2011 Annual Report (3 April 2012) - Grange Resources

GRANGE RESOURCES LIMITED
12
Managing Director’s Review (cont.)
Southdown Project
Grange and its joint venture partner, Sojitz,
have advanced the Southdown project
significantly over the past twelve months.
This is a project designed to produce 10
million tonnes per annum of high grade
magnetite concentrate to be exported
from the port of Albany in Western
Australia. Following review of the prefeasibility
study, the Joint Venture partners
agreed to fund the definitive feasibility
study and to appoint Standard Chartered
as the financial advisor for project debt.
The DFS is due to be completed in the
first quarter of 2012, for consideration by
the Joint Venture partners.
Highlights of the work undertaken in 2011
include:
◆ ◆ A drilling program that has increased
both the quantity and quality of the
resources. Ore reserves have also
been increased.
◆ ◆ A metallurgical testing program was
completed, allowing finalisation of the
processing flow sheet.
◆ ◆ Application and processing of the
environmental permit required to use
desalinated water from the nearby
coast for the project. The permit is
expected to be approved in the first
half of 2012.
◆ ◆ Significant progress made on
secondary environmental approvals
required for the project.
◆ ◆ Increased levels of engineering for all
aspects of the development, firming
up price estimates and quantity takeoffs.
◆ ◆ Manufacturer pricing of major plants
items (mills, ship loader, crushers,
desalination plant, mobile fleet)
undertaken to improve “budget”
pricing used in the PFS.
◆ ◆ Re-designing the mine, using
revised geological and geotechnical
information.
◆ ◆ Significant progress made on
commercial agreements with Western
Power and the Albany Port Authority.
◆ ◆ Significant progress made on further
land acquisition and rights of way for
the slurry pipeline route to Albany.
Following the definitive feasibility study
review, it is expected that the Project
team will move into the next stage of the
project, involving firming up engineering
and building scopes of work for firm
pricing ahead of contract award. Every
effort is being made to minimise exposure
to variations once a decision to proceed
has been made.
The operations at Savage River provide
Grange with a distinct advantage over its
magnetite peers in that we have the cash
flow, systems and expertise in place to
design and bring the Southdown project
into production quickly, significantly
reducing the execution risk that comes
with large projects.
As the DFS approaches completion, we
are working with Standard Chartered to
find the appropriate debt funding solution
for the project. Grange will also be looking
at a number of options available to raise
the required equity funding. This could
include a combination of using existing
cash reserves, selling down portions of
existing assets and raising equity on the
stock market.
Investor Relations
The market has maintained its interest in
Grange Resources, recognising that it is
Australia’s leading magnetite producer.
The share price peaked in January
2011 when the Company had a market
capitalisation of $1 billion. Following a
general market trend in the remainder
of the year, we have seen the value of
Grange shares fall in line with the broader
investment community’s concerns over
the economic stability of Europe and the
USA, and more recently its perceptions of
a softening in the Chinese economy. The
fundamental earning capacity of Grange
remains strong.
Market research on the company has
also grown in 2011 with RBS, RBS
Morgans, JP Morgan, UBS and Bell
Potter all producing analyst research on
the stock, with target prices ranging from
$0.68 to $1.06, well above the closing
price of $0.56 at the end of the year.. Ten
investment banks now provide coverage
of the Grange stock.
We continue to engage with analysts and
investors and have had site visits to both
Savage River and Southdown during
2011. These types of visits will continue
in 2012.
Thank you
I would like to extend my thanks to all of
Grange’s employees for their commitment
to improving the safety performance at
the operations, and for putting in place
and executing the plans that will ensure
sustainable, predictable production in
the future, both at Savage River and at
Southdown.
To Grange’s customers, thank you for your
ongoing support. The success of your
business is fundamental to us continuing
to deliver a premium product to you.
To our Chairman and Board of Directors,
your guidance, support and availability is
greatly appreciated.
And finally, I would like to thank the
Grange’s shareholders for your support
during the year.
Russell Clark
Managing Director
Overview
Review Of Operations
Corporate Governance