Scarborough Minerals PLC
30 April 2007
RNS / ASX ANNOUNCEMENT
QUARTERLY REPORT ON ACTIVITIES
FOR THE PERIOD ENDING 31 MARCH 2007
Highlights
• Minsec Merger:
• agreed merger announced;
• 4 Minsec shares for every 5 Scarborough shares;
• expected completion in July 2007.
• Chaarat Gold - new investment:
• gold exploration in western Kyrgyzstan;
• 12.1% interest acquired with options to 18%.
• Lady Loretta:
• two hole metallurgical drilling programme completed;
• copper exploration resumes.
• Sappes
• work continues towards resubmission of EIS.
Direct Interests
Lady Loretta Zinc Project, North-West Queensland
(Scarborough 25%, Xstrata 75% and operator)
i) Background
Lady Loretta is a substantial, high grade zinc project, located 140 kilometres
north of Mount Isa in north-west Queensland. The area around Mount Isa hosts a
number of the world's largest deposits of zinc (Century, Mount Isa, Dugald
River, George Fisher), copper (Mount Isa, Ernest Henry) and silver (Cannington,
Mount Isa).
ii) Mineral Resource Update
An updated Mineral Resource for the project, classified according to the JORC
Code (2004), was reported in Scarborough's 2006 Annual Report and is repeated
below. The formal report to (Canadian) NI43-101 standard was finalised during
the quarter.
Lady Loretta is one of the world's largest undeveloped zinc deposits, containing
more than 2.3 million tonnes of zinc.
Mineral Resource Estimate
(Calculated above a US$35 per tonne Net Smelter Return)
Category Tonnes Zn Pb Ag
(millions) (%) (%) (g/t)
Measured 7.5 17.4 6.7 105
Indicated 5.1 16.3 4.7 84
Inferred 1.1 16.9 4.6 86
------------------------------------------------------------
Total 13.7 17.0 5.8 96
iii) Project Activity
During the 2006 calendar year, the Lady Loretta project was the subject of a
preliminary feasibility study into a proposed 1 million tonne per annum mine and
concentrator development which would produce approximately 140,000 tonnes per
annum of zinc in concentrate, together with by-product lead and silver.
As noted in Scarborough's 2006 Annual Report, the scope of these studies was
recently amended with the entry of Xstrata as Scarborough's joint venture
partner, in order to evaluate the potential for improved project economics
resulting from consideration of Lady Loretta in the context of Xstrata's
substantial zinc operations in the Mount Isa region. The potential to process
Lady Loretta ore through Xstrata's Mount Isa zinc/lead concentrator offers a
number of potential advantages for the Lady Loretta joint venture.
During the quarter, two metallurgical drill holes were completed at Lady
Loretta. Samples from this core are currently being prepared for assay and for
flotation testwork with the aim of understanding how the Lady Loretta ores will
respond in a Mount Isa-style flowsheet.
iv) Copper Exploration
The Lady Loretta joint venture retains title over sulphide copper resources
below the Lady Annie oxide deposit being developed by CopperCo (the Lady Annie
lease is restricted to a depth of approximately 150 metres below surface), as
well as any other copper mineralisation which may be present on the Lady Loretta
mining lease. Buka, one of Scarborough's predecessor companies, had previously
announced a sulphide resource of 3.3 million tonnes at 1.2% copper (no longer
JORC compliant) at Lady Annie below the 150 metre limit.
Exploration recommenced in the quarter, with preparation for an IP survey
underway. Prior exploration data has been processed and included in a new
dataset.
Sappes Gold Project, Greece
(Scarborough 100%)
i) Background
The Sappes gold project is located in the region of Thrace in north-eastern
Greece, near that country's borders with Bulgaria and Turkey. The project is
based on the development of a shallow underground gold mine on the high-grade
Viper orebody and a small open pit on the near-surface St Demetrios orebody.
Planned production at the mine, subject to the completion of the permitting
process, is at the rate of approximately 100,000 ounces of gold per annum (in
dore and a copper concentrate), for an initial four-to-five year life.
ii) Project Activity
Scarborough continues to work towards resubmission of an updated Environmental
Impact Study to be lodged with the Environment Ministry in due course and, more
generally, to advance the cause of securing approvals for the project.
