TerraCom Limited (“TerraCom” or the “Company”) (ASX: TER) is pleased to present its quarterly activities report for the period ended 31 December, 2015.
HIGHLIGHTS
• 2015 Strategic review implementation progressing across operational and corporate levels.
• Re-branding approved by shareholders at EGM to change the Company name to TerraCom Limited.
• Townsville corporate office closure as part of the Company’s further cost rationalisation and cost reduction program.
• The Baruun Noyon Uul (BNU) coking coal mine in Mongolia completed another calendar year Lost Time Injury (LTI) free and was awarded “Best Mining Company of Mongolia focused on Health and Safety – 2015” from the Mongolian Ministry of Mining.
• Direct mining costs of ~US$28 per run of mine tonne achieved at BNU during period. • Exploration licence obtained for 18 km2 area which is 81.5 kms east of BNU mine. A
number of other exploration areas are under application in the South Gobi province and also the Uvs Province of Mongolia.
Corporate Strategy and Operating Environment
As a consequence of continuing weak global market conditions during the Quarter, volatility in the resource market has become the norm. This is presenting significant economic and funding challenges for TerraCom.
In the face of these challenges, the Company has remained focused on delivering both the corporate and operational recommendations of the strategic review of the Company which was completed in early 2015.
Restructure of Balance Sheet
TerraCom, along with its advisors and principal financiers have worked tirelessly to restructure the Company’s existing financing facilities; generate new finance opportunities; and generate additional share equity with investors. The Company expects to complete the Restructure of the Balance Sheet during Q1 2016.
Extraordinary General Meeting
At the Company’s Extraordinary General Meeting (EGM) held on 30 October 2015 shareholders approved the Company name change TerraCom Limited (ASX: TER). The new name better reflects the strategic direction and focus to transition to a dynamic energy and resources company.
At this EGM shareholders also voted up the approval of adjusting the terms of the Company’s convertible notes and amortising notes facilities, as well as the issuing of new warrants attached to these facilities.
Annual General Meeting
The Company held its Annual General Meeting (AGM) on 30 November 2015. For the second year in a row Company’s Remuneration Report had more than 25% votes against it; however, no spill resolution was voted up. It is important to consider that only 64% of shareholders voted on this Resolution; and accordingly the votes against represent only 16% of total shareholders votes.
The shareholders however recognised the valuable contributions the Directors provide to TerraCom. All 5 directors who had been appointed to the Board since the previous AGM were voted up by shareholders to remain on the Board – Craig Wallace, Michael Avery, David Stone, Philip Forest and Hwee Fang Loo.
Relocation of Corporate Office
As part of the Company’s cost rationalisation and cost reduction drive, the Townsville corporate office in Queensland, Australia was closed in December, 2015 and relocated to Thirroul in NSW. Thirroul is located only 60 minutes south of Sydney.
Change in Board Composition
During December 2015 the Board composition was modified to ensure clear separation and focus on the differing functions and requirements in the areas of corporate governance delineated from strategic development and associated implementation. Michael Avery remains on the Board as an executive director with a focus on strategy, corporate governance, marketing and stakeholder relations. David Stone resigned from the Board and remains as a senior executive reporting to the Board. His focus is on strategic development and implementation of the TerraCom business strategy.
Potential Asian Stock Exchange Listing
TerraCom also continues to investigate the merits and mechanisms for a potential listing on an Asian stock exchange, a crucial recommendation of the strategic review. A regional hub in Singapore is providing logistics and marketing support to the Company.
Operations - Mongolia BNU
SafetyOur operations continued to deliver strong health and safety performance with the BNU Coal Project continuing its very impressive safety record of No Lost Time Injury (LTI) since inception. The project has now recorded over 1.5 million man hours without an LTI. In addition to the good safety record, the BNU Coal Project was awarded first prize for “Best Mining Company of Mongolia on Health and Safety – 2015”. The award was received from the Mongolian Minister of Mining.
Revenue Realisation Pressure
The end user coal sales prices have continued to soften over the last quarter in direct relation to the volume constraints and conditions that exist in the Chinese steel market. The Chinese seaboard metallurgical coal sales prices have softened considerably as demonstrated with the relative example of the Platts HCC mid-vol price falling from approximately US$110 per metric tonne (mt) in January 2015 to
US$93 per mt in July 2015 and further to US$79 per mt in December 2015. This represents a 30% fall over the 2015 calender year.
