15 Jan 2016 07:00
Sierra Rutile Limited
Sierra Rutile Provides Q4 2015 Operational Update
London, UK, 15 January 2016: Sierra Rutile Limited (AIM: SRX) ("Sierra Rutile") is pleased to provide an operational update on the fourth quarter of 2015 ("Q4 2015").
Highlights
· Record quarterly production for Q4 2015 with 38,787 tonnes of rutile and 10,484 tonnes of ilmenite1:
- 25% increase in rutile production from Q4 2014;
- 14% increase in rutile production from Q3 2015;
- Due to a minor interruption in the last week of December, 1,550 tonnes of rutile that was partially processed at year end ("Rutile In-process"). When adjusting for this Rutile In-process, production for the quarter was 40,337 tonnes of rutile.
· Upper range of 2015 annual production guidance achieved with 126,021 tonnes of rutile produced (guidance of 120,000 to 130,000 tonnes).
- 10% increase in rutile production from full-year 2014;
- Representing the highest annual production since operations restarted in 2006;
- Adjusting for Rutile In-process, production for the year was 127,571 tonnes of rutile.
· Continued improved cost performance achieved following the implementation of cost saving initiatives and higher production volumes:
- Direct Operating Cash Cost2 of US$537/t for 2015;
- All-in Operating Cash Cost3,4 of US$666/t for 2015;
- Adjusting for Rutile In-process, Direct Operating Cash Costs were US$530/t and All-in Operating Cash Costs were US$658/t, in-line with cost guidance.
· Gangama Dry Mine construction remains on-schedule and on-budget for commissioning in late Q2 2016:
- US$21 million of project construction spending completed to-date;
- Expected commissioning of Gangama in late Q2 2016 will provide further dry mining production capacity to facilitate higher production volumes in 2016.
· The continued transition to a sales-led, flexible production model provides Sierra Rutile with the flexibility to align production to focus on maximizing the profitability of sales.
· Continued demand for high-grade natural rutile from existing customer base with 80% of maximum targeted sales volumes already contracted for 2016.
Commenting on Q4 2015 performance, Chief Executive Officer, John Sisay said:
"We are very pleased to record the highest quarter of rutile production and the highest annual production since the operation was restarted in 2006. Sierra Leone was declared Ebola free in November 2015 and we are proud to have achieved this result during a difficult backdrop. Looking forward into 2016, we remain focused on unlocking shareholder value in a disciplined way: aligning production volumes to customer requirements, continuous cost improvements and productivity enhancements. We have further strengthened our position as a leading producer of premium grade rutile and continue to work in close collaboration with our customers on long-term rutile demand planning."
1 Highest ever quarterly production since Sierra Rutile operations restarted in 2006.2 Direct operating cash cost (includes direct operating costs but excludes depreciation) less by-product revenue divided by tonnes of rutile produced.3 All-in operating cash cost (total operating cash costs plus stay-in-business capital cost, but excludes depreciation) less by-product revenue divided by tonnes of rutile produced.4 Reported cash costs exclude certain exceptional costs incurred during the year, the most significant of which related to a one-off donation towards relief efforts for the flooding experienced in Freetown. These exceptional costs impacted All-in Operating Cash Costs by approximately $1.50/t.
Production
Q4 2015 rutile production was 25% higher than Q4 2014 with 38,787 tonnes of rutile and 10,484 tonnes of ilmenite produced (Q4 2014: 31,025 tonnes of rutile and 10,574 tonnes of ilmenite), representing Sierra Rutile's highest quarter of rutile production to-date1.
A minor dryer failure in the mineral separation plant during the last week of the year caused a temporary processing interruption and resulted in 1,550 tonnes of rutile being held partially processed at year end. The material will be processed in early January resulting in additional finished product. Adjusting for this Rutile In-process, production for the quarter was 40,337 tonnes of rutile.
This set of results for Q4 2015 represented a 14% increase over Q3 2015 rutile production (Q3 2015: 33,960 tonnes) and a run-rate higher than any year of Sierra Rutile's production on an annualised basis.
| Q4 2015 | Q3 2015 | % Change |
Rutile (t) | 38,787 | 33,960 | 14% |
Ilmenite (t) | 10,484 | 10,229 | 3% |
Zircon (t)5 | 229 | 446 | (5%) |
Full-year production was 126,021 tonnes of rutile and 37,633 tonnes of ilmenite, representing a 10% increase and 5% increase on 2014, respectively. Sierra Rutile achieved its upper range of 2015 production guidance (guidance of 120,000 to 130,000 tonnes). Adjusting for the Rutile In-process, full-year production was 127,571 tonnes of rutile.
| 2015 Actual | 2014 Actual | % Change |
Rutile (t) | 126,021 | 114,163 | 10% |
Ilmenite (t) | 37,633 | 35,839 | 5% |
Whilst Sierra Rutile achieved the upper range of its guidance, it made a conscious effort to slow production in December in order to align production volumes to planned shipments in early 2016 thus avoiding holding excess working capital. With the shift to multiple dry mining units underway, Sierra Rutile is now able to profitably align production volumes with demand in order to minimize finished goods inventory on hand.