As noted in the recent announcement by Scarborough of its agreed merger with
Minsec, Scarborough is considering a number of means by which it can realise the
value of its investment in the Sappes project.
Gympie Eldorado, Queensland, Australia
(Scarborough 58.4%, through Buka Gold Limited)
i) Background
Buka Gold explores for gold on a 760 square kilometre tenement package covering
the historically important Gympie goldfield in south-east Queensland.
ii) Activity
Buka Gold released its quarterly report on activities to ASX on 27 April 2007.
That report is available on Buka Gold's website at www.bukagold.com.au. Key
points included:
• production of 2,174 ounces of gold (Dec 06 quarter 2,166 oz)
from the milling of 9,613 tonnes (12,407 t)
• cash costs rose to A$1,075 per ounce (A$945/oz), resulting
from the impact of the high proportion of fixed costs on below budget
production;
• mixed results from drilling of the Peel-Off B and Caldwell
Reef structures below the deepest mine level with higher results including 0.4
metres (true-width) at 22.00 g/t Au (POB) and 0.55 metres at 31.20 g/t Au and
0.7 metres at 12.40 g/t AU (Caldwell);
• drilling of the Inglewood structure at the northern end of
the mine between 15 and 18 levels with the aim of defining an economically
mineable target in that area has begun;
• diamond drilling at Meadvale in the Gympie South area
returned anomalous base metal (molybdenum, zinc, lead, copper) values;
• two new exploration permits were granted to the north-west of
Gympie and exploration programmes will begin in the June 2007 quarter.
Subsequent to the end of the quarter, on 18 April 2007 Buka Gold announced that,
due to a lack of economically recoverable resources, mine production would be
wound down and cease in the ensuing weeks. Surface and underground exploration
will continue.
Vostok Copper Project, Kazakhstan
(Scarborough 100%)
i) Background
Scarborough holds 100% equity in the Vostok copper project in southern
Kazakhstan, through a wholly owned subsidiary. The project covers an area of 111
square kilometres, which contain the Vostok 1, 2, 3, 4 and 5 prospects, located
within an area of 6 kilometres by 2 kilometres. Previous estimates, based on
Soviet-era data, suggest that these deposits may contain 2 million tonnes of
copper to 500 metres depth.
ii) Project Activity
The major activities during the quarter were completion of activities related to
the 2006 drilling programme (20 diamond drill holes for 6,431 metres) at Vostok
1 and planning for the 2007 exploration programme.
The 2007 field programme will be aimed at:
• completing an additional 10 diamond drill holes at Vostok 1
in order to permit the calculation of an inferred resource estimate for the
upper 300 metres of the Vostok 1 prospect; and at
• commencement of grass roots exploration of the areas outside
of Vostok 1 and 3 for additional copper and copper-gold resources, including
conducting a ground magnetics and IP survey.
Preparation of samples from the 2006 programme has commenced but analytical
results will not be available for some months. Initial results have been
received for soluble copper determinations for 479 samples from 2004 and 2005
drilling. These were largely as expected with total soluble copper recoveries
generally very high, mostly >85% and several intersections reported almost 100%
recovery. Samples from two drill holes at Vostok 3 reported lower results,
requiring mineralogical review. These data will be reported when they have been
properly assessed.
In accord with the provisions of the Group's contract with the Government of
Kazakhstan, 15% of the project area was relinquished at the end of the quarter.
The retained area is 111 square kilometres. This retained area hosts all of the
area considered as prospective for high-level porphyry copper mineralisation and
its host rocks.
iii) Corporate
As noted in the 2006 Annual Report, the Company has entered into a conditional
partnership agreement with a major international mining company, aimed at
funding the next stages of evaluation of the Vostok project. A number of
conditions were met during the quarter but some remained outstanding at the end
of the quarter. Details of the agreement will be announced once all material
conditions have been met.
