TIDMAYM
Anglesey Mining plc LSE:AYM
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, Five Months Ended August
2012 31, 2012
(all tonnes are dry Tonnes Grade (% Fe) Tonnes Grade (% Fe)
metric tonnes)
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 127,463 55.6 593,800 58.4
Screened
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 273,503 58.8 359,000 54.9
inventory
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 LIM's 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 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)20 3440 6800;
Emily Fenton / Jos Simson: Tavistock Communications +44 (0)20 7920 3155
END
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