He says that the Ruashi Two technical process is “a lot more simple” than the Ruashhi One technical process.
“Ruashi One was full of alchemy, that was witchcraft,” he says.
But Ruashi Two is simpler.
Electrowinning cells at Ruashi Two began being constructed in May and Metorex will commence in January with leaching and electrowinning. The solvent extraction will be introduced beyond January of next year.
Ruashi Two has 24-milion tons of copper at a grade of 3,78% copper and 0,79% cobalt. It can do 120 000 t a month and the target is to produce 45 000 t of copper a year and 3 500 t of cobalt. The capital cost will be between $160-million and $180-million and the life of mine is 20 years plus.
“Advice from the market is that we will take 12 months to build up. We would like to be a little more optimistic and, if we build up to full production over six to eight months, we will be very comfortable,” Needham says.
He reports that Ruashi Two’s equipment is on site, the power supply transformers are due for delivery imminently – “that was a big delay on phase one” – imported mechanisms are on track, “so we are not envisaging a tiny glitch”, although there will be a ramp up phase.
On the mining licence review process that is taking place in the DRC, Needham says nothing has been brought to the company’s attention or any intimation given that there is any problem with the company’s mining titles at Ruashi.
Metorex will also seek an indemnity from Copper Resources Corporation (CRC), which it is in the process of acquiring, that there are no mining title problems with CRC’s DRC assets.
“In terms of the use-it-and-keep-it principle of the review, Metorex is highly regarded in both the Katanga and national governments as the only South Africa producer in the country and we have got enormous kudos for that from governmental circles.
“I think the government will be very supportive of the CRC transaction and we might just have to accelerate that process to get that confirmation,” Needham says.
Though mid-tier, multi-commodity mining group Metorex is now heavily copper focused, Needham emphasises that its high-grade deposits and not particular commodities that the company pursues, evidenced by the company’s latest foray into zinc.
CFO Maritz Smith points out that the company’s 2005 announcement of high-grade focus had seen Chibuluma South more than double 2005 earnings in 2006 and Ruashi One and Sable sextuple 2005 earnings in 2007.
Sales grew 68% in 2007 to R1,7-billion, copper the largest contributor at 51% and this percentage of contribution is expected to increase.
Earnings before interest, taxation, depreciation and amortisation increased 147% to just under a billion rand, with a strong weighting towards copper.
Antimony was a disappointment, head grades in the greenstone belt declining 35% on the previous year, but improving towards the close.
Copper was the major kicker, with expansion plans in place at Chibuluma, which recorded a 35% increase in production.
Ruashi One, which produced 6 500 t representing 65% of capacity, is now operating at full capacity.
Vergeneog produced 181 000 t of fluorspar at an average price of $174/t.
Mining profit was close to R500-million, an increase of 126%.
Seventy per cent of earnings growth was attributable to the high commodity prices and 30% was from company expansion projects.
Year-on-year costs, excluding the Ruashi expansion but including the Vergenoeg and Chibuluma expansions, increased 14%.
“We are fairly comfortable with our cost structure and the focus going forward will be to keep costs under control,” Smith says.
Funds available to the company to spend are just under a billion rand.
Metorex is still working on its deal signed with the Forrest Group to acquire 38,7% of CRC of the DRC as well as 5% of Miniere de Mushoshi et Kinsenda (MMK) for R600-million, which it intends settling by way of a Metorex share issue.
The documentation is progressing for the required minorities offer and, should all of the minorities accept the offer, the acquisition value will be raised by a further R950-million.
The approval of the South African Reserve Bank is being sought because Metorex is seeking to acquire 100% of what is a foreign entity listed on London’s Aim.
Metorex’s strategy is to acquire all of CRC, delist CRC and acquire a shareholding directly into MMK, which would give it control over the assets that MMK holds.
“We are explaining to the South African Reserve Bank and I have no doubt we will have to explain to our National Treasury as well,” says Needham.
Metorex shareholders have placed a restriction on the company issuing shares for cash and the company will have an extraordinary shareholders meeting on August 31 to decide whether or not the shareholders agree with management’s plan to issue shares for cash for the CRC deal.
“We would hope that they don’t disagree with us, because this is a marvellous asset,” says Needham.
