STRAITS RESOURCES LIMITED ASX:SRQ
ANNUAL REPORT
Straits Resources Limited
WWW.STRAITS.COM.AU
Directors
André Labuschagne Executive Chairman Alastair Morrison Non Executive Director Michele Muscillo Non Executive Director
Joint Company Secretary
Robert Brainsbury Dané van Heerden
Senior Management - Corporate Robert Brainsbury Chief Financial Officer Ian Sheppard Chief Operating Officer
Senior Management - Operations
John Miller General Manager Tritton Mine
Registered and Head Office
Suite 1, Level 2, HQ South Tower 520 Wickham Street
Fortitude Valley, Queensland 4006
Tel: +61 7 3034 6200
Fax: +61 7 3034 6290
Email: info@straits.com.au
Share Registry
Link Market Services
Level 15, 345 Queen Street
Brisbane, Queensland 4000
Tel: +61 7 3320 2200
Fax: +61 2 9287 0303
Email: registrars@linkmarketservices.com.au
Website
www.straits.com.au
Stock Exchange Listing
Australian Securities Exchange (ASX: SRQ)
Auditors
PricewaterhouseCoopers
Lawyers
HopgoodGanim Lawyers
CONTENTS
View online straits.com.au
CORPORATE DIRECTORY 1
EXECUTIVE CHAIRMAN'S STATEMENT 4
REVIEW OF OPERATIONS AND ACTIVITIES 6
EXPLORATION 12
MINERAL RESOURCES AND ORE RESERVES 24
HEALTH, SAFETY AND ENVIRONMENT 32
COMMUNITY 33
CORPORATE GOVERNANCE 34
DIRECTORS' REPORT 46
REMUNERATION REPORT 52
AUDITOR'S INDEPENDENCE DECLARATION 63
FINANCIAL STATEMENTS 64
INDEPENDENT AUDITOR'S REPORT 131
SHAREHOLDER INFORMATION 134
GLOSSARY 135
Straits Resources Limited (Straits Resources) (ASX: SRQ) is an established copper mining and exploration company and currently Australia's fifth largest independent copper producer by volume.
The Company's core asset is its Tritton copper operations in New South Wales, Australia. In FY15 Straits' Tritton operations set a new record for copper production, producing 30,245 tonnes and exceeding guidance for the period.
The Company also has an exciting portfolio of highly prospective, advanced exploration projects creating a pipeline for future growth and a clear opportunity to leverage the Company's established infrastructure at the Tritton operations.
Straits has a clear vision to become a mid-sized, multi-mine company - delivering shareholder value through an unwavering focus on operational excellence.
u Achieved record copper production at the Tritton operations of 30,245 tonnes, marking two consecutive years of new production records;
u Executed indicative non‑binding term sheet to restructure the Company's debt with lender Standard Chartered Bank in June and subsequently entered into binding agreements in July;
u Introduced new strategic partner, Special Portfolio Opportunity V Limited, to provide US$25 million Revolving Priority Debt Facility;
u Increased gross profit by 78 per cent year‑on‑year; and
u Exited Indonesian subsidiary (including the Mt Muro gold mine) with no ongoing liabilities.
Straits' Tritton operations
In the past year, our strategic focus has centred on restructuring the Company's debt, which culminated in the execution of binding agreements with our primary lender, Standard Chartered Bank, and a new strategic partner, Special Portfolio Opportunity V Limited in July 2015. Subject to shareholder approval, this critical restructuring will substantially reduce Straits' debt and position the Company for future growth.
During the period our flagship asset, the Tritton operations in New South Wales, processed a record
1.64 million tonnes of ore, and delivered record copper production of 30,245 tonnes.
During the year we also successfully exited the Company's Indonesian subsidiary, PT Indo Muro Kencana (PT IMK), owner of the Mt Muro gold mine. Straits had previously placed the Mt Muro gold mine on care and maintenance in August 2013. A settlement plan was agreed with Creditors of PT IMK in October 2014 and in June 2015 the Creditors of PT IMK completed the sale of PT IMK
to a third party. Straits did not receive any consideration in relation to the sale and has no interest in or ongoing liability in respect of PT IMK or the Mt Muro mine.
Looking ahead, the next year will see us continue
our dual focus on cost management and operational excellence, to maintain high levels of mining and processing throughput and deliver target copper production of 28,000 tonnes.
We will also progress some of the priority targets in Tritton's extensive exploration landholding, a highly prospective and under-explored copper region.
Our near-term strategy includes pursuing extensions to the currently operating Tritton, Larsens and North East mines, as well as targeting repeats of the Avoca Tank deposit, which are quite typical for its particular style
of mineralisation.
