LAOS - Progressive year at Phu Kham copper-gold project

It has been a year of progress for rising Australian mining star Pan Australian Resources with the development of its Phu Kham copper-gold mine in Laos.

The most significant event of the year has been securing funding for the development of the Phu Kham Copper-Gold Mine. The funding package included a successful prospectus entitlements offer underwritten by Goldman Sachs JBWere that raised US$140 million.

Pan Australian managing director Gary Stafford says the funding support for the development was an endorsement of the quality of the asset and the company's capacity to deliver the project on schedule and within budget.

The US$232 million Phu Kham Copper-Gold development was fully financed in the first half of this year through a US$295 million debt-equity package. In addition, the ANZ Investment Bank has underwritten working capital and cost overrun facilities that total an additional US$47 million.

"We are fully funded and we remain confident that we can construct the mine on time and within budget," he said.

Orders for all long lead and major capital items, including the crusher and mills, have been placed within budget estimates and according to delivery schedules that support the target mid-2008 start-up of the mine, Gary Stafford says.

"We are fully funded and cashed up with over US$133 million in the bank (as at 30 June); first debt draw down for Phu Kham is not required until March next year and we have a substantial provision for working capital and contingencies," Gary Stafford says.

"At full production, the project should produce more than 200,000 dry metric tonnes of concentrate a year, containing on average 52,000 tonnes of copper, 47,000 ounces of gold and 400,000 ounces of silver - a company-making project for Pan Australian."

Development activities for Phu Kham copper-gold are progressing well with plant site and access road pioneering works well advanced and on schedule for completion in the fourth quarter of this year.

"Operating cash flows from the Phu Bia Gold Mine contributed US$4.1 million (after inventory adjustment), which covered all corporate and administrative costs during the first-half of 2006, as well as making a contribution to funding the exploration effort. This was despite production at the mine being adversely impacted by wet weather in May and June, and the initial ramp-up of production during the reporting period," he said.

The company remains an unhedged gold producer and therefore is able to fully benefit from any increases in the US dollar gold price. Wet weather continued to impact production at the Phu Bia Gold Mine through the September quarter.

Pan Australian has reported encouraging assay results from resource drilling at the Ban Houayxai deposit, 45km west of the Phu Bia Gold heap leach processing plant. The Ban Houyxai deposit is one of three deposits that comprise the ore reserve for the Phu Bia Gold Mine. The other two deposits, Phu Kham gold cap and Long Chieng Track, are within 7km and 5km of the processing plant, respectively.

The results from Ban Houayxai have identified additional and high-grade resource mineralisation that is likely to warrant further drill investigation with the objective of defining an ore reserve that could either support a standalone development or provide high-grade feed for trucking and processing at the Phu Bia Gold heap leach plant.

Resource drilling at the Phu Kham gold cap and the nearby Long Chieng Track deposit has also identified additional low-grade resource mineralisation.

Pan Australian is currently mining ore from the Phu Kham gold cap that overlies the Phu Kham Copper-Gold deposit. Accordingly, the identification of additional ore reserves within the Phu Kham gold cap will serve to reduce the already exceptionally low waste to ore strip ratio for the Phu Kham Copper-Gold Mine of 0.6:1 and is likely to justify a change in the mining schedule so such additional ore reserves within the gold cap are mined in priority to high-grade ore currently scheduled to be mined from the Ban Houayxai deposit during 2007.

Revised mineral resource and ore reserve estimates are being compiled and a revised mining schedule for the Phu Bia Gold Mine will also being developed during this quarter.

A likely consequence is a reduced pre-production working capital requirement for the Phu Kham Copper-Gold Mine and lower gold production from the Phu Bia Gold Mine during 2007. This will be achieved through placing a higher priority on mining low-grade ore from increased ore reserves within the Phu Kham gold cap and the postponement of mining of relatively high-grade ore from Ban Houayxai, thereby permitting time for further drill evaluation of the potential for a standalone development at the latter deposit. The company will determine the best value outcome during the December quarter.

"Exploration and resource drilling has returned encouraging drilling results from new prospects and existing deposits and the Phu Kham Copper-Gold mine development is proceeding to schedule. Pan Australian is excited by the opportunity to make a significant contribution to Laos' development, while at the same time becoming one of Australia's leading minerals producers," Gary Stafford says.

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