Indirect Interests
Mineral Securities Limited
(Scarborough 15.2% *)
* Diluted by recent share issues. Scarborough may be issued a further 777,911
MinSec shares, increasing its total holding to 12,446,579 shares (16.1% of
MinSec's expanded capital), contingent upon CopperCo meeting conditions
precedent to drawdown of loan facilities for the Lady Annie copper project.
MinSec's major assets are substantial shareholdings in three mineral project
development companies - Platmin Limited (16.4%), CopperCo Limited (18.6%) and
Tianshan Goldfields Limited (19.9%).
Key events during the quarter and since quarter-end were:
• Platmin advanced its South African platinum group metals projects, with:
• further progress in meeting Mining Charter obligations, including
increasing BEE ownership of its operating subsidiary to above the 26%
long term requirement;
• upgrading of the Grootboom Valley mineral resource from the
inferred to indicated category;
• completion of infill and extension drilling at M'Phatlele to 500
metres depth. Deeper drilling to 1,000 metres and 1,500 metres continues; and
• progressing the Pilanesberg feasibility study, which is scheduled for
completion in the first half of 2007.
• CopperCo advanced construction of the Lady Annie / Mt Kelly
copper project north of Mount Isa, meeting several milestones, including:
• a formal decision was made to increase throughput from 19,000
tonnes per annum of copper cathode to 25,000 tonnes per annum from 2008,
reducing estimated site operating costs to US67c/lb for the expanded operation;
• completion of a US$25 million (A$30 million) capital raising to
fund that expansion and ongoing exploration; and
• further exploration success at both the Lady Annie (chalcocite)
and Anthill (Buckley River project area, 40 kilometres south of Mt Kelly)
prospects.
Initial cathode production remains on schedule for late July 2007.
• Tianshan announced the commencement of a pre-feasibility
study, including detailed metallurgical testwork, into a potential open pit /
heap leach operation at its 90% owned Gold Mountain project, where currently
estimated resources stand at 2.84 million ounces.
• Minsec announced agreements to increase its holdings in
CopperCo and Tianshan (to the levels noted above) through share swaps. These
transactions were completed after the end of the quarter, diluting Scarborough's
Minsec holding from 17.4% to 15.2%. Minsec may further increase its Tianshan
shareholding to 30.05% (fully diluted), subject to Tianshan shareholder
approval, through conversion of a preference share, the conversion conditions
for which have been met.
Iluka Resources Limited
(Scarborough indirect interest through Kolsen Consortium)
Scarborough retains its indirect shareholding in Iluka Resources Limited.
Desire Petroleum plc
(Scarborough 2.3%)
Desire continued in its attempts to secure a drilling rig for an exploration
programme on its North Falklands Basin projects.
Corporate and Finance
Minsec Merger
Scarborough and Minsec announced on 13 April 2007 that they have agreed terms to
merge ('the Merger'). Key features of the Merger are summarised below:
• Share for share offer by Minsec (BVI) (a newly incorporated
holding company formed in connection with a restructuring of the Minsec Group
('the Restructuring')) for Scarborough on the basis of 4 Minsec (BVI) Scheme
Shares for every 5 Scarborough Scheme Shares (including in the form of Minsec
(BVI) Scheme CDIs for existing Scarborough CDIs). The Merger will be implemented
by way of a scheme of arrangement under section 425 of the Companies Act of
England and Wales.
• The combination of diversified asset portfolios and
successful and complementary management teams of the two businesses offers the
opportunity to create significant value for the shareholders of both companies.
• The combined asset portfolio is of a size which allows
hands-on involvement but also benefits from diversification of:
• commodity - platinum, gold, copper, zinc;
• geography and political risk - Australia, Europe, Central Asia,
Southern Africa and South America; and
• stage of development - exploration, feasibility, mine development.
• The enlarged group intends to continue to focus on making new
early stage equity investments in resource companies and projects. The
management of the enlarged group intends to take a hands-on approach and inject
its range of technical and commercial skills to maximise the value of these
investments.
• The enlarged group will be chaired by Robert Champion de
Crespigny AC (Chairman of Scarborough) and managed by Keith Liddell (Executive
Chairman of Minsec).
