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ANGLESEY MINING - LIM AGM AND OPERATIONS UPDATE
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13 September 2012
LIM AGM and Operations Update
Anglesey Mining’s 26% owned associate Labrador Iron Mines Holdings
Limited (TSX: LIM) today held its Annual Meeting of shareholders in
Toronto at which an operations update of its Schefferville area iron
ore mining operations was provided.
2012 Operational Highlights –1 April to August 31, 2012
LIM commenced its first full season of production in April 2012.
In
the operating period to August 31, seven shipments of iron ore have
been sold, totalling ~1.2 million wet tonnes.
This is a significant
achievement, representing a 3-times increase over iron ore sales for
all of 2011.
The James Mine re-commenced full-scale operations in April 2012 and has
consistently achieved its planned mining rate of 28,000 tonnes per day
(ore and waste) in the operating period to August 31.
Complementing the
ramp up in production, railway volumes have also tripled from April to
August with four trains currently in operation.
LIM achieved a major
milestone on August 23, as its one millionth tonne of iron ore for the
year was railed to the Port of Sept-Îles.
While LIM successfully sold seven shipments of iron ore during the year
to the end of August, revenues have been impacted by lower iron ore
prices.
This has created a very disappointing year-to-date, because
although the ramp up in production and rail have been positive, the
recent collapse in the spot iron ore price has not.
Over the
short-term, getting the mine and rail operating efficiently has been
overshadowed by the spot price.
In response to the recent sharp decline in spot iron ore prices and
challenging market conditions, LIM has taken decisive action to protect
liquidity and has undertaken a critical review of its capital spending
for the balance of 2012.
As previously announced in early September,
the following immediate actions have been implemented:
· Focus on cost reduction and cash management measures;
· All capital expenditure programs relating to the Silver Yards
processing plant and development of the Houston deposits have been
deferred;
· The 2012 exploration program has been reduced to $5 million
from the original budget of $8.6 million.
During this period of weakness and uncertainty in the iron ore market,
it is essential to remain disciplined in cash management and capital
spending programs and reduce operating costs.
Consequently, consistent
with announcements made by major iron ore companies, some capital
investment programs have been suspended and others deferred in order to
focus our resources on optimising production in the short-term.
This
action reflects a disciplined and pragmatic approach as LIM weathers
the current challenging market conditions.
As previously announced, the original 2012 budget for capital
investment programs totalled approximately $112 million.
LIM has spent
or committed $54 million to date and $5 million has been permanently
cancelled.
Operational Update
James Mine and Silver Yards
In the period to August 31, 2012, the James Mine continued to operate
at a rate of 28,000 tonnes per day (ore and waste).
For the balance of the 2012 operating season, in line with LIM’s action
plan, LIM is actively taking necessary measures to enhance productivity
and address cost control to improve the bottom line.
Mining of direct
rail ore, which was receiving a discount in the market place has been
phased out and the product mix has been shifted to process lump and
sinter exclusively.
To further address productivity and cost control, LIM has ceased the
use of its higher cost wet processing plant, which has been winterised.
For the balance of 2012, LIM is utilizing its recently-mobilized,
lower-cost dry processing system at Silver Yards, which is being used
entirely to process ore from the James Mine.
This ore continues to be
soft and higher grade and lends itself to simple processing that does
not require washing.
The lower cost dry classifying system also
complements LIM’s product shift to lump and sinter fines for all of its
remaining sales in 2012.
The new dry process stream has a design
capacity of 1,000 tonnes per hour (approximately 20,000 tonnes per day)
with a mass yield for the high-grade ore approaching 100%.
Startup of the wet processing plant at Silver Yards commenced in
mid-May and the Phase 1 and 2 plants were commissioned in five weeks.
From mid-May to June 30, 2012, approximately 127,000 tonnes of 55.6%
iron (“Fe”) material was fed to the plant, yielding 52,400 tonnes of
lump and sinter fines products.
During the quarter, the wet plant
operated at a 50% throughput capacity and achieved a mass yield of 41%.
While these metrics were lower than planned, continuous improvement was
evident towards the end of the quarter.
In July and August, the wet
plant performance improved to a mass yield of 56% compared to the 41%
mass yield in Q1.
The design performance for the Phase 1 and 2 plants
combined is 60%, demonstrating that the performance objective was
nearly achieved, prior to the decision to shut down the wet plant for
the season.
The Phase 3 expansion of the Silver Yards wet process plant was
substantially constructed at the end of August, with the main remaining
items being the installation of electrical equipment and
instrumentation work.
