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Sierra Rutile Limited

Sierra Rutile Q3 2013 Operational Update

Achievement of Record Quarterly Rutile Production

London, UK, 4 October 2013: Sierra Rutile Limited (AIM: SRX) ("Sierra Rutile") is pleased to provide an operational update on the third quarter of 2013 ("Q3").

Highlights:

· Continued strong operational performance with another record quarter of rutile production for Q3 2013, up 20% on the previous record set in Q2 2013.

· Production for Q3 was:

- Rutile production of 32,305 tonnes, a 22% increase on Q2 2012 production; and

- Ilmenite production of 8,156 tonnes, a 53% increase on Q2 2012 production.

· Gangama Dry Mining capital development cost reduced by over 17% to US$85 million with further optimisation subsequently reducing this to US$81 million, a 21% reduction. 

· US$20 million working capital facility secured with Nedbank and credit approval for a US$30 million term loan facility received.

· Re-configuration of the Gbeni deposit mine plan, significantly reducing near-term capital requirements.

Production

Production for Q3 was 32,305 tonnes of rutile and 8,156 tonnes of ilmenite, 22% and 53%, respectively, ahead of Q3 2012 volumes.

Expansion projects

During the quarter, Sierra Rutile completed a value-optimisation and re-costing exercise for the Gangama Dry Mining feasibility study, which resulted in more than a 17% decrease in the capital cost, to a total of US$85 million from the US$103 million anticipated in the pre-feasibility study. Subsequent refinement has reduced this cost further to US$81 million, a 21% reduction from the original estimate. Of this amount, 77% is at fixed prices which are not subject to increase.

In addition to costs, as part of the feasibility study, the mine plan for the Gangama deposit was also optimised, including the incorporation of the current processing recoveries into the plan. This optimisation resulted in a greater than 11% increase in the average rutile production over the life of the deposit to 93,100 tonnes per annum from 83,400 tonnes per annum which was outlined in the pre-feasibility study. Peak production in the first year of operation is expected to be over 100,000 tonnes of rutile.

As highlighted in the Company's Q2 update, the market conditions remain a significant driver in the Board's decision to develop the Gangama Dry Mining project. In this regard, although the Board is confident of the merits of the Gangama project and is pleased with recent positive market developments, the Board wishes to ensure that the current market recovery is fully embedded before implementing this project. The Board will continue to re-assess this decision in light of on-going market developments.

Gbeni Mining method

During the quarter, Sierra Rutile reviewed the mining method and mine plan for the Gbeni deposit and concluded that the deposit should be mined using dry mining techniques utilising the existing Lanti Dry Mining concentrator plant, rather than by dredge as originally envisaged.

This new mining approach will mean that the current Lanti Dredge will not be moved to the Gbeni deposit, resulting in substantial near-term capital costs savings of US$23 million. This decision will also significantly reduce the required on-going maintenance capital of the Lanti Dredge which is now planned to be retired early in 2019, after almost 40 years' service. By utilising the Lanti Dry Mining concentrator plant for the Gbeni deposit, the change in mining method will mean that the requirement and cost of moving the Lanti Dry Mining concentrator plant to another deposit is now delayed by 10 years, to 2027.

Financing

As at 30 September 2013, Sierra Rutile had US$ 24.6 million in cash.

During the quarter Sierra Rutile successfully agreed a working capital facility with Nedbank Limited. The facility has a renewable tenor of one year, carries an interest rate of LIBOR plus 4%, and is secured against the assets of Sierra Rutile. All conditions precedent have been satisfied and the funds are available for drawdown.

Sierra Rutile has also received confirmation of formal credit approval from Nedbank for a US$30 million senior loan facility. The facility, as approved, would have a tenor of four years and carry an interest rate of LIBOR plus 5.25%. Sierra Rutile and Nedbank continue to progress the documentation for this facility.

Sales

Sales in Q3 fell behind our record production rates, resulting in minor inventory accumulation albeit at a time when there are signs of increasing buyer confidence. Increasing pigment plant capacity utilisation rates, in combination with reports of finished TiO2 pigment inventory reaching manageable levels throughout the supply chain, mean that any increase in end-user TiO2 consumption will directly translate into feedstock demand. Furthermore, lead indicators, such as Asian pigment prices are showing signs of improvement, signalling that market fundamentals will continue to improve into H1 2014. Coatings producers report improving demand in the USA and higher volumes into nearly all Asian end-use markets.

Other, smaller, rutile consuming markets are more subdued. Consumption in welding applications remains sluggish and destocking in the titanium metal sector is expected to continue during the first quarter of next year.

Commenting on Q3 performance, CEO John Sisay said: "We are pleased that once again we have delivered record quarterly rutile production, reflecting the team's efforts over the last two years and the focused capital investment that has been employed on high-return projects.

We are pleased by the outcome of both the Gangama value-engineering study and Gbeni mining method review, which have both resulted in the elimination of a significant amount of near-term capital requirements. Maintaining a focus on disciplined capital investment, the Board has made the decision to postpone the commencement of the Gangama Dry Mining project until current positive market developments are fully embedded so that we can ensure that the project commences at a time that will maximise returns to shareholders."

ENDS

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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 800 million tonnes (as at 31 August 2012).

www.sierra-rutile.com