• The enlarged group will be owned 55.7% by the existing shareholders of
Scarborough and 44.3% by the existing shareholders of Minsec.
• The Merger is conditional on, amongst other conditions,
completion of the Restructuring of Minsec, approval of the Merger by the
shareholders of both Scarborough and Minsec and listing of Minsec (BVI) (the new
holding company) on AIM in addition to its ASX listing.
• The Merger is expected to be completed in July 2007.
The following table summarises the assets of the enlarged group:
Strategic Investments In Mining Companies
Asset Percentage Overview Place of Currently
Owned operations owned by
Platmin Ltd 16.24% Evaluating and South Minsec
developing platinum Africa
group metal projects
(listed on AIM and
TSX)
CopperCo Ltd 18.59%1 Developing the Lady Australia Minsec
Annie copper project
(listed on ASX(1))
Tianshan 19.95% Exploring and China Minsec
Goldfields undiluted / evaluating the Gold
Ltd 30.05% fully Mountain Project
diluted2 (listed on ASX and
AIM)
Chaarat Gold 12.18%3 Gold exploration Kyrgyzstan Scarborough
Ltd project at resource
definition stage
Mineral Sands 60.57% Exploring for heavy Australia Minsec
Ltd mineral sands
(unlisted but
proposing to list in
2007)
Buka Gold Ltd 58.43% Exploring the Gympie Australia Scarborough
goldfield (listed on
ASX)
Direct Interests in Mining Projects and Assets
Asset Percentage Overview Place of Currently
Owned operations owned by
Sappes 100% ownership High grade gold Greece Scarborough
Project project at permitting
stage
Lady Loretta 25% interest High grade zinc Australia Scarborough
Project in joint project at
venture feasibility stage
Vostok 100% Oxide copper project Kazakhstan Scarborough
Project ownership4 at evaluation stage
Qixia Joint Earning 75% in Exploring for gold in China Minsec
Venture joint venture Qixia Country, China
Speewah 100% ownership Fluorspar resource at Australia Minsec
Project pre-feasibility stage
1 This figure excludes convertible notes to be issued under the capital raising
announced by CopperCo on 27 February 2007 for which CopperCo shareholder
approval was obtained on 20 April 2007 and does not include the conditional and
contingent right to acquire a further 2,500,000 CopperCo shares.
2 Assumes all options and preference shares (including those held by Minsec)
currently in issue are converted.
3 Chaarat Gold Ltd has also granted Scarborough short-dated options over
additional Chaarat Gold Ltd shares which, if exercised, could increase
Scarborough's holding to approximately 18%.
4 Interest will reduce to 15% if a conditional subscription and shareholder
agreement with a major mining company is completed as currently proposed.
This summary should be read in conjunction with the full terms of the 13 April
2007 announcement and its annexures and the more detailed disclosures which will
be made in the scheme document to be released by Scarborough in relation to the
Merger.
New Investment - Chaarat Gold
During the quarter, Scarborough announced an investment in Chaarat Gold Limited,
('Chaarat Gold'), a Guernsey company whose principal asset is the 100%-owned
Chaarat gold project, located at moderate elevations in western Kyrgyzstan.
Scarborough has acquired some existing shares and subscribed for new shares,
giving it a 12.18% stake in Chaarat Gold at a total cash cost of US$6.925
million. Scarborough has also been granted mostly short-dated options over
additional shares which, if exercised, could increase its stake in Chaarat Gold
to approximately 18%. Scarborough's Chairman, Robert Champion de Crespigny AC,
is to be appointed a non-executive director of Chaarat Gold.
The Chaarat project is located on a licence granted by the Kyrgyz State
Geological Agency in 2002 (renewed in November 2006) covering an area of more
than 600 square kilometres.
Exploration to date has identified a substantial mineralised system with
elevated gold values over a 10 kilometre strike length. The licence area remains
lightly explored and Chaarat Gold expects to identify significant gold resources
as exploration continues.
Scarborough's subscription for new shares will fund an increased exploration
effort on the project in 2007, aimed at capitalising on successful exploration
results in 2005 and 2006. Chaarat Gold anticipates seeking a stock exchange
listing in the next 12 months. Planned work for 2007 includes further drilling,
development of an exploration adit and various infrastructure works, including
road construction.
