GIP Gippsland

 

TIDMGIP 
 
RNS Number : 5259M 
Gippsland Limited 
30 January 2009 
 

 
 
Gippsland Limited ("Gippsland" or "the Company") 
 
 
QUARTERLY ACTIVITIES REPORT 
 
 
Period: October - December 2008 
 
 
HIGHLIGHTS 
 
 
ABU DABBAB 
 
 
  *  Review of Definitive Feasibility Study completed 
  *  Production of synthetic tantalum concentrate (Syncon) 
  *  Project Finance Due Diligence well advanced 
  *  Project eligible for German Government Untied Term Loan 
  *  Lycopodium appointed as Engineering, Procurement & Construction Management 
  (EPCM) contractor 
  *  Environmental & Social Impact Assessment (ESIA) completed and submitted to the 
  project finance banks 
  *  Delineation of 760 tonne alluvial tin metal resource 
 
 
 
SUCCESSFUL CAPITAL RAISING 
 
 
 
 
ABU DABBAB 
 
 
The prime assets of Gippsland Limited (ASX/AIM "GIP"; FRA "GIX") are the 
world-scale 44.5 million tonne Abu Dabbab and the 98 million tonne Nuweibi 
tantalum deposits located in Egypt.  The Company has completed a Definitive 
Feasibility Study based upon a design mill-feed rate of 2 million tonnes per 
annum.  It is scheduled to produce 650,000 pounds of tantalum pentoxide (Ta2O5), 
plus 1,530 tonnes of LME grade tin metal per year. 
 
 
The Company has concluded a 10-year tantalum off-take agreement with the German 
tantalum major HC Starck GmbH for the supply of 6 million pounds of tantalum 
pentoxide, representing more than 90% of the total initial tantalum production 
during this period.  The Abu Dabbab project alone is expected to have a mine 
life of 20 years, however, given that Gippsland's total JORC Code Resources 
exceed 140 million tonnes, the Company will look to increase tantalum and tin 
production substantially following commencement of operations. 
 
 
Review of definitive feasibility study completed 
 
 
During the quarter the Definitive Feasibility Study was reviewed and it was 
determined that the total capital expenditure ('CAPEX') will amount to US$173 
million, an increase of US$48 million over the previous November 2007 estimate. 
 This updated figure includes contingency and pre-production costs, owner's 
costs and all Project finance costs during construction.  Importantly however, 
it also now includes provision for the installation of additional plant and 
equipment associated with the significant increase of tantalum product grades 
from 20% to 55% Ta2O5. 
 
 
The revised CAPEX figure was determined in the context of record high 
construction material costs as well as high plant and machinery costs and record 
high fuel prices.  The Directors believe that this CAPEX figure is quite 
conservative and given the probable economic circumstances ahead, these costs 
are likely to decline. 
PRODUCTION OF 55% TANTALUM SYNTHETIC CONCENTRATE (SYNCON) 
The increase in CAPEX is in part associated with the production of a high purity 
tantalum synthetic concentrate, known in the industry as SynCon, containing 55% 
Ta2O5. 
The recent initiative to advance to the SynCon route results from the Company's 
on-going evaluation and optimisation of past testwork and the availability of 
computer metallurgical modelling techniques. This new initiative is a major 
advance for the Project as it represents the first stage in the tantalum 
refining process, producing a premium grade material containing less than 0.1% 
combined uranium (as U3O8) and thorium (as ThO2). This very significant 
down-stream, value-adding step also results in a reduction of a number of other 
unwanted metallic impurities. 
Whilst the production of a premium grade SynCon entails increased CAPEX, this is 
offset by the enhanced value of the tantalum end-product, plus savings to the 
Project and its tantalum customers. It also reduces ocean shipping and inland 
SynCon transportation costs, as well as reduced disposal costs for waste 
generated by the Project's customers during the tantalum refining process. 
The production of this 55% SynCon at Abu Dabbab is considered to be a 
groundbreaking change for the industry as mining companies have traditionally 
produced a relatively low value, low grade, impure tantalum mineral concentrate. 
This significant change to the global tantalum supply chain results directly 
from the Board's practical industrial experience and depth of knowledge in 
fields of chemistry, chemical engineering and metallurgy. 
PROJECT FINANCE DUE DILIGENCE 
 
 
During the period, the German banks KfW IPEX-Bank GmbH ("KfW") and Deutsche 
Investitions und Entwicklungsgesellschaft mbH ("DEG") ("Banks"), both being part 
of the SP-AAA rated German banking major KfW Bankengruppe, advanced their 
technical due diligence. 
 
