SRX.L Regulatory News (SRX)

Sierra Rutile Limited

Sierra Rutile announces a significant change of expansion strategy

London, UK, 31 October 2012: Sierra Rutile Limited (AIM: SRX) ("SRL") is pleased to announce a significant change in its expansion strategy with the fast-tracked development of a new project, the dry mining of the Gangama deposit ("Gangama Dry Mining"). Based on a just-completed pre-feasibility study, Gangama Dry Mining will have an average annual production profile of 83,400 tonnes of rutile, 46,000 tonnes of ilmenite and 9,500 tonnes of zircon concentrate over a life of 6 years, for an up-front capital cost of $103 million over its 12 month construction period. This project has a pre-tax IRR of 238% and an 8-month payback period, and yields a pre-tax NPV of $507 million.

Given the exceptional economics and low-risk profile of Gangama Dry Mining, as described in more detail below, the Board of Directors of SRL has authorized management to proceed with detailed engineering work and a project implementation plan immediately. Site preparation activities have also been started.

Assuming full-scale construction of Gangama Dry Mining begins in the first quarter of 2013, SRL's production profile would be 185,000 tonnes of rutile in 2014 and 205,000 tonnes of rutile in 2015. Production in 2013 is expected to be 125,000.

In addition, a scoping study conducted by Snowden Mining Industry Consultants and supported by CPG - Mineral Technologies and QCC Resources - Logistics has been completed for a large dredge mining operation beginning in the Sembehun deposit (the "Sembehun Dredge"). With a pre-tax NPV of $347 million, and an average annual production profile of 113,000 tonnes of rutile and 66,000 tonnes of ilmenite over a life of 22 years, the Sembehun Dredge represents the next step change in production for SRL.

Commenting on Gangama Dry Mining, John Sisay, Chief Executive Officer, said "This project is a game-changer for SRL. While the identified opportunity of significantly increasing rutile production through the construction of a new large dredge did indeed return excellent economics, and certainly remains a clear project for us on a revised basis in the future at Sembehun, Gangama Dry Mining is so outstanding that it immediately comes to the front of the queue."

Jan Castro, Chairman of the Board, added, "The Gangama Dry Mining study has demonstrated the type of exceptional economics that can only be associated with world-class mining deposits. The SRL management team is to be commended for its continuing focus on maximizing value from its asset base. The substantially lower capex, superior economics, much shorter development time, and lower risk profile of Gangama Dry Mining clearly define it as SRL's next step, and the Board is pleased to authorize management to move this forward on an expedited basis."

Table 1: Gangama Dry Mining vs. D31

Gangama Dry Mining

The Gangama Dry Mining project involves the excavation of SRL's Gangama deposit using conventional earth moving equipment, followed by the initial processing of the ore in a concentrator located at Gangama. The concentrate will then be processed in SRL's existing mineral separation plant. Both earth moving equipment and the concentrator are consistent with those used in SRL's dry mining operation at its Lanti deposit, currently nearing the completion of construction, significantly reducing the project delivery risk.

At capacity, the mining rate will be around 20,000 tonnes per day. This equates to an average annual production of 83,400 tonnes of rutile, 46,000 tonnes of ilmenite and 9,500 tonnes of zircon concentrate.

Low-risk project

In addition to the compelling economics of the Gangama Dry Mining project, its delivery is also low-risk as SRL is currently successfully commissioning a similar dry mining project at its Lanti deposit.

The earth moving equipment used at Gangama will be substantially of the same models and specifications to that acquired for the Lanti project that have successfully created the ore stockpile at Lanti. In addition to de-risking the project, the expanded equipment fleet also allows for maintenance and utilization savings to be made that are not factored into the pre-feasibility study.

The Gangama concentrator unit will consist of two concentrating units substantially identical to that currently being commissioned at Lanti, other than the addition of a second screen due to the differing nature of the Gangama deposit from the Lanti deposit. Concentrate will be fed to the existing mineral separation plant in the same way as the current Lanti Dredge and Lanti Dry Mining operations.