Once control of MMK is obtained, that there be a fresh share issue in MMK or CRC, as the case may be, to raise the funding to develop the project.
“That will result in a dilution to Metorex, but it certainly would provide the funding without having to go through the painful process of project finance,” Needham says.
Kinsenda Mine, Musoshi Mine and the Lubembe deposit are assets held in MMK and, in addition, CRC has the Hinoba-an copper deposit in the Philippines and the Haib copper deposit in Namibia.
Metorex’s focus is on Kinsenda, which has a 5,7% copper grade, Musoshi and Lubembe.
Building a concentrator at Kindsenda and reequipping the mine will cost between $120-million and $150-million, allowing copper to be produced from June 2009, provided Metorex is able to be on site by January 2008.
There will be less capital – between $40-million and $50-million – required at Mushoshi, which already has a mine, infrastructure and concentrator.
The estimated mine costs at Kinsenda were $40/t milled at a rate of 60 000 t a month and at Musoshi $35/t milled at 4 500 t a month.
Kinsenda is expected to produce up to 30 000 t of copper a year and Musoshi up to 12 000 t a year.
Metorex is exposed to inflationary cost and payroll increases.
“What is important to us is unit cost,” Needham says, emphasising the importance of grade to lowering unit cost.
For instance, had the gold grade in Barberton been maintained in the 12 months to June 30, 2007, costs would not have increased there at all.
“Hence our policy of mining high-grade deposits,” he says.
Organic growth is being funded internally, but equity was raised to fund the first phase of the Ruashi project. Phase two is being project financed.
Of the three possible options to fund the acquisition of CRC, one is by way of an equity issue in MMK, the second by way of prefinancing from an offtake party, “which is our first choice”, and the third by project financing, which the company wishes to avoid “at all costs because the pain that one goes through with project financing is just awful”.
MMK, a public company in the DRC, is a 75% subsidiary of CRC in which the DRC government also has 20%.
The 100% of CRC could be exchanged for control of MMK.
“At the moment, we are not seeking to go to the market to raise cash. We will go to the market to acquire assets by using our stock as a currency,” he says.
On the issue of potential copper over-production, Needham says copper goes into many applications.
He says that world supply and demand is pretty much in balance and with growth at 3% to 5%, 600 t to a million additional copper tons a year is needed.
“In our view there is not 600 to a million incremental copper tons coming on stream in the short term,” he says.
The major copper expansions in the DRC are a minimum of three years away and “we don’t see those copper prices coming off in a hurry”.
Metorex’s most exciting exploration project is the copper-cobalt prospect at Musonoi in the DRC.
Sokoroshi Two copper-cobalt deposit in the DRC is not quite at the level sought and the focus will be on Sokoroshi One, where the drilling programme will begin early next year.
It has an exploration team at Kasempa copper prospect in Zambia and a feasibility study is being run on Chifupu copper prospect, also in Zambia, for reporting early next year.
Metorex owns 100% of the solvent-extraction, electrowining Sable processing facility in Zambia, which it commissioned in May.
It is treating the concentrate from Ruashi in the DRC and foreign ore and has a design capacity of 12 000 t of copper cathode a year and 1 100 t of cobalt carbonate.
Its 100 t a day acid plant has been commissioned. Metorex’s current acid requirement is 30 t a day, but this will increase when its zinc project comes on stream.
In the meantime, Metorex is selling its surplus acid.
The $5-million Sable zinc project in Zambia, which comes on stream in September, will treat 415 000 t of oxide material with a 10% zinc grade in phase one.
Metorex is planning to produce 5 000 t of zinc cathode a year at less than $1 500/t.
The phase two of the zinc project involves evaluating 4,9-million tons of dump material with a 5% zinc grade.
Metorex’s 40 000 ha ground holding in Barberton’s greenstone belt hosts reserves of 1,6-million tons of gold at 8,15 g/t and resources of 7,8million tons at 7,09 g/t.
The operation is functioning at design capacity of 100 000 oz or 3 000 kg a year and has a ten-year mine life,
It is looking to increase tonnage by a further 5%, which represents a 10% above previous forecast.
“There is not enormous potential for growth at Barberton, although we are doing a major underground development programme to source known orebodies established in early 1900s,” says Needham.
