Jul 13 2006
The Directors of Magnesium International Limited advise that they have decided to slow expenditures on the Sokhna primary magnesium project to reduce the cash burn rate. The Sokhna project is being developed by MIL’s 100% owned subsidiary, Egyptian Magnesium Company S.A.E (“EMAG”).
As previously advised, MIL has been evaluating alternatives to fund EMAG through to Financial Close. This has been focussed on an interim equity raising as well as discussions with potential strategic partners. Potential investors have been approached in the Gulf region and UK but there has been insufficient interest to complete the interim equity raising, in part, due to current market conditions. However, MIL is currently in discussions with a party interested in providing equity finance sufficient for the period to Financial Close. MIL Directors have formed the view that the Company’s interests are better served by bringing these discussions to a conclusion. In addition, discussions with potential strategic partners are ongoing but are at an early stage. Anytransaction that may arise will require the approval of MIL Shareholders in General Meeting.
Neither of these possibilities are expected to be concluded rapidly so MIL will take measures to reduce cash outflows. Fresh commitments are not being entered into pending the completion of possible equity arrangements. The cash balance at 30 June 2006 totalled A$3 million after allowing for payout of all creditors, accruals and contingent obligations. All directors are to be employed on a consultancy basis. Peter Sydney-Smith will step down as Finance Director but will remain as a non-executive director.
The MIL Directors believe that EMAG remains an attractive project even though MIL currently does not have the financial resources to maintain development momentum. Projected cash costs of magnesium alloys Delivered Duty Paid into Europe are US$0.64/lb which provides a margin of over US$0.40/lb compared to estimated costs of alloys from Chinese suppliers. It is expected that the cash costs of Chinese producers will increase in coming years through higher ferrosilicon prices; higher coal prices; increased transport costs; increased environmental compliance costs and a higher Renminbi. If these costs increase as expected then EMAG’s projected cost advantage increases and forecast project returns rise.