The continued downward pressure on the internal market has also seen end-user sales prices drop from CNY¥570 per mt in January 2015 to CNY¥548 per mt in July 2015 and further to CNY¥530 per mt for November sales, on a Free on Transport basis at Ceke in China. This is approximately a 7% reduction, and is considerably smaller price fall compared to the effect on the seaborne market.
The operation has continued to drive down the direct mining costs of the BNU mine and is continuing to deliver industry leading productivities. The direct mining costs per ROM tonne for December 2015 quarter was US$ 28.34, which represents a 12% reduction to the September 2015 quarter.
Production
Production from the BNU Coal Project continued throughout the quarter with a focus on extracting premium Hard Coking Coal from Pit 2. A second Run of Mine (ROM) stockpile was constructed near to the exit of Pit 2 to optimise haulage and reduce overall coal haulage cost for the mining fleet. Given the high bench advance rate in Pit 2 the mining team had pit dewatering as a critical focus. Reconciliation of the coal produced against the geological model also continued to be monitored throughout the quarter.
Figure 2 – Pit 2 from the end wall looking East
Initial coal production commenced from Pit 2 in July 2015 ramping up through the quarter.
Figure 4 - Coal cropping in the Low Wall of Pit 2, coal mining in the background
Production from the initial Pit (Pit 1) has been put on hold in order to reduce overall production costs during the tough market conditions.
Table 1 – Quarterly BNU Coal Project Production Statistics compared to Previous Quarter
Q2 2015/2016 Q1 2015/2016
Rom coal production (tonnes) 179,140 154,374
Overburden removed (BCM) 1,938,177 2,527,210
Coal trucked to China (tonnes) 164,839 64,618
Coal washed (tonnes) 79,142 74,697
Overall gross product yield 91% 82%
Prime HCC delivered to Customers (tonnes) 38,564 57,261 Other Coal delivered to customers (tonnes) 58,451 4,215
EOM ROM Stocks (tonnes) 97,300 101,681
During the quarter, the BNU operation encountered variability to coal extraction as volumes increased month to month, being:
1. Variability in third party CHPP washing yield 2. Variability in the ‘in pit’ coal reconciliation 3. Closure of the third party logistics line
The Company is continually monitoring these variables, and management has enacted a detailed review and action plan.
Figure 6 - Clean Coal Stocks in Ceke at Wash plant
While the market continues to remain soft Terra Energy continues to focus on maximising the quality of the BNU coking coal to deliver superior returns in the current market.
Development - Mongolia
Mining LicensesSouth Gobi Mining Licenses applications XV005264, XV13780 and XV17163 all remain in the last stages of approval with MRAM (Minerals Resource Authority of Mongolia).
An additional exploration license (License number XV-018513) was issued to TerraCom’s subsidiary Terra Energy LLC (Terra Energy) during the quarter. The licence located in the South Gobi coal basin is in close proximity to the BNU Mine (81.5 km east of the mine) and existing exploration assets. The 18.5km2 licence has been granted for a term of 3 years, and following this approval can be requested for a further 12 years extension which is granted in 3 year stages. The licence is 170 km from the Chinese border crossing at Shivee Huren/ Ceke, which is the main distribution centre for the BNU coal. Further, the South Gobi Resources Ltd Zag Suuj deposit is located 75km North West of the licence. A prior report prepared by Minarco Mineconsult estimated a NI 43-101 compliant 21.5 million tonnes of indicated coal resource and 84 million tonnes of inferred resource.
Terra Energy now holds 15 mineral licences in Mongolia across 3 project areas: 1. South Gobi, 2. Middle Gobi, 3. Uvs Provinces. The South Gobi Project now holds 10 licences being 3 mining licences, 4 exploration licences, and 3 application for mining licences (pre-mining).
Uvs Project
The Uvs project is situated in the north-western region of Mongolia. The project area is targeting Potash Salts, Brines (CaCl2 and Lithium) and Coking Coal and consists of three exploration licenses 18142X (coking coal and adjacent to Khuden Coking Coal Mine), 18797X and 18802X (Potash and Brines).
1:200 000 scale geological mapping work was conducted within the exploration area. In total 120 line kilometres of prospecting was completed to determine the boundary tracking the sediments of the salt bearing Mid-Devonian Tserd Uul formation (D2cr) and coal bearing mid-upper carboniferous Khuden formation (C2-3hd) and determine shallow coal and salt outcrops.
Detailed geological mapping was conducted with 45 samples taken from the lithology contacts of outcrops. An additional 14 grab samples were taken from the alteration and occurrence zones, coal, salt and gypsum narrow beddings and host rocks.
