why existing shareholders should be very happy

The company released an update to shareholders last week that the construction of the plant is complete and full commissioning has begun. I am sure that Outetec and FLSmidth would have a small team overseeing this, both are the world's leading provider of mineral sand projects and would have a good handle on any issues that may arise. Outetec would be working on the dry mill and FLSmidth would more than likely be working on the wet mill and the water recovery unit.

I would Just like to highlight some interesting points to shareholders within this announcement.
"Recoveries in the wet mill have been in the mid 80% range during commissioning. The recoveries will improve when IDM reach steady state/24 hour operation. Achieving 80% recovery and HMC grades in the mid 90% range at initial start up is very encouraging."

That is an exceptional start to commissioning and shows me that the actual plant design is a good one, but again FLSmidth and Outetec are the very best. It should be mentioned that this project is full of ex-Iluka staff including Dan Smith who managed the process engineering side of Iluka's U.S. operations for a number of years and is recognised as an industry leader. Todd Lessard (ex-Iluka) is no mug either and would have been heavily involved with the wet mill, water processing and tailing areas.

"The mine plan is to deliver ore with 15% to 20% heavy mineral to the plant for commissioning purposes."
A HM above 15% is just about unheard of and they will need to blend this to a consistent level during commissioning (nice problem to have). They have designed the plant to extract all the minerals, across all the varying deposits, probably using the 15-20% grade as the base. The South Seven Devils tenement has a HM grade of 28% for 800,000 tonnes and I know they will be moving onto North Seven Devils late next year and that has a 33% grade. Most paleo-beach deposits are around 2-8%. Some of the other deposits like Sheppard are 43%, with a high Zircon grade but slightly lower Chomite. I do know that Sheppard has a high Epitode and Staurolite concentration, but that will require additional work at the plant for extraction (a 5th and 6th bin, possibly extra separators), but this would not cost a lot and would be a fantastic side earner (I saw a progress picture on their website that that clearly shows extra bin spaces, that tells me they've built this plant for the longterm). It should be noted that Sheppard is not included in the current mine plan, mainly because they have enough on their plate with the other six tenements and are probably just focussed on the Chromite, Zircon, H.I. Ilmenite and the Garnet.

Another point of interest:
"The excavation, screening and delivery of ore to the process plant have commenced".
We haven't seen a picture of the tenement, but this company update came with two pictures of the plant. Hopefully I can cover a couple of questions I received and run quickly through the process.

Pictures
The yellow conveyor (foreground) is from the weigh bridge/belly dump truck drop off area. Each truckload weighs around 25 tonnes and with a HM grade at 30%, it wouldn't take a lot of filling. (Chromite and Zircon sand is over twice the density of beach sand). The wet mill is the structure on the left (with the small angled roof), behind this which you can't see in this picture would be the concentrate area for the dry mill feed. The dry mill is the building in the background, the water re-processing plant (which I believe IDM made and designed exclusively with FLSmidth) is in the middle, the warehouse in the background. The feed for the wet mill is the stacks in the foreground and the tailings are on the far right (I've cut them off a bit).



Now with each product, they have a slightly different process, mainly within the dry mill area. I will just give a quick overview after viewing all the pictures from the IDM website.

Wet Mill: (common for all minerals)
The feed would be screened at the tenement to reject anything greater than 4mm in size (remove all the rocks, organic matter) then trucked to the plant and stockpiled. It would then be put into a slurry tank then screened and deslimed. (The slimes would go to the paste thickener add flocculants, extract the water (re-cycle it), dryed, stockpiled/drained and trucked back to the pit. That's a brief run through with the tailings, but a normal project would use ponds, so this process is unique and ticks another box that the project is running well).

The slurry is then pumped to the top of the wet mill into a spiral distribution point and then "crystal clean" water added to the three stage spiral unit, the slurry feeds down the spiral and the finer and course grains separate. Finer to the inside, courser to the outside. The company reported it is currently running at "mid 80% recovery". So we know that the actual process up to the point of entry to the wet mill is working well.

The concentrate from the wet mill would then be conveyor belted onto the dry mill drainage pad area into a stack (behind the wet mill). It would then sit there for a day or so to drain (think of beach sand draining). So the "90% recovery" is after it's been through the wet mill. For management to say "HMC grades in the mid 90% range at initial start up is very encouraging" is quite humourous for the fact that it would have been classed as exceptional within the industry even at nameplate design 10 years ago.

Dry Mill:
The HMC concentrate would be put onto a conveyor belt and taken into the mill. On its way it would be rotary dried then conveyored to the top of the dry mill into a density a separator (it would look like a dry - fine brown/black shiny beach sand).

Now each mineral has a selected weight, gravity, conductivity, magnetic reaction, etc, so from this point its just about breaking down what has a reaction to each particular process. (just think of how a magnet works with metal, but not with plastic).

The reaction process for the chromite would be:
Density Separator/High Tension Roll/Scalp Magnet/RED Separators/Bagging.

The Zircon concentrate would have been split into its own bin after going through with the garnet and re-acting to the non-magnetic separator. I would just be guessing but I think they might put it through a specialised zircon wet mill circuit to clean it further and then taken back through the dry mill via its own seperator to get rid of any magnetic trash that may have been missed.

