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Long-term Southland Coal Alliance With Thiess Investment & Joint Venture

ASX Announcement & Media Release

23 May 2001

Australian mining company, Gympie Gold Limited, today announced a long-term strategic alliance in its Southland coalmining operations in the Hunter Valley, NSW with Thiess Pty Ltd a wholly-owned subsidiary of Leighton Holdings Limited.

Thiess has invested $11 million to take a 10% joint venture interest in Southland Colliery while Southland Coal, a wholly-owned subsidiary of Gympie Gold, retains 90%.

Thiess was appointed Mine Operator on 7 March 2001 to mine the first 3 million tonnes over the next two years, under a contract with guaranteed maximum cost per tonne of run-of-mine coal and per metre of development advance.

Thiess has now been awarded an additional 8-year contract to operate the Southland Colliery after completing its current contract.

Since Thiess commenced at site it has substantially completed remediation of damage caused by the previous operator; it has also appointed new site management and all other personnel, under a new enterprise agreement. Production has for the past few weeks been running at the annualised equivalent of 1.5 million tonnes and coal shipments have recommenced.

Customer demand remains very strong and exceeds short term supply.

Thiess Executive General Manager NSW and Victoria, Mr David Saxelby, said "the joint venture terms and the long-term operating arrangements reflected a strategic plan jointly developed over the past four months".

The jointly agreed "base case" planning assumptions and initial project valuation parameters include the following:

  • Production growing from 1.5 million tonnes per annum to 2.6 million tonnes per annum by 2004 and averaging 2.5 million tonnes per annum over the next 10 years.
  • Average exchange rate $US65 cents per $A100 cents.
  • Generation of before tax operating cash flows of $A300 million over 10 years.
  • Installation of new automated longwall unit in Year 3, funded by introduction of long-term project finance.
  • Initial project valuation at after-tax discount rate of 15%.

Finance Director of Gympie Gold and Chief Executive of Southland Coal, Mr John Leach said the long-term mine operating contract reflects alliancing principles with terms including the following:

  • Alliance contract commencement after completion of initial 3 million tonne contract which is based on guaranteed maximum costs.
  • Thiess operation of the Southland Colliery.
  • Open-book access to all data and to all Thiess costs, forecast to average $60 million per annum.
  • Joint commitment to continuous improvement with annual resetting of key performance parameters and sharing of under/over-performance against set parameters.

Managing Director of Gympie Gold Limited, Mr Harry Adams observed "The Thiess alliance and the joint plans to expand Southland coincide with a major upturn in coal markets. Investment markets have also improved for the coal sector, with recent capital raisings and a current coal-company float implying values for Southland Coal in excess of $110 million.

Returns for our shareholders can now be maximised by implementing the business plans jointly agreed with Thiess. The strength of the project economics, of the commitment from Thiess and of the operating alliance with Thiess provide a great opportunity for us to build a business worth over $200 million within three years".




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Last Modified: Friday, 23-Aug-2002 08:55:16 EST