In the longer term, we aim to become a mid-sized,
multi-mine company, delivering shareholder value through an unwavering focus on operational excellence. We will achieve this by leveraging our existing infrastructure to progress priority exploration targets around Tritton, and through appropriate merger and acquisition opportunities with a bias towards copper projects.
year were down, averaging $2.44/lb (FY14 $2.55/lb) for the period. This reduction was net of a $0.11/lb increase in treatment and refining charges and was realised from the optimisation of site operations, the negotiation of improved contracts with suppliers and record production figures.
André Labuschagne
Executive Chairman
Ensuring workforce safety remains our highest priority. While I am delighted that our incident rate is the lowest it has been in five years, this does not provide a sense of complacency and we remain committed to driving education and engagement programs to maintain the decline in the total recordable injury frequency rate.
The 2015 financial year was a period of many successes for Straits Resources, positioning us well to progress future growth opportunities, not least
from our prospective exploration projects surrounding the existing operations at Tritton.
Our team achieved a new copper production record of 30,245 tonnes at our Tritton operations, exceeding the original guidance of 27,000 tonnes and upgraded guidance of 28,500 tonnes, and marking two consecutive years of record production.
This fantastic result was underpinned by a solid performance from the operations team and copper grades from the Larsens and North East mines being consistently higher than the reserve grade during the year as we mined a higher grade section of the orebody.
I am particularly pleased that while production was up, at the same time our C1 unit cash costs for the financial
Financially, Straits achieved a 78 per cent increase in gross profit as well as a seven per cent increase in revenue from continuing operations. Overall, the
Company recorded a net loss after tax of $31.5 million largely as a result of foreign exchange losses
($27.3 million), and the impairment of some of the Company's non-Tritton associated exploration assets ($6.8 million).
Repairing the balance sheet and providing a stable financial platform for the Company has been a major focus in recent years. A significant milestone in this process was reached in July 2015, when we executed binding agreements with Straits' lender, Standard Chartered Bank (SCB) and a new strategic partner, Special Portfolio Opportunity V Limited (PAG SPV).
PAG SPV is a subsidiary of a large Asian-based investment firm with more than US$12 billion under management. I look forward to working with them in the coming years and welcome their partnership with Straits.
Subject to shareholder approval, the restructuring agreement will substantially reduce our debt level and remove the considerable financial uncertainty we have faced in recent years. It will also provide essential new working capital to realise the potential of some of our
advanced exploration projects to grow Straits into a leading Australian copper producer.
In keeping with our strategy, drilling at Tritton will be a focus in the coming year, initially pursuing depth
extensions to the Tritton orebody which remains open at depth. Drilling was underway at the close of the financial year to improve resource confidence and increase the Tritton mine life.
Other priority targets include the Larsens and North East mines, which currently provide ore which is processed
at the Tritton mill. Drilling will target additional resources at these mines to extend the life of their respective operations. Repeats of the Avoca Tank mineralisation will also be targeted, given that these Volcanogenic Massive Sulphide, or VMS style deposits, typically occur in clusters.
The wider exploration tenement package surrounding the Tritton operations remains highly prospective, with
encouraging early stage exploration activities at a number of prospects. With close access by road to Straits' existing processing plant at Tritton, this area has been and will continue to be the main focus of exploration for the Company due to the potential to realise operational efficiencies by leveraging the established infrastructure
at the Tritton operations.
With this focus on exploration on the Tritton tenements in mind, the strategy to progress Straits' exploration projects outside of the Tritton region is to either divest or joint venture. During the year we sold the Tick Hill tenement package in Queensland, and entered into
a farm-out joint venture agreement for the Blayney project in New South Wales.
In June 2015 another significant strategic objective, exiting the Company's former Indonesian assets, was achieved. This occurred when the Creditors of Straits' subsidiary PT Indo Muro Kencana (PT IMK), the owner
of the Mt Muro gold mine in Indonesia, completed the sale of PT IMK to a third party. The sale followed more than twelve months of consultation and co-operation between the parties involved, and allowed Creditors
of PT IMK to crystallise value from its assets. Importantly, Straits no longer has any related interest in or ongoing liability in respect of PT IMK or the Mt Muro mine, and
did not receive any consideration in relation to the sale.
Overall, the 2015 financial year marks a major turning point for Straits. Operationally, the Company's success is evident with record production and processing.
Furthermore, with a debt restructuring solution in place, I am confident that today Straits is considerably better positioned to realise the clear opportunities presented by its extensive landholding and existing infrastructure
in an under-explored and highly-endowed copper region.
Our operational success in the past year is a credit to all of our employees and contractors. Thank you for your daily effort, your commitment and hard work.
Likewise to our shareholders, I thank you for your continued support and look forward to keeping you up to date as we set out to create value from your restructured company in the year ahead.
