TIDMAMI
RNS Number : 7006R
African Minerals Ltd
21 November 2012
21 November 2012
African Minerals Limited ("AML" or "the Company")
Operational and Financing Update
African Minerals Limited today provides an update on various
operational and financial matters as the Company continues to ramp
up production at the Tonkolili iron ore mine in Sierra Leone.
OPERATIONAL UPDATE
-- Production ramp up continuing satisfactorily, remaining on
track to deliver a sustainable production rate of 20Mtpa during Q2
2013;
-- Shipping, which was temporarily suspended at the end of
August due to elevated moisture levels, recommenced early in
October with the inclusion of material from the newly commissioned
Wet Process Plant ("WPP"); and
-- 2012 shipped production is expected to be at the lower end of previous guidance of 5-6Mt.
FINANCIAL UPDATE
-- Released $381m of restricted cash to fund capital expenditure for H2 2012;
-- Arranged for $150m from existing project level funds to be
released to fund working capital requirements;
-- Obtained a waiver from its lenders for historic breaches of certain debt covenants;
-- In advanced discussions to establish a new equipment financing facility of circa $90m;
-- Seeking to convert the existing $100m Standby Facility to a
$100-150m revolving credit facility; and
-- Even with the above funding arrangements being successfully
completed for the full amount before the end of 2012, financial
headroom remains limited. However, if the expected level of sales
is not achieved during the ramp up, the Company will need to seek
additional sources of funds.
CEO, Keith Calder, commented:
"I am pleased with the progress we have achieved to date at our
integrated mine, rail and port project in Sierra Leone. Our
processing plants continue to ramp up well, with no major issues
identified to date, and I am confident that we remain on track to
meet our near term target of shipping in excess of 5Mt this year,
as well as achieving our longer term production rate target of
20Mtpa during Q2 2013.
"We have also made good progress in terms of securing necessary
additional financing for the project, including, with the support
of our partner SISG, the provision of $150m working capital from
project funds, as well as the receipt of the appropriate historic
covenant waivers from Standard Bank. As outlined in this update,
the successful completion of the new equipment finance and
revolving credit facilities are key to our near-term funding
requirements, but we feel confident that these will be in place by
the end of the year. Whilst our financial headroom remains tight
and depends on us achieving the expected level of sales, I am
confident that other sources of funding will be available if
required to enable us to achieve full production, together with an
operating team capable of delivering the Company's goals."
OPERATIONAL UPDATE
WPP ramp up update
The new WPP at Tonkolili continues to ramp up, with no major
issues identified to date. The process facilities at Tonkolili are
continuing to build up towards a sustainable combined production
rate of 20 Mtpa during Q2 2013 as previously announced.
Rail Upgrade Programme
Welding of the 74km of rail that has been replaced and upgraded
between Pepel Port and Lunsar has been completed, and ballasting is
nearing completion, with tamping and de-stressing to be completed
by year end. Train speeds over this new track section have
increased from 5kph to 40kph, and when the outstanding work is
completed it is expected that overall train speeds over the whole
railway will be increased to 60kph. The flexibility that will be
provided by the addition of a full rail loop at Pepel, which will
further reduce cycle times and is expected to be completed during
Q1 2013, will allow the full complement of ten train sets to run,
supporting the 20 Mtpa target rate.
Delivery of rolling stock is progressing well, with now 816
wagons having been delivered and a further 120 in transit with the
balance of 120 to be delivered in Q1 2013. 24 locos are now on
site, with two currently awaiting dispatch before year end, and the
balance of eight, bringing the complement up to 34, to be delivered
during Q1 2013.
Shipping
As disclosed in our Interim Results announcement, moisture
issues experienced during the wet season limited the volume of our
All-in-32 shipments. Shipments were temporarily suspended due to
elevated moisture levels at the end of August, however we are
pleased to report that shipping recommenced as of 7 October 2012,
shipping All-in-32 material blended with washed lump material, and
washed lumps and fines cargoes. With the conversion of the 1D dry
processing facilities to wet plants in Q1 2013 the production of
All-in-32 will cease, removing this particular risk.
The Tonkolili facilities, and associated dedicated port and rail
infrastructure, are in the midst of ramping up towards the target
sustainable production rate of 20Mtpa, which is expected to be
achieved during Q2 2013. While recognising the risk around this
ramp up during the remainder of the year, we guide that 2012
exports will be at the lower end of our previous guidance of
between 5-6Mt.
FINANCIAL UPDATE
Funding of additional $122m for expansion capital
At the time of the Interim Results announcement and post the
balance sheet date of 30 June 2012, an additional $259m had been
drawn from the Shandong subscription funds for capital expenditure
associated with the completion of the Phase 1 project. As planned,
we have now also drawn a second tranche of $122m from these funds
towards completion of the forecast capital expenditure for our
continued expansion to achieve a sustainable run rate of 20Mtpa in
Q2 2013.
Provision of $150m working capital facility from project level
funds
In our Interim Results announcement we stated that the Company
was in advanced discussions with its banks regarding the provision
of a working capital credit facility at the project level of up to
$150m. The Company is pleased to announce that, although commercial
terms sheets were offered by our existing relationship banks, with
the support of Shandong Iron and Steel Group ("SISG"), we have
agreed to fund this working capital requirement internally through
the release of $150m from funds that were restricted to use for
project capital expenditure (the "Drawdown Funds"). Of these
Drawdown Funds, $75m is available for immediate drawdown and the
remaining $75m will be available on issue of loading documents for
the fourth vessel (starting from 1 November 2012) due to SISG under
its pre-existing offtake agreement. The Company currently expects
the fourth vessel destined for SISG will be loaded in mid-December.