 
The Company is advised that the Abu Dabbab legal due diligence being undertaken 
on behalf of the Banks by City of London lawyers Milbank, Tweed, Hadley, & 
McCloy LLP is nearing completion. 
 
 
As a result of the regular contact with the Banks and the due diligence 
undertaken to date, the Directors believe that the Banks have maintained a 
positive attitude towards the Project in spite of the recent international 
financial turmoil. 
 
 
The KfW Bankengruppe, which is 80% owned by the German Federal Government and 
20% owned by the Federal German States or Bundesl�nder, has been providing 
banking services to the private sector and industry worldwide for more than 50 
years. 
 
 
DEG has been financing and structuring the investments of private enterprises in 
developing and transition countries for more than 45 years.  DEG is one of the 
largest European development finance institutions for the promotion of the 
private sector. 
 
 
UNTIED TERM LOAN GUARANTEE - UNGEBUNDENER FINANZKREDIT ('UFK') 
 
 
In November the Directors announced that the German Inter-ministerial Committee 
('IMC') led by the German Federal Ministry of Economics and Technology had 
confirmed the eligibility of the Abu Dabbab Project for an Untied Term Loan or 
Ungebundener Finanzkredit ('UFK'). 
 
 
The German government's UFK facility provides German lenders insurance against 
commercial and political risk, which in turn enables German banks to offer 
Project finance at a reduced interest rate. The UFK is subject to the Project 
finance due diligence process presently being undertaken by KfW and DEG. 
 
 
The German Federal Government provides UFK coverage in the form of loan 
guarantees for loans awarded by German lenders to debtors in emerging and 
developing countries. Untied loan guarantees are granted for financing eligible 
projects abroad. Eligibility requirements are that: 
 
 
  *  the project must be of special interest to the Federal Republic of Germany 
  *  it must contribute to the supply of natural resources into Germany in the form 
  of a long term sale and off-take contract between the borrower and a German 
  off-taker 
  *  it must contribute to the economic development of the host country and be part 
  of a balanced development program 
  *  the technical, economical and environmental soundness of the project must be 
  verified 
  *  the financing of the project must be assured 
  *  the duration of the loan must be consistent with the duration of the sale and 
  off-take contract 
 
 
 
Coverage is provided for untied term loans with regard to: 
 
 
  *  securing the raw material supply to the Federal Republic of Germany on the basis 
  of long-term off-take agreements 
  *  banks, with the purpose of establishing and promoting free-enterprise structures 
  (SME promotion) 
 
 
 
Untied loan guarantees may be granted in combination with export credit and 
investment guarantees. The eligibility of Abu Dabbab for UFK cover is a 
significant step as it reflects the Project's outstanding importance for the 
Federal Republic of Germany in securing a reliable long-term supply of this 
vitally important strategic metal. While a UFK facility clearly provides 
significant direct benefits regarding debt finance, it also serves to provide 
equity investors with increased confidence in the Project in general. 
 
 
ENGINEERING, PROCUREMENT & CONSTRUCTION MANAGEMENT ('EPCM') 
 
 
Gippsland invited a number of international engineering groups to tender for the 
EPCM contract for the Abu Dabbab project. 
 
 
Following an evaluation of the various tenders, Lycopodium Minerals Pty Ltd has 
been appointed as the EPCM contractor for the Project.  The Directors believe 
Lycopodium is the logical choice for this project as they have been involved in 
the development process from pre-feasibility study through to the present day 
and consequently have a detailed knowledge of the operation.  Additionally, 
Lycopodium has extensive experience operating in Africa and has an excellent 
reputation for delivering on time and on budget. 
 
 
The EPCM documentation has been submitted to senior management of KfW for final 
approval. 
 
 
ENVIRONMENTAL & SOCIAL ENVIRONMENTAL IMPACT ASSESSMENT ('ESIA') 
 
 
During the quarter the Company took delivery of the updated ESIA undertaken by 
the Egyptian environmental group Environics.  The ESIA update covered changes in 
the Project associated with the relocation of the plant site to within 1km of 
the planned open pit mine, production of SynCon and the option to use of 
seawater for the majority of the process plant.  The findings of the ESIA were 
positive, not raising any significant matters of concern. 
 
 
The study was prepared according to the Egyptian environmental legislation as 
well as the principal guidelines and standards outlined by the International 
Finance Corporation ('IFC') and the World Bank.  The IFC provided input and 
guidance on the preparation of the ESIA with regard to compliance with IFC 
guidelines and World Bank standards.  The ESIA has been presented to KfW and DEG 
for approval. 
 