Yours sincerely
André Labuschagne
Executive Chairman
Straits Resources recorded a net loss after tax for the financial reporting period to 30 June 2015 of
$31.5 million, compared to a net profit after tax of
$57.4 million for the previous year. The financial result was impacted by a number of key factors, including foreign exchange losses of $27.3 million and the impairment of exploration assets of $6.8 million.
Net cash inflows from operating activities for the financial year was $46.0 million, compared with $35.2 million in the previous year.
The net loss attributable to Straits for the period of
$31.5 million resulted in a negative net asset position of $27.2 million. As at 30 June 2015, Straits' cash and
investments included cash of $24.0 million, investments of $2.1 million and $4.0 million of restricted cash.
The Company's net cash inflows from operating activities was $46.0 million, net cash outflows from investing activities was $31.4 million and net cash outflows from financing activities was $3.9 million. Foreign exchange revaluations amounted to $0.6 million on cash and cash equivalents, resulting in a net increase in cash and cash equivalents of $11.3 million, compared to a decrease
Profit/(loss) | 30 June 2015 ($M) | 30 June 2014 ($M) |
Revenue from continuing operations | 217.3 | 202.9 |
Gross profit | 24.4 | 13.7 |
Loss from continuing operations | (31.5) | (46.6) |
Profit/(loss) for the year | (31.5) | 57.4 |
of $5.5 million in the previous year.
NON‑CORE INVESTMENTSStraits announced the sale of the Tick Hill Project in Queensland, comprising exploration tenements
EPM9083 and EPM11013, in December 2014 with the sale completed in June 2015.
In addition, the sale of PT Indo Muro Kencana (PT IMK), Straits' wholly owned Indonesian subsidiary, was finalised during the period under review. Its sale by the Creditors of PT IMK concluded Straits' exit from its former Indonesian assets. PT IMK owns the Mt Muro gold mine, which had been on care and maintenance since August 2013. The sale was achieved after more than twelve months of consultation and co-operation between relevant parties, and allowed Creditors of PT IMK to crystallise value from its assets. Straits no longer has any related interest in or ongoing liability in respect of PT IMK or the Mt Muro mine.
Repairing the balance sheet and providing a stable financial platform for the Company was a major focus during the year and significant progress was made towards achieving this important objective.
In June 2014 Straits announced that formal documentation had been executed for a restructuring of pre-existing debt facilities (Copper Swap Facility and Working Capital and Guarantee Facility) held by Straits' wholly owned subsidiary, Tritton Resources Pty Ltd, with Standard Chartered Bank (SCB).
The debt restructuring entailed the close out of the Copper Swap Facility for US$99.9 million, funded by a Bridge Loan provided by SCB, and capped the Working Capital and Guarantee Facility at US$14.6 million.
Discussions between Straits and SCB were ongoing throughout the year, with respect to agreeing a longer term solution (Refinancing Plan).
The Refinancing Plan was initially to be agreed by
13 November 2014. On this date a formal amendment to the original Bridge Loan documentation was executed, with the only material changes to the Bridge Loan terms relating to a revised timeline for completion of the Refinancing Plan, and finalisation of the Debt Restructure.
Interest and fees payable on the Bridge Loan and Working Capital and Guarantee Facility, from the execution of the restructuring documentation in June 2014 and until the Refinancing Plan is completed, are being capitalised.
On 11 June 2015, Straits announced that it had signed an indicative non-binding Term Sheet with SCB, and a large Asian based investment firm
to restructure the Company's existing debt and secure new capital.
A major milestone in the restructuring process was reached on 31 July 2015, when Straits executed binding agreements with SCB and a new strategic partner, Special Portfolio Opportunity V Limited
(PAG SPV). PAG SPV is a subsidiary of a fund managed by PAG (formerly Pacific Alliance Group), a large Asian based investment firm with more than US$12 billion under management.
Subject to various conditions precedent, including shareholder approval, the restructuring agreement removes significant uncertainty and creates the opportunity to utilise new working capital to progress known growth projects and exploration at Tritton to grow Straits into a leading Australian copper producer.
The agreement restructures the current debt with SCB through:
A Senior Debt of US$50 million (55 per cent reduction) with a seven year term;
The issue of Redeemable Convertible Preference Shares with a notional valuation of US$40 million, subject to shareholder approval, equivalent to 60 per cent of Straits' post refinancing fully diluted equity; and
A price participation structure whereby SCB will receive a small percentage of incremental revenue above a copper price of $8,000 per tonne.
As part of the agreement, PAG SPV is to:
Provide a three year US$25 million Revolving Priority Debt Facility for working capital and growth projects at the Tritton operations; and
Subject to shareholder approval, be issued with Non-Redeemable Convertible Preference Shares equivalent to 15 per cent of Straits' post refinancing fully diluted equity.
