Pan Australian Raises Us$295 M To Build Its Flagship Copper Mine In Laos

Sydney, June 19, 2006 (ABN Newswire) - The money we’re raising now is for the Phu Kham copper gold project and really it’s taking the company to the next level. We have an operating gold mine in Laos which is producing 50,000 ounces per annum. The Phu Kham copper gold project will produce enough copper and gold to probably exceed that 50,000 ounces, in gold equivalent terms, by about tenfold. The money required to develop the project is about US$295 million. We are very well funded, we’ve got significant contingency in those numbers and we’ve also got a cost overrun facility and a working capital facility with the bank.

It’s also worth noting that we’ve actually saved money on some of our big ticket items that we’ve already ordered. So the message is that we’re well funded and it’s unlikely that Pan Australian is going to suffer the same fate that several other companies have suffered recently with a capital cost blow out.

The entitlements offer has gone very well; there are two components, an institutional component and a retail component. The institutional component was completed a couple of weeks ago and we raised $80 million. The balance, $106 million, is being raised through the retail offer and a bookbuild at the end of the retail offer.

The retail offer closed on Friday and the stock has been extremely well supported despite all the recent volatility. After the offer there will be 1.4 billion shares on issue, and even if you use the offer price of 30c a share, that means our market capitalisation will be well over A$400 million.

Basically, if we sustain that and if we improve our share price then we should get into the S&P/ASX200 benchmark index later this year, and basically put Pan Australian as a mid-cap mining company.

With respect to the Sempra Metals transaction, they’ve put in US$15 million of the total of US$295 million required for the project funding. This comprised a US$5 million placement in Pan Australian, now that was done at 55 cents a share which was about a 20 percent premium to the volume weighted average price.

The deal with Sempra Metals is also complimented by a deal with BHP Billiton, whereby they’re going to manage the arrangement we have with Sempra metals, but they’re also going to find a home for the other 50 percent of the concentrate.

Now it’s a very good deal for us because it means we have more flexibility. We can wait until the market turns in our favour. We’re convinced that the market for copper concentrate is going to get very tight which is going to be in favour of the miners over the next two years, and therefore by doing a deal with BHP we can take our time before we actually make further commitments.

The Phu Kham project is very competitive on a cash-cost basis. We will be able to produce copper at about 74 cents US a pound, whilst adopting bi-product credits for gold and silver. If you use a $1.35 / pound copper, and $450 / ounce gold, then we estimate our cash flow will be about US$50 million a year.

Now bearing in mind the copper price at the moment is well over $3 a pound, and the gold price is closer to $600 / ounce, then I think you can see that the project is going to be extremely profitable.

Our contract area in Laos is 2600 square kilometres, which is the biggest contract area in Laos. It has some fantastic exploration potential and we’ve been announcing some very good results from exploration on the banner side gold deposit, which is one of three deposits that comprise the Phu Bia Gold Mine. And we’ve also been announcing some fantastic results from the Phu He deposit, in the north of our contract area. The message is that we really want to build our gold business. We’re not just seeking to build a big copper gold mine. We're also looking to expand our existing oil reserve base, and of course then look at actually expanding production for Phu Bia gold mine as well.

So the future is looking very bright for Pan Australian, we’ve got an operating gold mine, we’re building a new copper gold mine, and we’re demonstrating through exploration that there’s a lot of potential for the company to grow organically through its presence in Laos.