5 Zircon Concentrate is a semi-finished zircon product grading 40-55% ZrO2.
Cost Efficiency
For 2015, Direct Operating Cash Costs were US$537/t and All-in Operating Cash Costs were US$666/t resulting in a reduction in unit operating costs for 2015 compared to 2014.4 When adjusting for the Rutile In-process, Direct Operating Cash Costs were US$530/t and All-in Operating Cash Costs were US$658/t, representing the upper range of guidance for Direct Operating Cash Costs and the lower range of guidance for All-in Operating Cash Costs.
Cost control continued to be a key focus for Q4 2015 as Sierra Rutile continues to target producing in the lowest quartile on the global cost curve. In a challenging marketplace for suppliers to the mining sector, Sierra Rutile took advantage of improved pricing and payment terms for goods and services. Lower fuel prices and the devaluation of certain non-US dollar currencies in which goods and services are priced also had a beneficial impact. In addition, with the majority of costs being fixed in nature, higher production volumes also lowered unit costs.
As planned, mined grades at the dredge were moderately lower in 2015 versus 2014, an effect which was mitigated by contract mining of historic tailings. With Gangama Dry Mine coming on-line, average mined grades are expected to increase in 2016.
The recoveries achieved during the ramp-up of contract mining of tailings underperformed expectations in the first half of 2015, which resulted in unit costs trending towards the upper end of guidance. Contract mining performance has improved over the year, and with the commencement of production from the Gangama Dry Mine in 2016, contract mining of tailings will represent a substantially reduced proportion of total production going forward.
In addition, a number of planned maintenance activities were completed in 2015, and the increased costs of certain supplies and services as a result of the impact of Ebola on supply chains led to upward pressure on maintenance costs.
| 2015 | 2014 | % Change |
Direct Operating Cash Costs ($/t) | 537 | 541 | (1%) |
All-in Operating Cash Costs ($/t) | 666 | 683 | (2%) |
Expansion Project - Gangama Dry Mining
Construction of the Gangama Dry mine remains on budget and on schedule for the planned Q2 2016 commissioning. A number of significant project milestones at the Gangama Dry Mine were achieved during the quarter, including completion of contractor camp construction and completion of concentrator plant fabrication.
In addition, terrace bulk earthworks have been completed, project procurement remains on schedule, and civil construction is progressing well, with steel erecting also commencing in Q4 2015. See Sierra Rutile's website: http://www.sierra-rutile.com/uploads/gangamaphotos.pdf for photographs of project construction progress.
As at 31 December 2015, US$21 million had been spent on the project, in line with planned expenditure. Looking ahead, capital expenditure for the project is expected to be within budget.
Sales and Marketing
As stated in Sierra Rutile's H1 2015 interim results announcement, planned rutile sales for the first half of 2015 were sold at prices consistent with average realized prices in 2014. Following some weakening in commodities markets in the later part of the year, realized prices for the full year of 2015 were achieved at just 3% below average realized prices for 2014. Given an expected shortage in premium feedstock availability over the next few years, customers continue to exhibit strong interest in Sierra Rutile's high-quality product, and agreements to purchase volumes from the Gangama Dry Mine are already contracted.
Demand from the titanium metal industry continued to grow in 2015, and is anticipated to continue to grow in 2016. Looking at the overall end markets for rutile, although the titanium dioxide pigment market was weak in 2015, pigment demand is anticipated to make a modest recovery during 2016 and long-term demand for titanium metal is expected to be an area of continued high growth.
2016 Guidance
Sierra Rutile intends to follow a sales led production plan for 2016 and will produce to meet its sales requirements, with a focus on profitability over volume.
This disciplined and flexible approach positions Sierra Rutile strongly versus its peers, and enables Sierra Rutile to focus on profitable cash generation even during periods of market weakness, whilst retaining the flexibility to respond quickly to increasing demand for its products.
The continued successful execution of this strategy positions Sierra Rutile to leverage its increased operating flexibility to maximize the profitability of its sales. As at the current date, approximately 80% of the maximum volume of sales targeted for 2016 are already contracted. Due to its flexible production plan for 2016, Sierra Rutile has the ability to modify production in order to prioritize margin over volume, and focus on profitable sales.
Consequently, 2016 production, sales and cost guidance is planned to be provided with the release of Sierra Rutile's published financial results in March 2016, as planned sales volumes for 2016 are further refined.
ENDS
For Further Information:
Sierra Rutile Limited Matthew Hird, Chief Financial Officer John Nagulendran, Company Secretary
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+44 (0)20 7074 1800 |
Investec Bank Nominated Adviser and Joint Corporate Broker Chris Sim / George Price / Jeremy Ellis
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+44 (0)20 7597 4000 |
RBC Capital Markets Joint Corporate Broker Jonny Hardy
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+44 (0)20 7653 4000 |
Numis Securities Limited Joint Corporate Broker John Prior / James Black / Paul Gillam
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+44 (0)20 7260 1000 |
Kreab Marc Cohen / Christina Clark / Fiona Cumberland |
+44 (0)20 7074 1800
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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 mines, located in the south west of Sierra Leone, are based on 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 895 million tonnes (as at 30 September 2014).
www.sierra-rutile.com
Forward-Looking Information
This document may contain forward-looking statements. These forward-looking statements are made as of the date of this announcement and Sierra Rutile Limited (the "Company") does not intend, and does not assume any obligation, to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable securities legislation.
Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events and future performance and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of mineral resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual reports. These risks, uncertainties, assumptions and other factors could adversely affect the outcome and financial effects of the plans and events described herein.
Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking statements.