In addition, SCB and PAG SPV required the senior management team of Straits to commit to the business for the next five years in order to deliver on the operating plans which underpin the restructuring. Therefore four members of the management team have been offered options, subject to shareholder approval, which if all vesting conditions are met over the next five years, would allow them to earn up to 10 per cent of the
post-restructuring equity of Straits. The existing equity incentive plan for senior management will be bought out by Straits and the shares cancelled.
26,422
23,936
23,962
23,338
Copper Metal (tonnes)
TRITTON OPERATIONSTritton Copper Production
35000
30000
30,245
FY10 FY11 FY12
FY13
Year
FY14
FY15 FY16 (E)
20,847
25000
20000
15000
10000
5000
0
Straits' Tritton operations set a new record for annual copper production in FY15 of 30,245 tonnes, exceeding the original guidance of 27,000 tonnes and upgraded guidance of 28,500 tonnes.
This outstanding operational result was underpinned by consistent performances from the Tritton and North East mines and the processing plant, together with better than expected copper grades.
Copper grades from the Larsens deposit at the North East mine were consistently higher than the reserve grade during the year as a higher grade section of the orebody was mined.
28,000
Units | FY15 | FY14 | |
Development | Metres | 7,375 | 6,727 |
Mined | Tonnes | 1,622,829 | 1,572,728 |
Grade Mined | % Cu | 1.94 | 1.77 |
Milled | Tonnes | 1,641,483 | 1,568,755 |
Grade Milled | % Cu | 1.93 | 1.77 |
Recovery | % | 94.65 | 94.29 |
Cu Concentrate | Tonnes | 123,367 | 109,232 |
Cu Grade | % | 24.37 | 24.00 |
Cu in Concentrate | Tonnes | 30,059 | 26,185 |
Cu Cement | Tonnes | 186 | 237 |
Total Cu Produced | Tonnes | 30,245 | 26,422 |
Production for the year was:
Underground mining at the Tritton mine
The geometry of the Tritton orebody has changed as it is mined deeper. Specifically, the orebody dip in the
active mining areas has reduced whereas the width has increased. To suit these changes the stope design and extraction sequence were altered to improve the stability of the stope walls and cemented paste fill exposures.
The mining process was therefore modified from transverse stoping with access from a footwall drive, to a longitudinal retreat sequence and modified stope designs which avoid significant undercut of cemented
paste fill. This transition to the modified stope sequence was completed during the December quarter and provided opportunities to lower the operating costs
of the mine. Savings have been achieved as the new mining method requires less waste development and less cement in paste backfill.
Mining at the Larsens deposit commenced during the year. This deposit is accessed from the North East mine decline and production is coordinated with that from the North East deposit using the same crew and equipment. Production from the Larsens ore lenses has been very successful with higher grades achieved from stopes which were more stable than anticipated. The high
grade ore mined from Larsens has encouraged local area exploration to look for extensions or similar small deposits.
North East deposit mining continued during the period, although at a slower rate due to the additional ore supply from Larsens. Results were good with lower dilution and good copper grades achieved.
The processing plant at Straits' Tritton operations
The Tritton operations' processing plant achieved record throughput during the financial year, processing more than 1.64 million tonnes of ore, an increase of more than 72,000 tonnes compared to the previous year.
Three de-bottlenecking modifications to the ore handling system undertaken during the year helped to improve plant throughput. These included installation of a self- cleaning tramp metal magnet on the crusher discharge conveyor; replacement of a complex transfer chute with a surge bin and apron feeder at the conveyor feeding
the SAG mill; and a change in the crusher jaw profile to enable higher crushing rates. The combined impact was less frequent stoppages in ore flow, and higher instantaneous crushing rates, resulting in higher than average processing rates.
The improving plant performance has meant processing capacity continues to be higher than mine production rates. An ore processing rate of 1.8 million tonnes
per annum is the target for the plant in order for it to stay ahead of expanding mine production, and further de-bottlenecking improvements are being investigated. The plant has demonstrated the target rate over monthly periods when sufficient ore has been available for treatment.
Mine Equipment FleetThe Company continues to actively manage the replacement of its mine equipment fleet and during the financial year both purchased and leased a combination of new and second hand equipment. The consistent investment approach in replacement equipment has improved the general condition of the fleet. The current underground haul truck fleet at the Tritton mine is nearing the end of their economic lives and a process has commenced to identify a replacement fleet of the latest 60 tonne capacity machines. The replacement program is scheduled for the 2016 financial year.
C1 unit cash costs for the financial year averaged
$2.44/lb compared with $2.55/lb in the previous year.
Rising smelter treatment and refining charges (TC/RC's) (in US$ and A$ terms) in the world copper concentrate market increased the copper realisation expense by
$0.11/lb during the period under review. The increase in TC/RC's was offset through the optimisation of site operations, the successful negotiation of improved contracts with suppliers and the record copper production achieved.
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