Tiomin Reviewing "Strategic Options" for Flagship Project
By Jon A. Nones
11 Jan 2007 at 02:14 PM EST
resourceinvestor.com
St. LOUIS (ResourceInvestor.com) -- Tiomin shares [TSX:TIO] dropped 27% today after the company said it was reviewing ''strategic options'' for its flagship Kwale titanium mineral sands project in Kenya - expecting to make a decision on its development by the end of January.
The Kwale project has “suffered legal and bureaucratic delays that are negatively impacting the project's rate of return to Tiomin's shareholders,” Tiomin said in a statement today.
“Although the majority of the issues causing the delays have been, or are likely to be, resolved in the near future, the incremental costs of the delays mean that it is unlikely that Tiomin will be able to satisfy the lenders' financial conditions to meet the February 2007 deadline to begin drawing down on its US$155-million debt package,” the company said.
In mid-2006, the company secured the US$155 million in debt financing for the project. Standard Chartered Bank, WestLB and Caterpillar Finance made US$80 million available after Tiomin secured US$40 million from the African Development Bank and US$35 million in subordinated debt from Jinchuan Group Ltd.
The company said it has not hedged its foreign exchange risk exposure and only planned to hedge the US$155 million debt facility once drawdown had been achieved.
It asked Ausenco, the primary contractor, to review the capital cost estimates and development schedule of the project, which is expected to be completed within two weeks.
In December, Tiomin announced that a judge in Kenya had cleared the way for the expropriation of farmers' land needed for project. The company said the judge ruled in favour of Tiomin and the Kenyan government, dismissing all petitions from seven farmers who had not voluntarily accepted an offer from the government for their land.
Prior to the ruling, the farmers controlled eight plots of land within the area of the special mining lease for the Kwale project, about 40 kilometres south of Mombasa, the largest port in East Africa.
The judge indicated that the government could proceed with expropriation.
“The company understands that [the government of Kenya] will immediately proceed with compulsory acquisition of the land once the required compensation payments have been made,” Tiomin said.
“The [government] has granted Tiomin acceptable port tariffs and an exemption from paying certain stamp duties. It has also written to Tiomin indicating its intention to complete and gazette the remaining items required by the lenders.”
Tiomin's titanium and zircon mine holds proven and probable reserves of about 117 million tonnes in its Central and South dunes. Tiomin expects the mine to produce 330,000 tonnes of ilmenite, 75,000 tonnes of rutile and 40,000 tonnes of zircon per year.
If the mine produces up to expectations, Tiomin expects the mine to generate more than US$40 million in pre-tax operating cash flow during the first six years of operation. The expected lifespan of the mine is about 11 years.
Tiomin is exploring four other titanium mineral deposits on the Kenyan coast: Kilifi, Mambrui and Natashquan. The company is also earning a 49% interest in the Pukaqaqa copper project in Peru.
Share Price Activity
Prior to the release, Tiomin shares fell 27% to 11 cents on the Toronto Stock Exchange on volume of more than 9 million.
In mid-December, Shares sank 33% from 20 cents after the firm first said construction at Kwale would be delayed.
A little over a year ago, the stock traded just under 40 cents.
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