Completion and commissioning of the Phase 3 plant
expansion are now planned for April and May 2013 as part of the
seasonal start-up.
LIM’s operating results for the quarter ended June 30, 2012, and the
five months ended August 31, 2012 is outlined in the table below.
Quarter Ended June 30, 2012 Five Months Ended August 31, 2012
(all tonnes are dry metric tonnes) Tonnes Grade (% Fe) Tonnes Grade (%
Fe)
Total Ore Mined 668,193 62.6 1,309,900 61.0
Direct Rail Ore portion 483,444 62.6 808,000 62.5
Waste Mined 1,369,398 — 2,434,300 —
Ore Processed and Screened 127,463 55.6 593,800 58.4
Lump Ore Produced 17,728 60.2 57,500 60.8
Sinter Fines Produced 34,711 65.6 336,300 62.3
Total Product Railed 532,329 62.6 1,007,100 62.5
Tonnes Product Sold 486,506 63.2 972,700 63.0
Port Product Inventory 223,492 63.0 212,100 62.4
Site Product Inventory 65,372 64.0 55,800 59.2
Site Run-of-Mine Ore inventory 273,503 58.8 359,000 54.9
Note: Figures are preliminary and subject to confirmation.
At the end of August, LIM was on track to meet its 2012 sales target of
2 million tonnes of iron ore at a cash operating cost of $60 – $65 per
tonne unloaded at the Port.
However, in response to market conditions
and weaker spot iron ore prices, LIM has decided to scale back its
planned production for the remainder of the 2012 season and, subject to
market conditions, plans for the sale of three or four more cape-size
shipments over the next three months before the seasonal shut down in
November.
As a result, LIM is now targeting 2012 production of 1.7
million tonnes of iron ore.
Iron Ore Sales and Market Conditions
During the quarter ended June 30, 2012, LIM sold three cape-size
shipments totalling 486,000 dry tonnes of direct rail ore (“DRO”) 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.
A fourth cape-size shipment of
158,000 dry tonnes of direct rail ore was sold in July.
In August,
three cape-size shipments of iron ore (one DRO and two sinter) for a
total of 485,000 dry tonnes (525,000 wet tonnes) were sold.
Iron ore spot prices suffered a sharp decline in August, dropping
almost 30% to below US$90 per tonne on a 62% Fe CFR China basis.
Port
inventories in China remain very high, with Chinese steel mills
liquidating plant inventories and traders withdrawing from the spot
market.
It has been reported that some cargos offered for sale have
been withdrawn and sales by some companies have had prices
re-negotiated.
Non-standard or off-spec products, including LIMs
direct rail ore, have been difficult to sell, resulting in delays
and/or lower than expected prices.
Currently, LIM’s iron ore is re-sold by the Iron Ore Company of Canada
(“IOC”) through the Rio Tinto marketing organization on the Chinese
spot market.
In August, LIM’s three shipments of iron ore were sold in
challenging market conditions.
LIM’s association and arrangements with
IOC and Rio Tinto enabled the placement and sale of LIM iron ore, which
otherwise might have been difficult.
The sale of LIM iron ore in August was made under provisional pricing
arrangements and subject to final settlement, which occurs
approximately one month after the ship has departed the Port.
The
aggregate realized price of the three shipments sold under these
arrangements, consistent with forward swap pricing for September, is
expected to average about $30 – $40 per tonne less than the selling
price of $122 per tonne on a CFR China basis achieved in Q1.
LIM will
continue to report proceeds from its aggregate sales of iron ore on a
quarterly basis.
Market commentators are speculating that the current, late August, iron
ore spot price is at or near a bottom, as this price is below the
assumed marginal cost of domestic Chinese production and reflects an
unsustainable spread between domestic and imported iron ore prices.
The underlying fundamentals have not changed.
The most important use of
iron ore is as a primary input to steel production.
Global crude steel
production is expected to steadily increase.
The recent plant
destocking by Chinese steel producers cannot continue indefinitely as
Chinese steel prices stabilise and buyers return to the market.
We
believe China will continue to drive economic growth fuelled by
urbanisation of its very large rural population.
Steel production in
China remains strong and we believe that the recent slowing in the
growth rate is temporary.
Recent announcements by the Chinese Government indicate that China is
ready to commit stimulus spending to keep growth on track.
Premier Wen
Jiabao said this week that China would meet its 7.5% gross domestic
product (GDP) growth rate this year.
