SouthernEra completes Messina financing (September 24, 2001)

Messina, a 70.4%-owned subsidiary of SouthernEra Resources, (SUF-T) has satisfied all conditions for a R345-million (US$40-million) loan to construct the Messina platinum-group-metals (PGMs) mine in South Africa.

The final condition on the loan was met when Rio Tinto (RTP-N), SouthernEra’s largest shareholder, at 18.5%, and Rand Merchant Bank, one of several banks providing the loan, combined to cover a R121-million (US$14-million) underwriting of the projected profits from Messina’s accelerated production program. Rio will underwrite R58 million (US$6.7 million), and Rand, which required the underwriting, will cover the remaining R63 million (US$7.3 million).

SouthernEra satisfied another condition of the facility by inking a deal with a major international automotive company for floor-price protection on Messina’s platinum and palladium production.

The 5-year deal guarantees a minimum, weighted-average floor price of US$400 per oz. for platinum and US$370 per oz. for palladium. Prices for the two metals are capped at US$600 per oz. for 80% of platinum production and US$658 per oz. for 100% of palladium production.

The contract covers up to a maximum of 232,000 oz. platinum and 178,000 oz. palladium (about 3% of the current PGM resource) over the five years. Either party can terminate the contract if the loan facility is fully repaid during the 5-year period.

The first drawdown against the loan facility occurred Sept. 18, and the entire facility should be drawn down by September 2002, when construction is to wrap up.

The facility’s first R270-million (US$31-million) tranche has a 7-year term from initial draw down to final repayment. The term of the second R75-million (US$8.7-million) tranche is six months longer. The providers of the second tranche have also supplied a required R75-million (US$8.7-million) project completion guarantee.

In March, SouthernEra accelerated development at Messina to take advantage of surging platinum group metal prices. The mine produced PGM concentrate in late June — six weeks ahead of schedule.

Messina’s reserves are pegged at 26.4 million tonnes grading 6.3 grams PGMs plus gold, with copper and nickel byproduct credits. The deposit should keep a proposed concentrator fed for 17 years.

The loan provides the remaining funds required for construction and startup of the mine at an estimated annual production rate of 160,000 oz. PGMs. Life-of-mine cash costs are estimated at US$150 per oz. Capital costs are pegged at US$60 million. SouthernEra plans to make up the difference between the amount of the loan and the total capital cost via a rights issue and cash flow from a small-scale plant.

The mine is on schedule and budget for a production startup in the last quarter of 2002.