VDM Van Dieman

 

TIDMVDM 
 
RNS Number : 9441N 
Van Dieman Mines plc 
26 February 2009 
 

 
 
26 February 2009 
 
 
VAN DIEMAN MINES PLC (the "Company") 
 
 
Corporate and Operational Update 
 
 
Further to the Company's announcement of 24 February 2009 that followed the 
receipt of letters of demand from Galena Special Situations Master Fund 
("Galena") for repayment in full of all moneys owing under the Convertible Loan 
Note (as announced on 20 November 2008), the Board applied for suspension in 
trading of the Company's shares. The shares in the Company were suspended from 
9.30am on 24 February 2009. It has also directed the board of its wholly owned 
Australian operating subsidiary, Van Dieman Mines Pty Ltd ("VDM PL") to seek to 
place VDM PL into voluntary administration, and that process is now underway. 
 
 
The letters of demand from Galena were issued following Galena's consideration 
of a request from the Company to advance the final tranche (approximately 
A$620,000) of the Convertible Loan Note facility and to provide additional 
funding of up to A$2,000,000 to allow the Company to complete the trial mining 
process now underway at its Scotia project, following which the Gladstone 
operations would be placed on care and maintenance until a recovery in tin 
price. However, Galena rejected both funding requests and demanded full 
repayment as the Company was in default of the terms of the Convertible Loan 
Note. 
 
 
The Board is continuing to work with Galena, and will work with the 
Administrator of VDM PL, on mechanisms for financial restructuring of the 
Company and its subsidiary, including reviewing other project opportunities, 
with the aim of re-financing and re-commencement of trading in the Company's 
shares within the six month period permitted under the AIM Rules. 
 
 
Summary of Factors Impacting Project Performance and Forecasts 
The background to the significant and rapid deterioration in the projected 
performance of the Scotia project, and the Company's ability to finance it to 
production are detailed below. In summary, a combination of minor production 
(and therefore revenue) delays, lower grades than expected in the initial output 
from the plant from the mineralised overburden section, further changes required 
in the wet mining method and the receipt of low grade assays from the section 
where full production was planned to start have resulted in a deterioration in 
the Company's cash position and short-term projections. In addition, a detailed 
review undertaken by management, consultants and the board, based on the 
findings of the trial mining and processing to date, has concluded that the 
Scotia project is unlikely to be cash positive at the present tin price. The 
changes in the Scotia project forecasts are due to both projected increases in 
costs (largely stripping and wet mining costs) and likely reductions in revenue 
(a falling tin price and reduced monthly production rate due to stripping 
constraints). In modifying its forecasts, the Board also took into account that 
very few sapphires had been encountered in the material processed to date, 
although acknowledging that any sapphires present in the Scotia lead would be 
expected to be concentrated with the tin in the high-grade wash section not yet 
sampled. 
 
 
Timetable of Progress to the Current Position 
Following receipt of progress reports on issues arising from the trial mining 
and processing program in late January and early February, the board undertook a 
site visit and a detailed review of the project with management and consultants. 
Further information and analysis resulted in a deterioration of both short and 
longer term forecasts for the Scotia project, leading to the request to Galena 
for additional funding and the immediate payment of the final tranche of the 
Convertible Loan Note. The Board was given verbal notice on 22 February that 
Galena's investment committee had decided not to advance any further funding, 
including the final tranche of the Convertible Loan Note facility and formal 
demand letters were received from Galena on the afternoon of 23 February. 
Galena's decision to withhold the final tranche of the Convertible Loan Note 
facility, while entirely within their rights under the terms of that facility, 
precipitated an immediate solvency crisis in VDM PL, and the board of the 
Company has taken immediate action as a result. 
 
