Rick Menell
| “For us at TEAL this has been
another exciting year as we
work energetically at proving
up resources within our
extensive mining and
exploration licences in
sub-Saharan Africa, advancing
our projects and bringing
these into production.” |
Dear Shareholders
For us at TEAL this has been another exciting year as we work energetically at proving up resources within our extensive mining and exploration licence portfolio in sub-Saharan Africa, advancing our projects and bringing these into production.
Notably, we have delivered a new mining operation in the DRC after good progress at the Kalumines Copper-Cobalt Project, and where we aim to increase the resource base. In Zambia, we are pleased to have completed the technical aspects of a feasibility study, demonstrating an attractive mining proposition at the Konkola North Copper Project with an upgraded resource base. At the Otjikoto Gold Project in Namibia, in-fill drilling has both increased the resources and confirmed the geological continuity of this orebody. These, and various other initiatives, were funded from the proceeds of the IPO in November 2005, as well as from a bridging facility that was guaranteed by our major shareholder, African Rainbow Minerals Limited (ARM).
The focus on our primary projects has necessitated a steadier pace of work elsewhere, particularly at Mwambashi, where an attractive off-take agreement remains the key to unlock value. Nevertheless these are ongoing programs which we anticipate will bear fruit in the years ahead, and point the way to TEAL’s long-term future as a copper and gold producer with assets that are competitive operators in terms of costs, with lives in excess of 10 years.
DEVELOPING OUR PROJECTS
The year under review has seen the greatest emphasis on our Kalumines property in the DRC with the development of an initial mining operation on our exciting mining lease area held over 77 km2. The 60%-held Kalumines Copper-Cobalt Project is owned in partnership with Gécamines, a DRC state-owned company. The project is host to four near-surface areas of copper and cobalt mineralization that are exploitable using open-pit mining techniques. Drilling continues to progress steadily, and the resource build-up is expected to continue well into the next financial year, with the objective of supporting a major mine development.
At the same time we are pleased with the progress made in developing the initial mine where open-pit mining began during the year on the Lupoto deposit at a rate of 110,000m3 a month and we anticipate production of 40,000 tonnes of copper concentrates, grading more than 25% copper.We expect to treat nearly 22,000 tonnes a year at our smelter in nearby Lubumbashi, while the balance, some 18,000 tonnes a year, will go to other smelters. Our initial copper production in the DRC is building up to a planned 10,000 tonnes a year.
Concurrent with the focus and emphasis on our projects in the DRC, we continue to move apace at Konkola North. Our large-scale mining licence on the property covers 44km2. The technical aspects of the Konkola North feasibility study, based on an operation to mine the South and East Limb orebodies, were completed in July 2007.
The feasibility includes an assessment of the viability of early mining, first from the South Limb’s existing infrastructure and workings, and then at the East Limb. Continuing geological work at Konkola North in the year has resulted in a resource update to the measured and indicated level, totaling 24.8 million tonnes (Mt), grading 2.36% copper, with a further inferred resource of 47.7Mt at a grade of 1.98% copper. As the second-largest known copper resource on the Zambian Copperbelt, Konkola North represents an exceptional asset for TEAL, and we are satisfied with the work completed on this project. The existing shaft and other infrastructure provides an ideal opportunity to start mining and generating cash flow early from this large copper resource, but this is only the first stage of development. Konkola North has the potential to grow into a significant producer over time, and we are working to develop the resource through drilling to justify future expansions.
At the Mwambashi Copper Project, the feasibility study was completed ahead of schedule in August 2006. The key to a full release of Mwambashi remains the conclusion of an off-take agreement with a third-party operator to treat Mwambashi’s ore.
In Namibia, we have made as much progress as we had hoped in developing a larger resource at the Otjikoto Gold Project. As recently as July 2007 we announced a 1.76Moz inferred mineral resource. Additional metallurgical and engineering work has demonstrated the economic attractiveness of this resource and we are already in the planning phase for a full-scale feasibility study in the next financial year to advance this exciting project. The sale of 10% of this project to a broad-based Namibian group, the EVI consortium, provides us with strong support in a period of anticipated change in that country’s mineral rights regime. What this transaction represents is a partnership with key local stakeholders, including a range of business and community groups, which provides significant support and guidance to our efforts in Namibia.