 
ALLUVIAL TIN RESOURCE 
 
 
A scoping study in relation to an extensive alluvial tin deposit contained 
within the 20km2 Exploitation Licences covering the 44.5 million tonne Abu 
Dabbab tantalum-tin-feldspar project was completed during December. 
 
 
Based on exploration data gathered during the early 1970s and using a high tin 
cut off grade of 1.2kg/m3, the Company has estimated an Inferred Resource of 
438,000m3 of alluvium containing in excess of 760 tonnes of recoverable tin 
metal within the alluvial tin deposits explored. 
 
 
Given that the current Inferred Resource only includes the higher-grade basal 
parts of the channels, the Directors are confident that additional resources of 
alluvial tin will be delineated within the Exploitation Licences, as the 
previous exploration work utilised the same high tin cut-off grade, effectively 
excluding large quantities of the overlying tin-bearing alluvium.  These areas 
are currently being evaluated as part of the Company's continuing tin 
exploration programme within the region.  The overlying tin-bearing alluvium is 
being re-assessed and additional sampling has been completed, which is expected 
to support the promotion of a large proportion of the presently defined Inferred 
Resource to the higher Indicated Resource classification. 
 
 
The study indicated that the alluvial tin can be efficiently recovered by 
screening the alluvium, following which the fines will be delivered to the 
gravity circuit of the main Abu Dabbab tantalum-tin production facility. 
Accordingly, minimal additional plant and equipment will be required to process 
and recover the alluvial tin, making it an extremely cost effective process. 
The alluvial tin concentrate will be smelted in the Abu Dabbab submerged arc 
electric furnace to produce London Metal Exchange grade tin metal. 
 
 
Based upon the present tin price of US$11,500 per tonne, the scoping study 
indicated that the alluvial tin has the potential to generate additional US$8.7 
million revenue during the one year it will take to process the material. 
 
 
CORPORATE 
 
 
SUCCESSFUL SHARE PLACEMENT 
 
 
In early October the Company completed a placing of 17,080,000 fully paid 
ordinary shares ("Placing Shares") to UK institutional investors and Australian 
investors at a price of 2.5 pence (approximately 5.73 Australian cents) per 
ordinary share ("Placing").  The Placing, undertaken by the Company's UK broker 
Fox-Davies Capital Limited, raised the sum of UKGBP427,000 (approximately 
A$978,500) before costs. 
 
 
RJ (Jack) Telford 
Executive Chairman 
Gippsland Limited 
www.gippslandltd.com 
 
 
For further information, please contact: 
 
 
+-----------------------------------------+----------------------------------------+ 
| Jack Telford                            | Nandita Sahgal                         | 
+-----------------------------------------+----------------------------------------+ 
| Gippsland Limited                       | Seymour Pierce Limited                 | 
+-----------------------------------------+----------------------------------------+ 
| T: +61 8 9340 6000                      | T: +44 20 7107 8000                    | 
+-----------------------------------------+----------------------------------------+ 
| E: jtelford@gippslandltd.com            | E: Hnanditasahgal@seymourpierce.comH   | 
+-----------------------------------------+----------------------------------------+ 
|                                         |                                        | 
+-----------------------------------------+----------------------------------------+ 
| Oliver Stansfield                       | Daniel Fox-Davies                      | 
+-----------------------------------------+----------------------------------------+ 
| Fox-Davies Capital Limited              | Fox-Davies Capital Limited             | 
+-----------------------------------------+----------------------------------------+ 
| T: +44 20 7936 5200                     | T: +44 20 7936 5200                    | 
+-----------------------------------------+----------------------------------------+ 
| E: oliver.stansfield@fdcap.com          | E: daniel@fox-davies.com               | 
+-----------------------------------------+----------------------------------------+ 
|                                         |                                        | 
+-----------------------------------------+----------------------------------------+ 
 
 
Note: 
In accordance with Listing Rule 5.6 of the Australian Stock Exchange Limited and 
Part 2 of the AIM Guidance Notes for Mining, Oil and Gas Companies, the 
geological information in this report that relates to Exploration Results, 
Mineral Resources and Ore Reserves is based on data compiled by Dr John 
Chisholm, a Fellow of The Australasian Institute of Mining and Metallurgy. Dr 
Chisholm, who is an Executive Director of Gippsland Limited with over 25 years 
experience in the mineral industry including the evaluation of exploration data, 
mineral resources and ore reserves, consents to the issue of the information in 
this report in the form and context in which it appears. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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