Pan African, in which Metorex holds 55%, is exploring in Mozambique, Central African Republic, Ghana and Barberton.
The Manica project in Mozambique is the most advanced and a bankable feasibility is expected in the second quarter of 2008.
There is potential for a 87 000 oz a year mine at a capital cost of $68-million and an operating cash cost of $387/oz.
“Vergenoeg is a real gem,” says Needham of the world’s largest known single fluorspar resource in the world, located outside Pretoria.
Acidspar production is at a level of 180 000 t a year and metspar at 10 000 t a year.
“The prices have been kind to us and the markets are expanding,” he says.
The aluminium fluoride project would “hopefully” reach to final feasibility within the next 12 months.
The design capacity of the proposed aluminium fluoride plant will require 70 000 t of fluorspar a year.
“We certainly succeeded in getting the hedge wrong in the past. The policy has been made clear, We hedge only in situations where there is marginality, to cover risk and where there are significant capital programmes and debt servicing, which need to be secured,” says Smith.
“The gold hedge was implemented more than 18 months ago. That is about 15% of our production over 15 months at R105/g and involving a volume of about 620 kg.
“The copper hedge is over a three-month period at $7 800/t involving a volume of 2 800 t, purely in covering our invoices in the short term. The second copper hedge at Ruashi is a 12-month hedge at $5 000/t for 3 600 t. It is a collar hedge, which is a combination of a really bad hedge and a reasonable hedge averaging $5 000/t, which for the next year is about 35% of Ruashi One production,” he says.
Growth is expected to come from Chibuluma, owned 85% by Metorex. It produces about 14 000 t of copper a year. The grade of copper is high at 3,33%. It has 5,6-million tons of reserves. Tonnage milled is to be increased by 20%. This involves another crusher and screen to increase the tonnage above the 40 000 t to 50 000 t a month range.
Just south of Chibuluma is the Chifupu project, a potential source of oxide concentrate for Sable.
Ruashi One in the DRC is the treatment of the dumps. The mine is situated 10 km from Lumbumbashi and should be producing at design capacity of 10 000 t/y of copper and 800 t/y of cobalt.
The growth at Ruashi is the phase two project and exploration projects.
Needham says that operational activities take longer in the DRC and can cost more.
Sourcing materials, getting materials through the border, constructing and becoming operational take longer and, in some instances, require more money.
He says, however, that Metorex is comfortable with the “stable” political situation and the “mature” mining code.
Operationally, there are skills upon which it draws as intensively as it possibly can.
Metorex currently has a dispensation to move its concentrates through to Zambia for processing into cathode and the company would like to continue to be permitted to send material the Zambian concentrator plant when Ruashi Two comes on stream in the DRC, “because it is an incremental 10 000 t of copper a year”.
But it is going to have to get further dispensation to do that.
Needham’s view is that, until the DRC is equipped with sufficient smelter capacity, the DRC government would be shortsighted not to continue to permit the export of that concentrate for the reasons of royalties, taxes and employment.
He believes that, with some careful discussion, Metorex will be allowed to take its concentrate through to its plant in Zambia for final processing.
Although the border was closed for a while, Metorex material now flows from the DRC to Zambia, though subject to regulations that have been introduced.
There are more costs relating to the material being sent out, relating to sampling, obtaining sample certificates and procuring assay certificates on the material sent out are because “heterogenites are outlawed”, Needham points out.
But Mmetorex is beneficiating, it is permitted to export its concentrate, but at greater cost, which is why there is an urgent need to get Ruashi phase two on stream and to produce cathode in the DRC itself.
Metorex installed its own power line for Ruashi phase one and will provide the funding for the power line for phase two.
The company relies on the national power grid and, although there are power outages, they are not extensive.
Metoreex is self-sufficient in water. The company has boreholes and it is emptying the mining pit of water. It is supplying potable water the local community.
RISE IN RETAIL
The retail component of Metorex’s share register has risen to 22%, but still a far cry from the 58% held b y investment funds.
There are 7 150 shareholders in all. Spain, UK and US hold some 54% of the shares and South Africa 46%.
There is 80% in free float excluding the 20% held by management and associates and 78% of the shares were traded in the June quarter, which Needham says is “abnormally high”.