China’s National Research and
Development Commission is reported to have approved new infrastructure
projects, including highways, subways and airports and other public
works, totalling between 800 billion and one trillion Yuan over the
next several years.
However, China appears to be moving cautiously as
its large spending in response to the 2008 global crisis fuelled
inflation.
At that time, China’s stimulus spending led to the price of
iron ore increasing from a low of US$60 per tonne CFR China in March
2009 to reach a high of US$186 within just over one year in April 2010,
from where it retreated to about US$117 per tonne in July 2010 before
recovering strongly to a high of US$192 in March 2011.
LIM continues to believe, in line with market consensus, that a
recovery in iron ore prices is likely as Chinese steel mills restock
and with traders moving back into the spot market and as China, Europe
and the US all introduce economic stimulus programs.
We anticipate iron
ore prices recovering to higher levels later in the year and the
improvement in the past week from below US$90 to around US$100 supports
this belief.
Looking forward, many of the large projects and
expansions previously planned by major companies are experiencing
increased costs and announced delays, all of which suggest that the
previously-forecast long-term increase in the world-wide supply of iron
ore will be significantly delayed.
Outlook
Despite the very many operational achievements to date, our current
second quarter is being adversely impacted by the rapid drop in spot
iron ore prices.
We have been quick to respond and adjustments have
been made with revised strategies in the mine, process plant and rail
transport to optimize production at the lowest possible cost.
We carried out a number of key initiatives to de-risk operations.
These
have become even more critical as we weather challenging market
conditions.
The focus in the immediate short-term will be on reducing
operating costs and managing cash.
In response to market conditions and
weaker spot iron ore prices, LIM is scaling back its planned production
for the remainder of the 2012 season and, subject to market conditions,
plans for the sale of three or four more cape-size shipments over the
next three months before the seasonal shut down in November.
This will
result in total production for the year of about 1.7 million tonnes of
iron ore.
The cost reductions in our current operations, combined with the
scale-back in production and the deferral of capital expenditures will
strengthen our financial position.
For the remainder of the 2012 season, LIM plans to produce only
standard sinter fines and lump and will continue to work closely with
IOC and Rio Tinto to monitor market conditions to seek to achieve the
most favourable sales outcomes under difficult market conditions.
For 2013 and following years, and subject to market conditions,
operations will be focused on our Stage 1 and 2 deposits.
LIM’s Stage 1
holds six smaller satellite deposits located within a ~15 km radius of
the James Mine / Silver Yards processing plants.
These deposits
collectively contain a total of about 21 million tonnes of NI 43-101
compliant resources, about 5 million tonnes of historical resources and
about 10 million tonnes of historical stockpiles.
Subject to detailed
engineering, design, environmental assessment and permitting, it is
expected that these deposits will generate about two million tonnes of
annual iron ore production from the Stage 1 James / Silver Yards area
for about five years.
The delay in the development of the Stage 2 Houston project will result
in LIM’s production target for 2013 being revised to a level similar as
planned for 2012, at about 2 million tonnes of iron ore, rather than
the expanded 3 million tonnes previously anticipated.
However, when in
production, Houston is expected to more than double LIM’s current iron
ore production and will represent LIM’s main expansion project in
future years.
About Labrador Iron Mines Holdings Limited
Labrador Iron Mines is Canada’s newest iron ore producer.
It owns a
portfolio of direct shipping iron ore operations and projects located
in the prolific Labrador Trough.
The first full production season
commenced in April 2012 with a revised sales target of 1.7 million
tonnes of iron ore for the 2012 year.
LIM is focused on a strategic and robust growth plan arising from its
portfolio of 20 iron ore deposits in Labrador and Quebec, all within 50
kilometres of the town of Schefferville.
The James Mine is connected by
a direct rail link to the Port of Sept-Iles, Québec.
The area also
benefits from established infrastructure including the town, airport
hydro power and railway service.
Starting with the James Mine and
leading to the development of the expanding Houston flagship project,
the objective is to provide shareholders with long-term value as
production and sales ramp up towards 5 million tonnes per year.
LIM is currently the only independently-owned Canadian iron ore
producer listed on the Toronto Stock Exchange and trades under the
symbol LIM.
About Anglesey Mining plc
Anglesey holds 26% of Toronto-listed Labrador Iron Mines Holdings
Limited which is now producing iron ore from its James deposit, one of
LIMs 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)20 3440 6800;
Emily Fenton / Jos Simson: Tavistock Communications +44 (0)20 7920
3155
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