Perth, Nov 5, 2008 AEST (ABN Newswire) - Exco Resources Limited (ASX:EXS)(PINK:EXRSF) MD Michael Anderson Gives Corporate & Development Update.
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Like many resource companies, Exco Resources (ASX code: EXS) has been impacted by changing market conditions. How have these affected Exco directly?
MD Michael Anderson
Without question the current market environment for equities and commodities is tough for everyone. The harsh reality is that we can do little to control the various factors which have created the prevailing negative sentiment out there.
Fortunately, another reality is that the market will inevitably recover, and the key for Exco is to be well positioned when it does.
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What strategies can companies like Exco adopt in the current market to ensure that you do indeed participate in the recovery?
MD Michael Anderson
Whilst we wait for some stability and confidence to return I believe our job has to be to stay focused on the things that we can control.
Firstly, we are fortunate to have a healthy cash position and rest assured we will be prudently managing that. Secondly, it's important to keep adding value to our assets; I believe we've done that over the last 12-15 months by adding sizeably to the resource base as the critical mass for our development strategies.
Thirdly, we need to keep advancing these strategies, which of course include not only the stand-alone option for the Cloncurry Copper Project (the subject of our current Definitive Feasibility Study), but also the ore supply possibilities with Xstrata's Ernest Henry Mine.
Lastly, and perhaps most crucially, I believe it's vital that we keep the market informed of our progress.
There have of course been a number of market corrections over the last year or so and our road to recovery on those previous occasions was on the back of positive news flow as investors re-focus on the fundamentals and quality. I am confident we can once again differentiate Exco on this basis.
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You mentioned your cash position, which stood at A$10.6 million at the end of the September quarter. You have been spending quite aggressively on the resource development in particular. What is the plan going forward?
MD Michael Anderson
We have indeed been spending aggressively, but pleasingly to good effect. We have more than doubled the size of the overall resource base in the last 2 years (from 24Mt to more than 49Mt) with more to come as we continue to process the remaining drilling results. The recent drilling programmes have certainly achieved their objectives in the context of both resource development and resource conversion; we now have more than 38Mt of resources at the E1 Camp and are well on our way to having 25 to 30Mt in the Indicated category as the basis for a mineable reserve.
As mentioned in the recent quarterly there has however been a plan in place for some time to significantly reduce drilling activity and expenditures going forward.
The plan coincides with the successful conclusion of the programmes, and the onset of the impending wet season in NW Queensland.
In staying focused on key value adding initiatives, whilst prudently managing our discretionary expenditure, we are confident that the Company will remain adequately funded to achieve our key objectives for the foreseeable future.
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You have just completed your most recent drilling campaign. What updates can we expect as you compile your drilling and assay data?
MD Michael Anderson
The last of the resource development holes at the E1 Camp have only just been completed and there will be updates to come for a number of the key project resources including, Monakoff, Monakoff East and all three of the E1 deposits (North, South and East). These updates will reflect further increases in tonnage, such as for the new zone on the eastern limb of E1 North, and / or increases in the tonnages converted to the Indicated category. We expect these updates should be completed progressively over the next couple of months.
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Having successfully completed a Pre-Feasibility Study on the Cloncurry Copper Project earlier in the year, you commenced work on a Definitive Feasibility Study (DFS) in July. Can you give us an update on your progress?
MD Michael Anderson
We continue to make good progress on a number of the key DFS activities including the metallurgical testwork and the environmental studies, which will obviously be an essential part of the approvals process for the project. The recent increases in the resource base have also enabled us to confidently increase the planned throughput for the project from 2 to 3Mtpa, which will certainly have a very positive impact on the project economics. We are about to commence a further round of pit optimisations and remain on track to complete the main technical aspects of the study in first half of 2009.
The current volatility in metal prices and exchange rates does make it difficult to lock in the necessary assumptions to reliably model the financial aspects of the project. That said, there have been some 'swings and roundabouts' and even at the lowest point in the cycle to date, the copper spot price in AU$ terms was similar to the average price assumed in the PFS. We are confident the project will ultimately prove robust and financeable.
Having already begun a process of engaging with the finance community we have been encouraged by their proactive interest in the project. It is to our advantage that we are not out there in the market right now, but I believe that our relationships will see us well positioned to negotiate a finance package for the project when the current 'credit freeze' thaws.
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You mentioned earlier the alternative development scenario of supplying ore to Xstrata's Ernest Henry Mine. Is this a genuine option and, if so, what makes it more compelling than your stand alone project?
MD Michael Anderson
In our view there's absolutely no doubt that it's a genuine and indeed very viable option, which has the potential to create significant value for both parties. We have of course been alluding to that for quite some time so I appreciate that the next question is; when? The timing has always been a key factor so it was quite significant that Xstrata's announcement in February this year acknowledged their intention to transition to an underground operation with the aim of "extending the life of the mine well beyond our current planned closure date in late 2010".
We believe that there will be an opportunity for Exco's E1 ores to fill production gaps at Ernest Henry both during the transition period and, going forward, in supplementing the likely lower production rates from underground. Work to date suggests the E1 ores are both mineralogically and metallurgically compatible, so essentially in our view it will come down to a commercial discussion.
Assuming we can negotiate a fair and equitable arrangement, there are a number of reasons why the ore supply scenario can be more compelling than the stand alone route. Obviously it would involve a much lower capital outlay, and the economies of scale available through Ernest Henry's ~10Mtpa plant would mean a much lower operating cost base. The development risk profile and the timeline to free cash flow would also be significantly reduced. So, there is plenty of motivation for us to continue the pursuit of formal discussions in the near term, targeting a long term arrangement.
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A year or more on, how has the relationship developed with your major shareholder and JV partner Ivanhoe?
MD Michael Anderson
Ivanhoe's support has been a major factor in the progress that we have made over the last 15 months and, together with Lion Selection, they remain very supportive shareholders. Obviously Ivanhoe have taken their own involvement in the region to a new level on the back of their recent successful IPO, and we believe their long term participation in the region's development bodes very well. We have been very happy with their proactive approach to our joint venture and, having met the requirements of the initial earn-in period, we look forward to the results of their ongoing activities. We also look forward to benefiting from Peter Reeve's experience as the most recent addition to our Board.
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What's the status of the White Dam Project in South Australia? Are you any closer to receiving the relevant approvals ahead of project development?
MD Michael Anderson
As we announced earlier in the year we have entered into a Joint Venture arrangement with Polymetals who will be earning their 50% interest in the White Dam Project by sole funding the first $9.6m of expenditure on the development and construction costs, within 12 months from the date of receipt of advice from Primary Industries and Resources South Australia (PIRSA) that the Mining and Rehabilitation Plan (MARP) for the Project has been approved. Polymetals, as the operator of the JV, have very much taken up the front line running on the management and development of the project and encouragingly we believe we are very close to a final sign-off on the MARP. The positives for Exco are that we can stay focused on our NW Queensland projects, with the near-term prospect of cash flows from White Dam, and the current A$ gold price potentially offers attractive margins.
corporatefile_com_au
How do you see the Company's strategies translating into long term value. What are the key messages for shareholders?
MD Michael Anderson
The main point to make is that, despite the market backdrop, Exco remains in a strong position. We have cash, good assets, and a range of development options, which can potentially lead to near term cash flow. We also have an experienced Board and management team that, with the support of our major and long term shareholders, is capable of making objective decisions on how best to progress our portfolio of projects to create value for both the Company and its shareholders.
Contact
Michael Anderson
Managing Director
TEL: +61-8-9211-2000
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