2nd Oct 2006 07:02
Aricom PLC02 October 2006 2 October 2006 Development Update Completion of Kuranakh Feasibility Study Acquisition of Kuranakh Minorities & Appointment of Further Non-Executive Director Aricom plc ("Aricom" or "the Group") issues this statement as a review ofdevelopment at the Group's operations including the completion of the Kuranakhfeasibility study. Highlights include: * Completion of Kuranakh feasibility study showing strong cashflow forecasts and a net present value of over US$100m;* Infrastructure work at Kuranakh continuing and on schedule with operations due to commence within 15 months at c.2.4mtpa;* Entry into a conditional contract to acquire the remaining 26% interest in Kuranakh deposit for US$11m;* MicroMine technical review of Kuranakh resources model to JORC standards;* Initial results from confirmation drilling programme at Kimkanskoye & Sutarskoye (K&S) deposits supporting original reserve and resource estimates of +550 million tonnes and pre-feasibility study on track for completion early 2007; and* Sir Roderic Lyne, former UK ambassador to Russia, appointed a non-executive director. Dr. Pavel Maslovskiy, Chairman commented: "With a valuable and expanding asset portfolio, Aricom is at an exciting growthand development phase. The completed feasibility work at Kuranakh confirms thevalue of that important asset, of which we have now agreed to obtain control ata value accretive to our shareholders. With construction at Kuranakh now moving on apace, management is now able tofocus further effort on demonstrating the value in the rest of Aricom's assetportfolio while pursuing additional exciting opportunities in the region.Initial drill results from K&S support previous reserve estimates and providethe basis for work on a pre feasibility study. We expect to be producingconcentrate from the Kimkanskoye deposit in 2010. I am delighted that Sir Roderic Lyne has been appointed to the Board. Hisextensive experience in the Russian Federation will be very valuable to theGroup. With Sir Malcolm Field as senior non-executive director, Sir RodericLyne as a non-executive director and Sir Rudolph Agnew as special adviser to theBoard, I believe we have a strong Board to take the Group forward in theinterests of shareholders." Enquiries: Jay Hambro - Aricom plc +44 (0) 207 201 8939Tim Grey / Katya Reynier +44 (0) 207 520 9455 The Millbrook Partnership Project Update Kuranakh Background Kuranakh is an ilmenite and titanium magnetite project located c.440km northwest of Tynda in the Amur region of Far East Russia. Kuranakh is the depositwhich will be connected by a road to the beneficiation site at Olekma, locatedon the BAM railroad. Having made substantial progress in the construction ofproject infrastructure and in preparing the site for the development of theprocessing and mining facilities, the project team expects to commenceoperations at a rate of c.2.4mtpa within c.15 months. Feasibility Study Completion The Kuranakh feasibility study has been completed. The study was carried out byZAO PHM Engineering in close consultation with OOO Kapstroi (Aricom'scontractor). The study has been executed to a high standard. Methods,quantities and prices of equipment, personnel and costs were derived fromcalculations supported by factual data and operational experience of othercompanies using similar equipment and treatment technology both in Russia andelsewhere. Aricom operational management together with Martin Smith, the Group's recentlyappointed Technical Director, played an active role in ensuring that the Group'srequirements were fully understood and implemented in the study. The first chapter of the study, the Executive Summary, will be published on theGroup's website today. The highlights of the summary are as follows: * The mine will operate two conventional shovel and truck open-pits. Open-pit 1 (Saikta) has a mineable reserve of 18.4 million tonnes and will operate for the first 8 years. Open-pit 2 (Kuranakh) has a mineable reserve of 15.7 million tonnes and will operate from years 7 to 14.* The mines and primary crushing and screening plant will be situated at the Kuranakh site and the process plant will be situated at Olekma which is 36 kms to the north.* The project is designed to mine c.2.4 million tonnes of ore per annum (tpa) averaging 32.9% iron and 10.3% titanium oxide.* The process plant will produce 900,000 tpa of 62.5% Iron concentrate and 290,000 tonnes of 48.7% titanium oxide concentrate.* The construction cost of the project is US$ 68.3 million. For more details please refer to our website. MicroMine audit of resources model to JORC standards MicroMine has carried out a technical review of the resource estimate of theKuranakh deposit. The conclusions of the review are supportive of the Group'sprevious estimates under the Russian system of reserve and resourceclassification. The executive summary of the report is extracted below: "Micromine Consulting (a division of Micromine Pty Ltd) was commissioned by Aricom plc to conduct a technical review of the resource estimate of the Kuranakh deposit, Amur Region of Russia, in September 2006. The deposit modelling and resource estimation was prepared by a group of geologistsand engineers from the Pokrovskiy Mine in 2006. Micromine Consulting reviewed the modelling methodology and general approach to resource modelling of the deposit. This report describes the results of the review and provides recommendations to change the methodology in order to obtaina more robust resource and reserve estimation. This should result in optimisation of the deposit development and maximise the company's profit. It was found that