Finance
The quarterly cash report (Appendix 4C) is attached. At the end of the quarter,
the Scarborough group had cash reserves of approximately US$32.7 million (A$40.5
million; £16.7 million), (of which Buka Gold and its subsidiaries accounted for
US$2.9 million (A$3.6 million; £1.5 million)), equivalent to 32.26 US cents per
share (39.94 Australian cents; 16.44 pence).
At the same date, Scarborough held financial assets available-for-sale of
US$19.6 million, (excluding its 58.4% interest in Buka Gold which had a market
value of US$3.3 million) equivalent to 19.32 US cents per share (23.92
Australian cents; 9.84 pence).
Scarborough Minerals plc
30 April 2007
For further information contact:
Robert Champion de Crespigny AC, James Haddock - London
Tel: +44 20 7152 6230
Email: ld@scrbmin.com
John Richards - Sydney
Tel: +61 2 9264 5515
Mob: +61 414 885 976
Email: jr@scrbmin.com
Competent Persons' Statements
The information in this report that relates to Buka Gold's exploration results
is based on information compiled by Patrick Stidolph, who is a Fellow of the
Australasian Institute of Mining and Metallurgy and a Member of the Australian
Institute of Geoscientists. Patrick Stidolph is a contractor to Gympie Eldorado
Mining Pty Ltd and has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which
he is undertaking to qualify as a Competent Person as defined in the 2004
Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves'. Patrick Stidolph consents to the inclusion in this
report of the matters based on his information in the form and context in which
the Australasian Institute of Mining and Metallurgy appears.
The information contained in this report that relates to mineralisation in
relation to the Vostok copper project is based on information compiled by Dr
Steve Hancock, who is a member of the Australasian Institute of Mining &
Metallurgy. Dr Hancock has sufficient experience to qualify as a Competent
Person for the purposes of the JORC Code and has consented to the inclusion in
this report of that information in the form and context in which it appears.
--------------------------
Rule 4.7B
Appendix 4C
Quarterly report
for entities admitted
on the basis of commitments
Introduced 31/3/2000. Amended 30/9/2001, 24/10/2005.
Name of entity
Scarborough Minerals plc
ABN Quarter ended ('current quarter')
n/a 31 March 2007
Consolidated statement of cash flows
Cash flows related to operating activities
Current quarter Year to date
US$'000 (6 months)
US$'000
-----------------------------------------------------------------
1.1 Receipts from customers 1,377 2,896
1.2 Payments for (a) staff costs (2,208) (4,042)
(b) advertising and marketing
(c) research and development
(d) leased assets (46) (91)
(e) other working capital (2,631) (5,022)
1.3 Dividends received
1.4 Interest and other items of a 510 1,054
similar nature received
1.5 Interest and other costs of finance (48) (94)
paid
1.6 Income taxes paid
1.7 Other (provide details if material) 100 312
-----------------------------------------------------------------
Net operating cash flows (2,946) (4.988)
------------------------------------------------------------------
Current quarter Year to date
US$'000 (6 months)
US$'000
-----------------------------------------------------------------
1.8 Net operating cash flows (carried (2,946) (4,988)
forward)
-----------------------------------------------------------------
Cash flows related to investing
activities
1.9 Payment for acquisition of: (6,839) (6,839)
(a) businesses (item 5)
(b) equity investments (60) (79)
(c) intellectual property (480) (1,313)
(d) physical non-current assets
(e) other non-current assets
1.10 Proceeds from disposal of: 0 225
(a) businesses (item 5)
(b) equity investments
(c) intellectual property
(d) physical non-current assets
(e) other non-current assets
1.11 Loans to other entities
1.12 Loans repaid by other entities
1.13 Other (provide details if
material)
-----------------------------------------------------------------
Net investing cash flows (7,379) (8,006)
-----------------------------------------------------------------
1.14 Total operating and investing (10,325) (12,994)
cash flows
-----------------------------------------------------------------
Cash flows related to financing
activities
1.15 Proceeds from issues of shares,
options, etc.