TEAL's corporate strategy
TEAL's objective is to become a diversified producer of base and precious metals by:
- generating value from its existing mineral projects by progressing each through clearly defined and articulated milestones, including increasing mineral resources and completing feasibility studies which, subject to positive results, will lead to capitalizing new mining operations;
- continuing exploration of high priority targets in the prospective areas currently controlled by TEAL;
- seeking additional development and production opportunities and complementary exploration properties; and
- building on TEAL's history of operating in regions where it has established positive relationships with governments and service providers, and has gained regional credibility.
COMMUNITY RELATIONS
At TEAL, we are fortunate – as part of the greater South African ARM group – that we are welcomed as responsible operators in neighbouring African countries. Our long-term commitment to the region is self-evident, and the goodwill that exists in many countries, particularly in sub-Saharan Africa, towards South Africa benefits companies like ours.
Our approach at TEAL is to transform the Company from a mineral exploration and development entity into a focussed mining company that benefits all our stakeholders, with a particular concern for communities, thereby advancing the mutual interests of our shareholders and our host countries’ development. We work at the relationships with key stakeholders in our host countries and are proud of the high standards of social and environmental engagement we uphold.
In Zambia, for example, we have engaged in a lengthy process of building consensus with government and communities at the Mwambashi Copper Project on the Copperbelt. As a result, various families have agreed on a process of relocation, which will for the first time give this community freehold title and much improved conditions for their farming activities, which, to date, have been at a subsistence level. In further support of this relocation we have introduced a community development trust that will provide support in priority areas such as education, health, making available water from the mine and channelling it to their farming activities, providing opportunities to move these activities beyond the subsistence level and also providing employment opportunities.
Another area of intervention, this time in the DRC, which has made a qualitative difference to community members’ lives, is the provision of a mobile facility to provide primary medical care within the area surrounding our Kalumines property. This facility also administers anti-malaria treatment. The building of roads in the area will provide access for four villages to the town of Lubumbashi.
In all countries in which TEAL operates, our approach has been characterized by building partnerships, demonstrating our long-term commitment to the region, a willingness to find compromises, and ultimately to find the optimal solutions for exploiting our orebodies.
MARKETS FOR OUR PRODUCTS
The fundamental strength in the demand for copper remains intact. In China, large-scale urbanization programs and the need for infrastructure continue and are likely to be sustained over the next 10 years. These factors provide the fundamental strength in demand for key commodities, such as copper, our primary targeted metal for production, and zinc and nickel, for which we are exploring. Although we think there may be volatility in the short term due to trading factors, we believe demand is sufficiently strong to justify the development of low- and medium-cost copper mines.
CAPITAL EXPENDITURE AND GROWTH
We have secured a US$20 million bridging facility from Standard Chartered Bank, guaranteed by ARM. This has been particularly useful, in a number of respects, but specifically in allowing us the necessary time to advance the Konkola North feasibility study. Subsequent to the end of the period under review, ARM agreed to increase the guarantee to a total of US$50 million, and we are in discussions to finalize this additional loan. We must now proceed to source the best possible debt and/or equity funding for us to move to the next stage, which should result in:
- copper production coming on stream during the course of 2009 with some 35,000 tonnes per annum (tpa) of contained copper produced (on a 100%-basis);
- bringing the Otjikoto Gold Project to a bankable feasibility stage; and
- enhancing copper recoveries from our mine in the DRC.
As a company focused on rapid development of mines to bring them into production and thereby securing the necessary cash flows for our other copper, nickel and zinc exploration efforts, we remain conscious of the investment levels required, particularly against the background of accelerating capital costs owing to supply side strain as evidenced in the rising cost of steel, cement and other critical components of mine development. Further capital raisings may come into play when we move to expand the Konkola North project with a dedicated processing facility and progress to larger-scale production at Kalumines.
IN CONCLUSION
We have generated value from existing projects; we have continued exploration at our controlled prospecting areas; we have sought additional development and production opportunities to a limited extent; and, importantly we have continued to build on TEAL’s history of operating in the region. As our feasibility studies will indicate in the next months, we are well placed to develop low-cost, long-life copper mines into a market that is likely to see continued burgeoning demand well into the future.
My thanks go to the chairman, deputy chairman and my fellow directors, management and our people on the ground, all of whom have demonstrated TEAL’s strength both at board level and at our operations. In particular, I welcome Arné Lewis, our chief operating officer, Hannes Meyer, our chief financial officer and Dan Simelane, ARM’s executive, business development, Africa, to the board. They bring a wealth of experience and enthusiasm to our company.
My thanks are also extended to those countries and communities that are host to our operations and projects for entrusting us with the responsible development of their mineral assets. We will endeavour to do your faith justice.
Rick Menell
President and CEO
September 12, 2007