Figure 7 – Mapping of the Uvs Project Area Coal Bed Methane (CBM)
A CBM license exploration contract application in the South Gobi is under negotiation with PAM (Petroleum Authority of Mongolia). Further development is expected in Q3, FY2016.
Operations – Queensland
A focus on cost conservation on projects as a result of the 2015 strategic review has restricted exploration for the reporting period. The North Galilee and Springsure Project remains the focus and there have been discussions with potential joint venture or offtake partners to self-fund these projects through the development phase into operating mines.
The company continues to seek investment partners for the next stage of development of the Australian assets.
Springsure Project – Next Stage Drilling Program
Business Development
AustraliaThe Company is currently considering a strategic opportunity, through a 3rd party, to assume their negotiated position to acquire a mature mining operation which is currently on care and maintenance.
Indonesia
The Company is nearing Completion of its desktop due diligence on a hard coking coal mining operation in Indonesia. The mine’s production licence has a 12 year remaining life and is located in close proximity to road, barge and port infrastructure which connects into the seaborne coal market. The mine has a capability of delivering 500,000 tonnes per annum of hard coking coal.
ABOUT TERRACOM – www.terracomresources.com
TerraCom has fully commissioned the Baruun Noyon Uul (BNU) coking coal mine in the South
Gobi Mongolia. The Company’s goal is to become one of the largest and highest quality coking
coal producers in Mongolia, providing exceptional value for its steel-producing customers.
TerraCom is also focused on developing two priority projects in Queensland, Australia: the large
thermal coal Northern Galilee Project and the high energy prime thermal coal Springsure
Project.
Please contact Nathan Boom, on +61 2 4268 6258 or at info@terracomresources.com for further information.
Michael Avery
+ See chapter 19 for defined terms. 01/05/2010 Appendix 5B Page 1
Mining exploration entity and oil and gas exploration entity
quarterly report
Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/2013
Name of entity
TerraCom Limited
ABN Quarter ended (“current quarter”)
35 143 533 537
31 December 2015
Consolidated statement of cash flows
Cash flows related to operating activities Current quarter
$A’000
Year to date (6 months)
$A’000 1.1 Receipts from product sales and related
debtors 4,637 7,040
1.2 Payments for (a) exploration & evaluation (b) development(1) (c) production(1) (d) administration (130) (3,246) (1,243) (2,863) (392) (7,053) (2,878) (4,871) 1.3 Dividends received - -
1.4 Interest and other items of a similar nature
received - -
1.5 Interest and other costs of finance paid(2) - -
1.6 Income taxes paid - -
1.7 Other (provide details if material) (673) (1,073)
Net Operating Cash Flows (3,518) (9,227)
Cash flows related to investing activities
1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets
- -
1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets
- -
1.10 Loans to other entities - -
1.11 Loans repaid by other entities - -
1.12 Other (provide details if material) (211) (331)
Net investing cash flows (211) (331)
1.13 Total operating and investing cash flows
+ See chapter 19 for defined terms.
Appendix 5B Page 2 01/05/2013
1.14 Proceeds from issues of shares, options, etc. - -
1.15 Proceeds from sale of forfeited shares - -
1.16 Proceeds from borrowings(2) 4,498 10,439
1.17 Repayment of borrowings - -
1.18 Dividends paid - -
1.19 Other (provide details if material) (608) (1,231)
Net financing cash flows 3,890 9,208
Net increase (decrease) in cash held 161 (350)
1.20 Cash at beginning of quarter/year to date 211 687
1.21 Exchange rate adjustments to item 1.20 (6) 29
1.22 Cash at end of quarter 366 366
Notes:
(1) The BNU North Mining operation achieved commercial production for accounting purposes from 1 September 2015. All costs incurred at the BNU North Mining operation prior to this date when paid will be classified as Development costs in this section as per accounting requirements
(2) As announced to the market on 31 December 2015 in relation to the finance update, the Company continues to maintain a strong and supportive working relationship with its existing financiers. The Company has been working on two options, mainly the bond and the
traditional debt facility, in parallel in its efforts to achieve the requisite balance sheet
recalibration early in 2016. Both debt restructuring options would provide stability and funding security to the Company to enable it to successfully deliver its strategic objectives.
Payments to directors of the entity, associates of the directors,
related entities of the entity and associates of the related entities
Current quarter $A'000
1.23 Aggregate amount of payments to the parties included in item 1.2 (295)
1.24 Aggregate amount of loans to the parties included in item 1.10 -
1.25 Explanation necessary for an understanding of the transactions Item 1.23 includes fees and salaries paid to directors.
