate further optimism and interest in the overall potential for Parys Mountain.
Micon International has been retained to update the resource estimates for all of Parys Mountain to bring them a compliant basis work based on JORC and has further been retained to conduct a scoping study for a small scale stand-alone mining operation. This study will incorporate both the entire White Rock zone and the now compliant Engine Zone, and will update Micon's 2007 study which was based solely on the shallow portion of the White Rock resources close to the Morris Shaft.
In July 2012 an agreement was reached with Intermine Limited whereby the net profits royalty formerly due to Intermine has been bought out and all amounts due have been discharged. At 15 August 2012 there is available cash of approximately £1.8 million.
About Anglesey Mining plc
Anglesey holds 26% of Toronto-listed Labrador Iron Mines Holdings Limited which is producing iron ore from its James deposit, one of LIM's twenty direct shipping iron ore deposits in western Labrador and north-eastern Quebec.
Anglesey is also carrying out development and exploration work at its 100% owned Parys Mountain zinc-copper-lead deposit in North Wales, UK where there is estimated to be a total historical resource in excess of 7 million tonnes at over 9% combined copper, lead and zinc.
For further information, please contact:
Bill Hooley, Chief Executive +44 (0)1492 541981;
Ian Cuthbertson, Finance Director +44 (0)1248 361333;
Samantha Harrison / Klara Kaczmarek: RFC Ambrian +44 (0)2076 344700;
Emily Fenton / Jos Simson: Tavistock Communications +44 (0)20 7920 3155
XLON