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Exxaro to write down R5.36bn investment in Mayoko project

Exxaro to write down R5.36bn investment in Mayoko project

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24th June 2014

By: Chantelle Kotze

  

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JOHANNESBURG (miningweekly.com) – Diversified mining group Exxaro on Tuesday warned shareholders that it would write down its R5.36-billion investment in the Mayoko iron-ore project in the Republic of Congo (RoC).

After having failed to secure a rail framework agreement and a port memorandum of understanding with the RoC government, and owing to higher-than-expected project development costs following the outcome of a revised concept study for the 12-million-ton-a-year project and a revised ramp-up strategy, the miner had determined that there would be an impairment of its investment in the project.

Speaking to investors and media during a teleconference, on Tuesday, Exxaro CEO Sipho Nkosi said the results of the concept study indicated that the project was not economically viable, based on revised capital, operational cost, resource and long-term iron-ore price assumptions.

“Consequently, the board has met and approved the pretax write-off of an amount up to the original acquisition cost of its investment in the project; the project-related cost capitalised to date, up to a maximum of R5.4-billion; and the sale of all unused assets, such as rail locomotives and wagons,” he noted.

Exxaro stated that the exact quantum of the impairment loss would be communicated as soon as calculations had been finalised.

Further, the board decided to stop all future expenditure on the project until such time as a revised and newly negotiated definitive agreement had been concluded on favourable terms, which would support an economically viable project.

As a result of these decisions, Exxaro said it had endeavored to spend about R300-million during the second half of this year to support the activities required to scale down the project.

The group said it would also actively liaise with the RoC government on the future of the project, as well as maintain the current support to the surrounding Mayoko community.

“We will also remain committed to reaching a rail and port solution that will render the project economically viable in a clearly defined timeline,” Nkosi said, adding that, if the terms and conditions met in the definitive agreement were favourable, and if the rail and port solution provided for an economically viable project, Exxaro would only then be in a position to consider the next steps regarding the future of the project.

Exxaro indicated that the impairment would result in the group reporting a 20% drop in net operating profit and earnings a share for the six months to June 30 when it publishes its interim results on August 21.

The group’s share price on the JSE fell to R135.50 a share in early morning trade, down 4.5% on Monday’s close of R141.96. The share price rebounded to R136.91 a share by 15:00 on Tuesday.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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