 
Detail of the Trial Mining and Processing Progress and Issues 
  *  Mine Planning. As detailed in the Company's operational update of 14 November 
  2008, the first few months of operation were to be effectively a trial period, 
  during which the mining and processing operations would be continuously reviewed 
  and optimised. This was necessitated by the decision of the previous board and 
  management to commence construction of the mine and plant in 2007 without a 
  formal feasibility study, any confirmatory drilling or a detailed mine plan 
  derived from such a study. The present management and board have been greatly 
  assisted in the review process by the engagement of Roger Bastone as the 
  project's Consulting Mining Engineer. Roger has had extensive alluvial tin 
  mining experience, including managing the P.T. Koba Tin operations in Indonesia. 
  He has had key input into revising and refining the mine plan as data emerged 
  from the drill program and the trial mining process since first coming to site 
  late last year. In particular, he has drawn attention to specific issues around 
  the draining and stripping of overburden, and dealing effectively with the very 
  wet wash section that contains the high-grade tin. Unfortunately, almost all of 
  the issues identified would have led to incremental cost increases and/or 
  decreases in tin production rate. 
  *  Plant Commissioning. Commissioning of the modified Side B of the Scotia 
  dual-sided primary process plant commenced in early January, following a short 
  delay due to unseasonably wet weather impacting final electrical connection 
  leading into the Christmas holiday period. Commissioning of the primary plant is 
  now effectively complete on the dry, low-grade feed from the mineralised 
  overburden immediately above the higher-grade basal wash. The plant has been 
  operating at its nameplate capacity of 150 bank cubic metres ("bcm") per hour on 
  the dry feed, and had ramped up to 12 hour per day operation (as per the current 
  operating permit limit) in early February. The Company remains confident that 
  the Side B plant could achieve the targeted 200 bcm per hour on commencement of 
  direct slurry pumping of wet feed from the wash zone scheduled for April. An 
  outcome of the otherwise successful primary plant commissioning is, however, 
  that unbudgeted modifications are likely to be required to the secondary plant 
  (Tin Shed) to remove unexpected quantities of deleterious heavy minerals. 
  *  Final Drill Assay Results. The final assay results were received by the Company 
  in January from the balance of the holes drilled in September and October 2008. 
  Correlation between the new assay results and the historic data remains strong, 
  particularly in the higher grade sections. Unfortunately, however, the elevated 
  tin grades found in the overburden in the trial mining area were not replicated 
  in the drill holes further to the north along the palaeochannel, and the assays 
  from the 300m section immediately ahead of the trial mining area were also 
  disappointing. This section of the palaeochannel had very little historic 
  drilling. The northernmost line of holes drilled by the Company was along the 
  southernmost line of historic (Tasmanian Mines Department) drilling on one of 
  the higher-grade sections of the Scotia lead, and the grades correlate very 
  closely, giving confidence in the robustness of this high-grade section. 
  Analysis of the full suite of drill data led to a recommendation to the board 
  from management and the Company's consultants that the low-grade section should 
  be 'leap-frogged' to access the higher grade section further north. However, it 
  was also recommended that partial stripping of the low-grade section would be 
  required to maintain the integrity of the overburden drainage system that has 
  been implemented, leading to further unbudgeted costs and delay in achieving 
  full production. 
  *  Mine Production Progress. Although the Company had expected to be mining and 
  processing the low-grade mineralised overburden for another few weeks, it had 
  also expected to be able to progressively access the water saturated wash at 
  around this time. Unfortunately, the Company's Consulting Mining Engineer has 
  concluded that the in-pit ore bin and pumping system which formed an integral 
  part of the planned wet mining system is insufficiently mobile and flexible to 
  ensure efficient mining in the very wet conditions being exposed during trial 
  mining. He recommended that the ore bin be located on the top of the pit wall, 
  and be fed by a Sykes Dragflow slurry pump, mounted on the stick end of a 
  30 tonne excavator and using the excavator's hydraulics for motive power. This 
  unit would be located in the pit. This system would be expected to provide much 
  greater flexibility and higher delivery rates to the plant, and would also 
  ensure that the very high-grade channels and potholes would be accessed 
  efficiently. The Board had approved this new wet mining and delivery system for 
  the higher-grade wash for commissioning during April, conditional on acquisition 
  of additional funding. Given the lower average grades in the trial mining area, 
  tin production would have been significantly lower than previously advised for 
  Scotia until mid-year, when the Company expected to be mining high-grade wash. 
  *  Corporate and Management Changes. The board has appointed Mike Etheridge as 
  Executive Chairman, and Ron Goodman as Executive Director Development and 
  Production. Jim Semmens (Mine Manager) has resigned from the Company, and Peter 
  Campbell, who had rebuilt the processing plant, was appointed General Manager at 
  the Gladstone Operations. 
 
 
 
Enquiries 
 
 
+----------------------------------------------+------------------------------------+ 
| VAN DIEMAN MINES PLC                         | Tel: +61 (0) 4 0870 8778           | 
| Mike Etheridge, Executive Chairman           | Tel: +61 (0) 3 6357 2112           | 
| Ron Goodman, Executive Director Development  |                                    | 
| and Production                               |                                    | 
+----------------------------------------------+------------------------------------+ 
| GRANT THORNTON UK LLP                        | Tel: +44 (0) 20 7383 5100          | 
| Gerry Beaney / Fiona Owen                    |                                    | 
|                                              |                                    | 
+----------------------------------------------+------------------------------------+ 
| FOX DAVIES CAPITAL LIMITED                   | Tel: +44 (0) 20 7936 5230          | 
| Jason Bahnsen, Corporate Finance             |                                    | 
|                                              |                                    | 
+----------------------------------------------+------------------------------------+ 
The technical content of this announcement has been reviewed by Ron Goodman, who 
has over 40 years experience in Mineral Processing. Mr Goodman is a Member of 
the Australasian Institute of Mining and Metallurgy (MAusIMM) and HNC Metallurgy 
(UK) The geology, exploration and mining inputs have been provided by  Company 
Consultants and accepted as they are recognised experts in the industry and are 
working closely with the Company. 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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