Gangama Dry Mining may be developed in two separate phases mining 3.5 million tonnes per annum of ore, providing additional optionality in production profiles.

Sembehun Dredge

The Sembehun Dredge would consist of a 1,875 tonnes per hour bucket ladder dredge and associated floating concentrator plant, a 50 tonne per hour mineral separation plant, an 18.6MW power plant; and all site infrastructure required to support an independent operation. Final product shipments would be via the existing port at Nitti.

It should be noted the Sembehun Dredge scoping study assumed that the existing mineral separation plant is at full capacity due to processing concentrate from Lanti Dredge, Lanti Dry Mining and Gangama Dry Mining. This means that a new mineral separation plant and associated infrastructure would be required to process concentrate from the Semehun Dredge. This contributes $131 million of the above up-front capital expenditure.

Table 2: Sembehun Dredge

Development of revised expansion plan

SRL has an ongoing strategic analysis and planning process which it uses to evaluate the optimal mining sequence and mining method for SRL's extensive suite of deposits. Due to the success of Lanti Dry Mining and the reappraisal of the Gangama deposit as part of the D3 feasibility study process, SRL identified the opportunity for Gangama Dry Mining. The initial expectation had been that dry mining the Gangama deposit would reduce the mineable resource; however, the actual result is that dry mining would actually access an additional 22% of ore that a dredge could not. As a result of this preliminary analysis, a full pre-feasibility level study was conducted into the dry mining of Gangama, the results of which are described herein.

Revised expansion project plan timetable

As noted above, the Board of Directors of SRL has authorized management to proceed with detailed engineering work and a project implementation plan immediately.

Given its far superior economics and lower risk, Gangama Dry Mining will replace the small Mogbwemo tailings dredge ("D2") as SRL's next expansion project. It is currently SRL's expectation that D2 would be introduced subsequently to maintain SRL's production at over 200,000 tonnes of rutile per annum; however, this is currently beyond SRL's detailed planning horizon, so no definitive decision has been taken in this respect. SRL will also continue to review alternative small development projects, including additional dry mining opportunities.

It should be noted that SRL has not committed at this point to implement either D2 or the Sembehun Dredge or to exceed its targeted annual production of ca. 200,000 tonnes of rutile per annum.

ENDS

For Further Information:

Notes to Editors

About Sierra Rutile Limited

Sierra Rutile produces titanium feedstock industrial minerals (primarily rutile, with some associated ilmenite), as well as smaller quantities of zircon. Sierra Rutile's mine, located in the south west of Sierra Leone, is one of the largest natural rutile deposits in the world, with a JORC-Compliant Mineral Resource for measured, indicated and inferred resources for the Sierra Rutile mine of over 600 million tonnes (as at February 2011).

www.sierra-rutile.com

About Snowden Mining Industry Consultants

Snowden is a premium provider of consulting services, technology solutions and technical training to the Mining and related sectors. During the last 25 years, it has built a proven track record in providing its clients with the information and solutions to optimise their investment in the resources sector. With a continued focus on delivering innovation and quality outcomes to clients worldwide, Snowden is placed at the forefront of the mining consulting industry.

www.snowdengroup.com 

About CPG - Mineral Technologies

Mineral Technologies is a recognised leader in mineral processing solutions worldwide.

Throughout its 70-year history it has fulfilled its commitment to turn knowledge into value by delivering a comprehensive range of integrated equipment and services that cost-effectively transform ore bodies into high grade mineral products for customers.

Today, its commitment continues with the ongoing release of an expanding range of minerals testing, plant design and mineral separation equipment solutions across the mineral sands, iron ore, coal, industrial minerals, and metals market sectors.

www.mineraltechnologies.com.au

About QCC Resources - Logistics

QCC delivers process and materials handling solutions for clients predominantly in the coal sector. With over 25 years experience our solutions cover all stages of the project lifecycle from initial concept, prefeasibility and feasibility studies, to innovative plant design and EPC/M delivery. The QCC logistics group are specialists in materials handling from stockpile to port and onboard ship.

http://www.qccresources.com