the modelling methodology and approach generally comply with international standards and the JORC Code requirements. A number of minor methodological defects and omissions were found which could result in insignificant underestimation of tonnage and downgrading of local areas of the deposit. It is recommended that the Kuranakh deposit model is updated taking into accountthe comments and recommendations outlined in this report." Source: "Technical Review of Mineral Resource Estimate Methodology of the Kuranakh Deposit", MicroMine Consulting, Sep-06. Competent Person = Vitaly Tal Agron Kuranakh Reserves & Resources Ore ('mt) Grade (%) Metal ('mt) Fe Ti02 V205+ Fe Ti02 V205+ B 8.07 32.90 10.30 0.41 2.66 0.83 0.03C1 + C2 27.45 34.70 10.90 0.43 9.51 2.98 0.12P1 2.82 33.10 10.30 0.42 0.93 0.29 0.01TOTAL 38.34 34.20 10.70 0.43 13.10 4.10 0.16Reserves * 35.51 34.30 10.70 0.43 12.17 3.81 0.15Resources ** 2.82 33.10 10.30 0.42 0.93 0.29 0.01 * Reserves technically reviewed by MicroMine and found to be generally JORC compliant.** Resources not yet reviewed by MicroMine and not included in Aricom mine planning.+ The current production plans forecast the vanadium pentoxide is left in the titanomagnetite Aricom is exploring ways to sell this product at an appropriate premium or to separate it. Acquisition of minority to give Aricom 100% interest in Olekminskiy Rudnik Aricom has signed a conditional contract for the purchase of the 26% minorityinterest in Olekminsky Rudnik, the company holding the licence for the Kuranakhdeposit. The consideration for these interests payable on completion, isUS$11m. Completion is conditional, amongst other things, on the approval fromthe Russian Federal Anti-monopoly Service. Subject to conditions beingsatisfied, it is expected that the contract will be completed before the yearend. The acquisition of these shares will give the Group 100% control of the assetand the project cashflows. As well as being a transaction on accretive termsfor Aricom, the value of 100% control has been raised as particularly importantin discussions with potential project financiers. The consideration will bepayable on completion. Economic Analysis The feasibility study contains an independent valuation of the deposit and adetailed economic model. Assuming currently realisable ex works prices for theproducts (Titanomagnetite - US$42/t & Ilmenite - US$70/t) an estimated annualearnings before interest, tax, depreciation and amortisation (EBITDA) isc.US$29m. Offtake contracts have already been signed as announced previously. The feasibility study suggests a future capital expenditure programme totallingUS$68.3m. This figure can be broken down as follows: Kuranakh Capital Expenditure Analysis - US$mKuranakh Capital Expenditure Forecasts - By Area of SpendMining Operations 18.6Kuranakh Crushing & Screening 8.0Olekma Beneficiation Plant 18.9Infrastructure 22.8Kuranakh Capital Expenditure Forecasts - By Type of SpendEquipment 9.7Construction 49.6Installation 1.0Other 8.0 The economic model valuation suggests a pre tax net present value of the assetof US$103m (10% discount rate) and an internal rate of return of 31%. Thevaluation model assumes a conservative contingency of +10% to all operatingcosts. The Group has appointed an adviser to arrange project finance. Thesefigures are based on a series of detailed assumptions set out in the feasibilitystudy itself. Further upside potential At this time, exploration has been completed, and mining planned, on the basisof only two of the eight orebodies identified at Kuranakh. The Group expects tocontinue the exploration process and should this suggest additional reserves themining rate may be increased. The Olekma process plant is designed to allowexpansion to meet an increase in throughput whilst the infrastructure programmealready allows for a c.50% increase in plant size. Kimkanskoye and Sutarskoye Deposits ("K&S") Background Aricom recently completed the purchase of a 50% interest in LLC Rubicon whichholds the licences to the Kimkanskoye and Sutarskoye iron ore deposits, locatedadjacent to the Trans-Siberian railroad in the Jewish Autonomous Region ofRussia, and holds an option to purchase the remaining 50% interest. The reserves estimated previously, showed that there is a total of more than550mt of iron ore with a grade exceeding 33% Fe, all of which is amenable tomining by surface open pit methods. Initial results from confirmation drilling programme Dalgeophysica, a local geological contractor, is conducting a combined processof confirmation drilling and bulk sampling. Dalgeophysica commencedconfirmation drilling at Kimkanskoye in June 2006. Aricom has employedResources Computing International, a UK based organisation with expertise inRussian geological and exploration evaluation to evaluate the results of thedrilling programme. The following is an extract from Resources ComputingInternational's report on the work to date: "Following the visit, some results have been received from the on-going confirmation drilling programme at Kimkan, which broadly substantiate the previous drilling campaigns and confirm the information above. From the geologist's report, drill hole logs, and laboratory assay data received, it is clear that good quality of magnetite/hematite ore is confirmed on both eastern and western ore zones at Kimkan. Total additional drilling so far is 1,156.9m (in four drill holes, Nos. 501,502,503,509), and trenching is 861m total length (in four trenches)." Source: "Review Of Exploration & Development Projects Within Aricom's Portfolio", Resources Computing International Ltd, Sep-06. Competent Person = Dr. Stephen Henley