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
+ See chapter 19 for defined terms. 01/05/2010 Appendix 5B Page 3
Financing facilities available
Add notes as necessary for an understanding of the position.
Amount available
$A’000 Amount used $A’000
3.1 Loan facilities[1]
156,036 155,429
3.2 Credit standby arrangements
- -
Note 1: Item 3.1 consists of the following financing facilities:
- Noble Debt Facility US$10m (A$13.7m equivalent)
- Noble Working Capital Facility US$10m (A$13.7m equivalent)
- Noble Fuel Exclusivity Agreement US$7.5m (A$10.3m equivalent) of the original facility of US$8.0m
(A$10.9m equivalent)
- Noble Additional Debt Facility US$14.0m (A$19.1m equivalent)
- Noble Additional Working Capital Facility US$7.0m (A$9.6m equivalent)
- OCP Amortising Notes US$55m (A$75.3m equivalent)
- OCP Convertible Notes US$10m (A$13.7m equivalent)
Estimated cash outflows for next quarter
$A’0004.1 Exploration and evaluation (897)
4.2 Development (4,243)
4.3 Production (6,472)
4.4 Administration (2,012)
Total(2) (13,624)
Note:
(2) The funds to support the forecast expenditure will come from a combination of revenue from sales, equity and debt funding.
Ongoing Funding Requirements:
As announced by the Company’s ASX release dated 31 December 2015, TerraCom remains on track to deliver all aspects of the 2015 strategic review, both on a corporate level and on operational level in Mongolia and Queensland. A critical aspect of the Company’s recent activities has been the evaluation and active pursuit of several funding alternatives to enable a restructuring of its existing debt facilities (the “Restructuring”). In this regard, the Company continues to maintain strong and supportive working relationships with its existing financiers to allow requisite time to complete the Restructuring.
+ See chapter 19 for defined terms.
Appendix 5B Page 4 01/05/2013
shown in the consolidated statement of cash flows)
to the related items in the accounts is as follows. $A’000 $A’000
5.1 Cash on hand and at bank 366 211
5.2 Deposits at call - -
5.3 Bank overdraft - -
5.4 Other (provide details) - -
Total: cash at end of quarter (item 1.22) 366 211
Changes in interests in mining tenements and petroleum tenements
Tenementreference and location
Nature of interest
(note (2)) Interest at beginning of quarter Interest at end of quarter 6.1 Interests in mining tenements and petroleum tenements relinquished, reduced or lapsed - - - - 6.2 Interests in mining tenements and petroleum tenements acquired or increased XV-018513 (South Gobi, Mongolia) - - 100%
Note: During the quarter the Company relinquished sub-blocks from EPC 1962, 1964 and
2504 within the Northern Galilee Project.
Issued and quoted securities at end of current quarter
Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total number Number quoted Issue price per
security (see note 3) (cents)
Amount paid up per security (see note 3) (cents)
7.1 Preference
+securities
(description)
+ See chapter 19 for defined terms. 01/05/2010 Appendix 5B Page 5 (b) Decreases through returns of capital, buy-backs, redemptions 7.3 +Ordinary securities
1,095,928,523 1,095,928,523 Fully Paid Fully Paid
7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs - - - - 7.5 +Convertible debt securities OCP Asia Convertible Notes(1) 1,000 Nil $10,000 Refer Appendix 3b lodged 9 January 2014 for terms and conditions 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted - - - - 7.7 Options OCP Asia Detachable Warrants(1)
66,762,962 Nil See (1) Below See (1) Below
7.8 Issued during quarter - - - - 7.9 Exercised during quarter - - - - 7.10 Expired during quarter - - - - 7.11 Debentures (totals only) - - 7.12 Unsecured notes (totals only) - -
+ See chapter 19 for defined terms.
Appendix 5B Page 6 01/05/2013
i. Adjustments to OCP convertible notes previously issued by TerraCom Limited to OCP Asia. In particular the conversion price being the lower of A$0.037 and the average volume weighted average price of shares for 30 days prior to conversion).
ii. Issue of 126,308,306 detachable warrants with a term of 5 years from the earlier of 31 October 2015 or the date of additional capital raising, with a conversion price based on the trading price of the Company’s shares for the 1st month of issuance. At 31 December 2015 the previous warrants (total of 66,762,962) have not been cancelled, nor the new warrants (total of 126,308,306) issued – these transactions will be concluded in Quarter 1 2016.
+ See chapter 19 for defined terms. 01/05/2010 Appendix 5B Page 7
