re: Ann: Update on Project Financing for Jaba...
April 08, 2010
Citadel Edges Ever Closer To Putting The Finance In Place For Its Jabal Sayid Copper Project In Saudi Arabia.
By Our Man in Oz / www.minesite.com
There is only one thing wrong with the Jabal Sayid copper project of Citadel Resources in Saudi Arabia - it's not in production. More to the point, its not in production at a time when the copper price has rocketed up to US$3.60 a pound, which is more than three times the mine's forecast cash cost. "We would love to be producing right now," Citadel's chief executive, Ines Scotland, told Minesite's Man in Oz. "But I dont believe we're going to miss anything because the outlook for copper is strong for years into the future." If missing the first few months of the strong rebound in the copper price is frustrating, there is some good news in the situation. The company's ability to finalise the funding package for the US$280 million development has been made much easier, as the profit margin on the projected total copper cash cost of US94 cents a pound looks very sweet indeed at that US$3.60 per pound price.
The basic plan for Jabal Sayid involves output of 57,000 tonnes of copper over an initial 10 year mine life, with the first three years delivering 61,000 tonnes. But interest in the project is driven by more than just the basic output parameters. It's also a question of Citadel's role in the opening of Saudi's hard-rock mining industry, an industry which has traditionally played second fiddle to the country's giant oil sector. Then there is the issue of what comes next, as metal-hungry investors cast their eyes over other parts of Citadel's portfolio of base metals and gold projects on the Red Sea side of the Arabian Peninsula. In effect, Jabal Sayid will be first cab off Citadel's very busy rank.
Deals involving exploration assets, such as the Jabal Shayban copper and gold prospect, the Wadi Kamal nickel, copper and platinum prospect, and the Bari copper and gold prospect are possible, as the metal-price revival gathers strength. But, interesting as those assets might be the immediate aim, and what investors in the Australian-listed company want to see, is finalisation of the funding package for Jabal Sayid, and a possible increase in Citadel's existing 50 per cent stake in the project. An extra slice of the project is likely because the point has been reached where the other 50 per cent owner, a wealthy Saudi family, is required to start contributing to the cost of the development.
"We've been saying to the investment market for some time that we would like to increase our stake in Jabal Sayid", Ines said. "Whether that happens, or how it happens, is now part of the discussion were having. Significantly, that turn of events is occurring as Citadel reaches the final round of financing talks with its bankers, Saudi-based Riyad Bank and Germany's WestLB. Ines said in a report to the ASX last month that key due diligence talks had been completed, with no problems or issues identified. A term sheet, she said, had been agreed, which reflected strong interest in the project. Aside from the lead banks, expressions of interest had also been received from a group of Saudi and international banks offering more debt than Jabal Sayid requires. "It is intended that a group of up to seven banks will form the final syndicate of lenders", Ines said.
While the paperwork is finalised Citadel is charging ahead with planning and the early mobilisation of key equipment and personnel. After construction of the 2.6 million tonnes a year underground mine, and the above-ground processing plant, commissioning is scheduled to start in the third quarter of 2011 with full-scale production reached soon after. Two lodes of ore, No.2 and 4, will start the operation. Both are open at depth, and there are additional lodes nearby. Large open stopes should make for simple mining. Truck haulage will be used to bring the ore to the surface, and the underground development will leverage off the existing 3.9 kilometres of existing declines.
"We are at a very busy stage of development", Ines said. "As well as the financing and equity discussions we have ongoing engineering and design work. We're doing all of the engineering for the long lead items. We've ordered key items of equipment such as the mills, float circuit, and thickeners. The mine contractor is mobilising to site. We're pretty much on schedule."
Interestingly, raising the equity component for Jabal Sayid might not have the watering down effect that can often worry investors. Those other projects on Citadel's books have a value, and that value is rising every day that metal prices continue their recovery. "We have got a number of corporates in Saudi looking at joint venturing on some of the projects", Ines said. "Some of those we would be hoping to get a cash payment as well, and bring equity in that way. If there are secondary deals to be done the obvious starting point will be in the gold assets, given the understanding of gold that already exists in Saudi Arabia. There is a long history of gold production, and that certainly means there is a preference for gold when it comes to hard-rock mining", Ines said. "Jabal Sayid will be the country's first base metal mine."
On the ASX Citadel has been attracting fresh interest as the copper price rises and the full-scale development of Jabal Sayid gets closer. Since slipping to a late February low of A28.5 cents, the shares have rallied to trade at around A38.5 cents, which is not far short of their all-time high of A46 cents reached late last year. At its current price, Citadel is capitalised at A$565 million, a potentially modest value, given the news about to start flowing at a corporate, financial and construction level. Not to mention that first production is now only about 18 months away now.
CGG Price at posting:
36.7¢ Sentiment: None Disclosure: Not Held