PhD, FGS, FIMMM, CEng Next Steps The confirmation drilling programme for the Kimkanskoye deposit is nearingcompletion, following which Dalgeophysica will move to Sutara. Assuming theresults of the drilling support the Soviet estimates, the new database will beused to create a MicroMine model of the deposit. The completed mining model will be used, together with capital expenditureestimates, to create a pre-feasibility study and subsequent independentvaluation of the deposit. This study is currently expected to be completed inthe second quarter of 2007. Initial forecasts suggest that with positiveresults from the above and following a Board investment decision and relevantlocal approvals, construction could commence in 2008 with the project beingfully operational in 2010. Bolshoi Seym Aricom's extension for Kuranakh Situated 40km from the site of Aricom's planned ilmenite and titanomagnetitebeneficiation plant at Olekma, the Bolshoi Seym ilmenite and magnetite depositrepresents a significant and natural extension to Aricom's developing operationsat Kuranakh. The deposit is estimated to contain resources of 58mt of TiO2 and125mt of iron content. It is intended that this deposit will be developed with our 51% partners,Interros the large Russian private investment group, which is a majorshareholder in Norilsk Nickel. A geological exploration programme for theproject is currently under development with on site work expected to commencewithin the next few months. Titanium Sponge MoU signed with ChinalcoAricom announced in June 2006 it had entered into a non-binding Memorandum ofUnderstanding ("MoU") with Aluminium Corporation of China ("Chinalco"), thelargest non-ferrous metal company in China and owner of China's largest titaniummetal processing plant. The MoU relates to a proposed co-operation in the design and development of atitanium sponge production plant in China. The plant, which may source ilmenitefeedstock from Aricom's Kuranakh deposit is expected to enable the Group toparticipate in the high value titanium metal market. The companies are indiscussions about forming a joint venture company that would build on Aricom'sstrengths and expertise in resources and technology, and Chinalco's capitalstrength and expertise in engineering design and metal production. A pre-feasibility study for the proposed plant has been commissioned from aUkrainian specialist institute. It is expected that this study will becompleted during the second quarter of 2007. The study assesses the viabilityof a c.30,000 tpa sponge plant being built for commissioning in 2010. Appointment of new Non-Executive Director Effective from today, Sir Roderic Lyne has been appointed as a non-executivedirector of Aricom. Sir Roderic served as British Ambassador to Russia fromJanuary 2000 until August 2004, when he retired from the Diplomatic Serviceafter 34 years. He now works as a consultant, principally advising businesseson Russia and the CIS. He is a Special Adviser to the BP Group and to HSBCBank. He was appointed as a non-executive director of Accor in 2006; and amember of the Board of the Russo-British Chamber of Commerce. He is also aVisiting Professor at Kingston University's Faculty of Business and Law and amember of the Oxford University Task Force on UK Energy Security, DevelopmentAssistance and Foreign Policy. Further statutory information relating to Sir Roderic's appointment follows thisrelease. Conference Call A conference call to discuss the announcement will be hosted by: PavelMaslovskiy, Chairman; Jay Hambro, CEO; Yuri Makarov, Operations Director; MartinSmith, Technical Director; and Peter Howes, CFO. The call will take place onTuesday 3 October at 14:00 UK time. Details to access the conference call are as follows:- The dial-in number in the UK will be: 0845 245 3471 and internationally will be +44 (0) 1452 542 300 with the Conference ID in both cases: 7476563.- Replay will be available after the call has finished for seven days on 0845 245 5205 in the UK and on +44 (0) 1452 55 00 00 internationally with the access code in both cases 7476563#. DISCLAIMER Past performance of the Group or its shares cannot be relied on as a guide tofuture performance. Some statements contained in this release or in documents referred to in it areor may be forward-looking statements. Actual results may differ from thoseexpressed in such statements, depending on a variety of factors. Any forward-looking information contained in this release has been prepared onthe basis of a number of assumptions which may prove to be incorrect, andaccordingly, actual results may vary. Investors must be aware that theconstruction of the mining operations under discussion is still subject tocertain approvals by the Russian authorities. No assurances may be given thatthe Russian authorities will approve any extraction. Any mining, engineering andbusiness plans prepared by the Group are based on the Group's interpretation andunderstanding of the current business, regulatory or political circumstances inRussia and in the commodity market and may be subject to change should any ofthese circumstances change. - Ends - The following information is provided in accordance with paragraph 17 andSchedule 2(g) of the AIM Rules: Sir Roderic Lyne, aged 58, holds and has held the following directorships orbeen a partner in the following partnerships within the past 5 years: Current directorships: Russo-British Chamber of Commerce Previous directorships: None There are no further matters to be disclosed in relation to Schedule 2 paragraph(g) of the AIM Rules. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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