Name and Location
Mayoko iron-ore project, Republic of Congo (RoC).

Client
The project is owned by DMC Iron Congo and controlled by JSE-listed resources group Exxaro Resources.

Project Description
The Mayoko project is located in the Niari Prefecture about 300 km north-east of Pointe-Noire, on the Atlantic Ocean. It represents a near-term development opportunity in an emerging iron-ore province, with an existing underused, heavy-haulage mineral railway passing within 2 km of the main prospect that terminates at the Port of Pointe-Noire.

The project currently has a Joint Ore Reserves Committee-compliant mineral resource of 121-million tons of iron-ore, consisting of a hematite cap of direct shipping ore (DSO) at 55% iron and beneficiable DSO at 41% iron.

The intention is to develop the project in phases, resulting in the eventual production and export of ten-million tons a year of iron-ore by 2016.

Value
Not stated.

Duration
Not stated.

Latest Developments
Exxaro has warned shareholders that it will write down its R5.36-billion investment in the Mayoko iron-ore project.

After having failed to secure a rail framework agreement and a port memorandum of understanding with the RoC government, and owing to higher-than-expected project development costs following the outcome of a revised concept study for the 12-million-ton-a-year project and a revised ramp-up strategy, the miner has determined that there will be an impairment of its investment in the project.

Exxaro CEO Sipho Nkosi has said that the results of the concept study indicate that the project is not economically viable, based on revised capital, operational cost, resource and long-term iron-ore price assumptions.

“Consequently, the board has met and approved the pretax write-off of an amount up to the original acquisition cost of its investment in the project; the project-related cost capitalised to date, up to a maximum of R5.4-billion; and the sale of all unused assets, such as rail locomotives and wagons,” Nkosi notes.

Exxaro states that the exact quantum of the impairment loss will be communicated as soon as calculations have been finalised.

Further, the board has decided to stop all future expenditure on the project until such time as a revised and newly negotiated definitive agreement has been concluded on favourable terms, which will support an economically viable project.

As a result of these decisions, Exxaro has said it has endeavoured to spend about R300-million during the second half of this year to support the activities required to scale down the project.

The group will also actively liaise with the RoC government on the future of the project, as well as maintain the current support to the surrounding Mayoko community.

“We will also remain committed to reaching a rail and port solution that will render the project economically viable in a clearly defined timeline,” Nkosi says, adding that, if the terms and conditions met in the definitive agreement are favourable, and if the rail and port solution provide for an economically viable project, Exxaro will only then be in a position to consider the next steps regarding the future of the project.

Exxaro has indicated that the impairment will result in the group reporting a 20% drop in net operating profit and earnings a share for the six months to June 30 when it publishes its interim results on August 21.

Key Contracts and Suppliers
None stated.

On Budget and on Time?
Too early to state.

Contact Details for Project Information
Exxaro Resources, tel +27 12 307 5000 and fax +27 12 323 3400.