The Company has agreed with SISG that $150m of free cash flow from
Phase 1 will be used to replace the Drawdown Funds. The Company's
ability to service its ongoing obligations at the parent level is
dependent on the up-streaming of funds from the project companies.
Whilst the precise mechanics and timing of the replacement of the
Drawdown Funds have yet to be agreed with SISG, the Company is
confident that agreement will be reached with SISG and that
up-streaming of funds will be available as required.
Related Party Transaction pursuant to AIM Rule 13
In exchange for the release of the Drawdown Funds, the Company
has agreed with SISG that Letters of Credit will no longer be
required as the payment mechanism for its iron ore shipments. In
addition, the Company has agreed to provide SISG with extended
credit terms such that SISG will pay for a shipment within 45 days
after receipt of loading documents, instead of the current
arrangement under which the Company would expect to cash Letters of
Credit within 5-15 days of provision of loading documents. This
arrangement applies to SISG's discounted iron ore offtake only, and
not to any iron ore supplied under SISG's option to purchase
additional ore.
On 21 November 2012 the Company and SISG entered into an
amendment agreement to the original iron ore off-take agreement
signed between the parties on 28 March 2012 (the "Off-take
Amendment Agreement") to formalise the revised payment terms as set
out above and to enable the release of the first $75m tranche of
the Drawdown Funds. SISG is a related party within the meaning of
the AIM Rules by virtue of its substantial shareholding in the
project subsidiaries of the Company, and therefore entering into
the Off-take Amendment Agreement constitutes a related party
transaction pursuant to AIM Rule 13.
The directors of the Company (other than Mr Jurong Cui, being a
SISG representative) consider, having consulted with Deutsche Bank,
the Company's nominated adviser, that the terms of the Off-take
Amendment Agreement are fair and reasonable insofar as its
shareholders are concerned.
Standard Bank waiver for debt covenants breached on the $100m
Standby Facility
As disclosed in our Interim Results announcement, the Group was
negotiating a waiver from The Standard Bank of South Africa Limited
("Standard Bank") for debt covenants breached on the $100m Standby
Facility in the period as well as those forecast to be breached in
H2 2012. We are pleased to announce that Standard Bank has agreed
to the necessary covenant waivers for previous breaches, and
amendments to production covenants for the remainder of the
year.
Provision of a new equipment financing facility from Standard
Bank of circa $90m
The Company is in advanced discussions with Standard Bank to
provide a new equipment financing facility of circa $90m, of which
up to $48m is expected to be available for drawdown in 2012, and we
have requested that the lenders under the existing equipment
financing facility agree to apply the covenant terms from this new
facility to the existing equipment financing facility.
Documentation in respect of the new equipment financing facility
and the amendments to the existing equipment financing facility is
expected to be finalised and signed within the next few days, with
drawdown expected to occur soon thereafter.
Additional working capital financing
As a result of the reduction in the shipping of iron ore in the
wet season, the Company's revenues in the second half have been
lower than expected and timing of cash flows during the current
quarter have negatively impacted working capital. Thus, in addition
to the above financing arrangements that were contemplated at the
time of the Interim Results announcement, the Group has a current
requirement for additional short term financing to fund working
capital.
To this end, the Group is in discussions with Standard Bank to
seek to convert the existing $100m Standby Facility to a $100-150m
revolving credit facility before the end of 2012. The first $20m of
the $100m Standby Facility has been repaid as scheduled on 30
September 2012 and, absent conversion to a revolving credit
facility, a further $20m is scheduled to be repaid on 31 December
2012. Thus the conversion of the Standby Facility to a revolving
credit facility would provide an additional $40-90m of liquidity to
the Group.
Even with the above necessary funding arrangements being
successfully completed for the full amount before the end of 2012,
the Group has limited financial headroom. In the event that the
operating companies are unable to achieve the expected level of
sales during the ramp up, the Group will have to seek additional
sources of funding over and above those outlined above. The Company
is confident that other sources of funding will be available as
required.
Contacts:
African Minerals Limited
+44 20 3435 7600
Mike Jones
FTI Consulting
+44 20 7831 3113
Billy Clegg / Ben Brewerton
Deutsche Bank
+44 207 545 8000
Brent Nabbs
African Minerals is developing its Tonkolili iron ore project in
Sierra Leone, with a JORC compliant resource of 12.8Bnt. The
project, which currently has a 60+ year mine-life, is being
developed in 3 phases. Phase I is expected to produce 20 million
tonnes of iron ore per annum at full capacity.
Phase II now contemplates an expanded production facility at the
mine to produce an additional 30Mtpa of 64% high grade hematite
concentrate and the establishment of an expanded port facility at
Tagrin Point.
African Minerals and its contractors currently employ
approximately 11,000 people in Sierra Leone, 83% of who are Sierra
Leonean nationals.
The Company has also developed significant port and rail
infrastructure to support the operation of the project, via its
subsidiary African Rail and Port Services (SL) Limited ("ARPS"), in
which the Government of Sierra Leone ("GoSL") has a 10% free
carried interest.
The Tonkolili project companies are currently owned 75% by AML,
and 25% by Shandong Iron and Steel Group ("SISG"), except for ARPS,
which is currently owned 75% by AML and 25% by SISG, with the GoSL
having a 10% free carried interest.
www.african-minerals.com
This information is provided by RNS
The company news service from the London Stock Exchange
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