1.16 Proceeds from sale of forfeited
shares
1.17 Proceeds from borrowings
1.18 Repayment of borrowings
1.19 Dividends paid
1.20 Other (provide details if
material)
-----------------------------------------------------------------
Net financing cash flows 0 0
-----------------------------------------------------------------
Net increase (decrease) in cash (10,325) (12,994)
held
1.21 Cash at beginning of quarter/year 43,620 44,264
to date
-----------------------------------------------------------------
1.22 Exchange rate adjustments to item (554) 1,471
1.21
-----------------------------------------------------------------
1.23 Cash at end of quarter 32,741 32,741
-----------------------------------------------------------------
Payments to directors of the entity and associates of the directors
Payments to related entities of the entity and associates of the related
entities
Current quarter
US$'000
1.24 Aggregate amount of payments to the parties 345
included in item 1.2
-----------------------------------------------------------------
1.25 Aggregate amount of loans to the parties included 0
in item 1.11
-----------------------------------------------------------------
1.26 Explanation necessary for an understanding of the transactions
Comprising directors' fees, executive director salaries and related
costs, office rent to director-related entities.
-----------------------------------------------------------------
Non-cash financing and investing activities
2.1 Details of financing and investing transactions which have had a
material effect on consolidated assets and liabilities but did not
involve cash flows
None
-----------------------------------------------------------------
2.2 Details of outlays made by other entities to establish or increase
their share in businesses in which the reporting entity has an
interest
None
-----------------------------------------------------------------
Financing facilities available
Add notes as necessary for an understanding of the position. (See AASB 1026
paragraph 12.2).
Amount available Amount used
US$'000 US$'000
----------------------------------------------------------------------
3.1 Loan facilities
3.2 Credit standby arrangements
----------------------------------------------------------------------
Reconciliation of cash
Reconciliation of cash at the end of the
quarter (as shown in the consolidated
statement of cash flows) to the related
items in the accounts is as follows.
Current quarter Previous quarter
US$'000 US$'000
------------------------------------------------------------------
4.1 Cash on hand and at bank 30,722 39,515
------------------------------------------------------------------
4.2 Deposits at call 2,019 4,105
------------------------------------------------------------------
4.3 Bank overdraft
------------------------------------------------------------------
4.4 Other (provide details)
------------------------------------------------------------------
Total: cash at end of quarter (item 32,741 43,620
1.23)
------------------------------------------------------------------
Acquisitions and disposals of business entities
Acquisitions Disposals
(Item 1.9(a)) (Item 1.10(a))
5.1 Name of entity
------------------------------------------------------------------
5.2 Place of
incorporation or
registration
------------------------------------------------------------------
5.3 Consideration for
acquisition or
disposal
------------------------------------------------------------------
5.4 Total net assets
------------------------------------------------------------------
5.5 Nature of business
------------------------------------------------------------------
Notes
Compliance statement
1 This statement has been prepared under accounting policies which comply with
accounting standards as defined in the Corporations Act (except to the extent
that information is not required because of note 2) or other standards
acceptable to ASX.
2 This statement does give a true and fair view of the matters disclosed.
John Richards
Director (30) April 2007
Notes
1. The quarterly report provides a basis for informing the market how the
entity's activities have been financed for the past quarter and the effect on
its cash position. An entity wanting to disclose additional information is
encouraged to do so, in a note or notes attached to this report.
2. The definitions in, and provisions of, AASB 1026: Statement of Cash Flows
apply to this report except for the paragraphs of the Standard set out below.
• 6.2 - reconciliation of cash flows arising from operating activities to
operating profit or loss
• 9.2 - itemised disclosure relating to acquisitions
• 9.4 - itemised disclosure relating to disposals
• 12.1(a) - policy for classification of cash items
• 12.3 - disclosure of restrictions on use of cash
• 13.1 - comparative information
3. Accounting Standards. ASX will accept, for example, the use of International
Accounting Standards for foreign entities. If the standards used do not address
a topic, the Australian standard on that topic (if any) must be complied with.
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