Now each of these processes would have multiple separators (primary, secondary and tertiary) and the magnets would have separate settings and any material outside these would either be trash or sent back throught the circuit.

I noticed a picture of a Outetec HS10 model (rare earth roll magnetic seperator) on their website (its the Rolls Royce of the industry and they are using the largest size you can buy), so I'm impressed that they haven't cut any corners on equipment.

"Anticipated bagging of finished product in the next few weeks"
It's been a week since this announcement and I would think we are fairly close to hearing something from the company. You will know if they are happy with the end product, thus the complete wet mill / dry mill circuit, because they won't send product to the clients if it isn't. Foundry's will just reject it.

Pricing and who are the biggest shareholders
Forward orders of 40% of the 70,000 tonnes of chromite output were contracted at prices of $500 a tonne for Macquarie and Sentient to fund this project (I believe that was for a period of 6 months with HA International and Possehl).

Both Macquarie and Sentient are the biggest shareholders of IDM with over 50% combined, so they will want management to extract the best possible price after that. Both parties are represented by one director - John Mears who is the chief geologist for Sentient. (Sentient is a U.S. based closed hedge fund specialising in early stage mining stocks and following them through into production, they also use their specialised people to help the project).

Now there is an interesting link with these two. Macquarie and Sentient backed Andean Resources. Macquarie initially backed it in 2004 at 10c, Sentient became involved a few years later and became Andean's biggest shareholder with 20%. Andean was taken over by Goldcorp late last year and Sentient cleaned up about $450m from this transaction, not bad coin for backing a junior.

Now, the chairman of Andean Resources was Barry Bolitho and he was appointed when Sentient became involved, he is now the chairman of IDM. (Barry was also chairman of another company - Jabiru Metals who was bought out last month by Independence Group). Both groups, plus all the directors have recently supported the fully underwritten 1:7 rights issue at 20c, in fact the take-up rate was 89% and with no over-subscriptions allowed for existing shareholders. Interesting point here, is that RBS are the underwriter and have been strong supporters of Iluka for many years. They have a couple of analysts that are pretty damn cluey in the mineral sands space.

Now I have reported previously that Zimbabwe have stopped all "metallurgical grade" (low grade) chromite exports and this has reverberated in the spot price. It's actually up about 15% since April 20 to nearly $500 a tonne. The more interesting point is the price of Zircon. Once up a time it was relatively cheap and used extensively inconjuntion with Chromite. Then came along the chinese who wanted to tile their new units - the price has since gone ballistic.

Foundry grade Chromite is a replacement for Zircon, have no doubts about this (only in a foundry of course, foundry grade is normally the fines of metallurgical grade). Very high grade sperhical Chromite like this project (paleo-beach, not blasted), is incredibly rare and will be in massive demand from everyone around the world, part of the reason why they re-named it Spherichrome. I have had many people tell me that the foundry's are scampering for chromite supplies, due to the escalating price of Zircon. There are issues with some quality and power from the South African chromite mines, add the Zimbabwe ban and headaches become apparent for the industry. (I've spoken about the advantages of this paleo beach chromite, so refer to my previous posts about the difference between the grades).

Now the product and pricing after the contract price of $500 a tonne.
I think it will be somewhere between foundry grade (metallugical grade - fines) and the current zircon price which is esclating by the day ($1,650). So a price close to $1,000 a tonne some time in the near future should not be discounted. If this was the case, the dynamics of this project move into another stratosphere. I actually think IDM's greatest problem is getting enough chromite out of the plant, especially now everyone knows they are open for business.

Zircon
They will be producing approximately 3,700 tonnes. In their forecast model the spot price was $775 a tonne (6% of IDM's total revenue). Now, I could just about put my life on it they could have sold this product 20x over. The Zircon was not part of the funding tie-up so they should be getting spot prices for this, possibly around $1,600 a tonne or a contracted price well in excess of the $775 model. If that's the case, the total EBITDA has just increased by over 10% (just on the price increase of Zircon).

Garnet and (H.I.) Ilmenite
Each product will produce approximately 9 and 10% of EBITDA respectively (feb '10 report). There has been huge discussion within the minerals sands industry about supply problems not only with Zircon but Ilmenite (Iluka just about controls this market), any price increase will only add to the bottom line, again could you imagine the phone calls they will be receiving?

Plant location
It's the only chromite mine in the U.S. and the transport costs savings for the foundries will be enormous (all product is imported). A third of all production is slated for national use, with some further product to be sent to Mexico.

Now I have just broken down how I think the commissioning is going, the HMC grades, recovery rates, and given you a quick process flow and highlighted to you some of the top line equipment they have. I have gone through the pricing structures and the shareholders on the register, the zircon, ilmenite and the plant location, so read this next section carefully, I have copied this straight from the IDM - ASX Feb 2010 report (page 8) when the plant was already under construction.

"Industrial Minerals is building a processing plant with 1,400,000 ton per annum throughput capacity and designed to provide a steady state 70,000tpa of foundry grade chromite for use in specialist steel foundry applications and additional valuable heavy minerals. When operating at design capacity chromite output (depending on deposit) of 140,000 tpa could be achieved".

They are currently digging the South Seven Devils site with a (JORC'd) chromite grade of 12.49%. If the company announces the plant is fully operational and they are sending product to the foundries - put your seat belt on, it could be ride you will never forget.

Regards
Pep