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UPDATE - Frontier Mining says Benkala now generating cash for first time in its history

Lenders also give Frontier some breathing space to improve production further over the winter and into next year.
UPDATE - Frontier Mining says Benkala now generating cash for first time in its history


A steady improvement in the performance of its Benkala copper mine in Kazakhstan means it is now covering production costs and overheads, saidFrontier Mining (LON:FML).

“Copper production at Benkala is now cash generative to a point that allows self-sufficiency of operations for the first time in the company's history.”

Benkala has been dogged by operational issues since commissioning, but recent improvements to the processing arrangements mean crushing and stacking is running at a record rate.

“Issues affecting percolation of the pads have now been identified and in some cases rectified via the mixing of different permeability ores, with further enhancements to take effect on an on-going basis, “ it added.

Benkala produced 1,386 tonnes of copper in the ten months to end October at an average preliminary cash cost of US$3,724 per tonne against an average sale price of US$6,979 per tonne. 

Of that, 919 tonnes were produced since July with 780 tonnes shipped. Cash generated from sales this year has totalled US$10mln.

Frontier recently appointed metallurgical consultant Adam Moroney to study how best to set up the leaching operating, especially for the freezing winter conditions in Kazakhstan.

He has now compiled an operational guide on how to optimise performance and heat retention in winter conditions.

Moroney said : "It will be necessary for Benkala to implement the best-practice operating procedures that are being provided for the freezing conditions that prevail during their wintertime.

 “I see the 2013/2014 winter season as probably the most important production-testing period for Benkala; the opportunities to learn from this season can be taken to optimise ongoing year-round operating practices."

Frontier has also been granted some leeway by its banks with Sberbank agreeing to defer capital repayments on its loan until  Autumn 2014, with two other lenders also agreeing to extensions.

Educational Funds has agreed to roll over its loan notes until the second quarter 2014, while Red Kite has agreed to schedule repayment of its loan until the end of 2104. 

Frontier added that exploration is continuing at all of the company's projects, with more than 6,100 metres drilled and 19,000 sqm of trenching completed in 2013.

Broker RFC Ambrian said the news that the operations are cashflow positive was impressive given the low production volumes. If Frontier can ramp-up its production it is well positioned to generate healthy profits on these margins, it added.

Benkala so far has been held back by the technical complexity of heap leaching but following the implementation of its metallurgical consultant’s recommendations, progress is being made. Even so, RFC Ambrian said it remains cautious and will monitor production rates.

“The operations are still under pressure to service the large debt facilities though it is extremely favourable to see that debt repayment terms have again been renegotiated.”

Funds have been tight all year and there are some further updates on financing required.

"The coming winter period provides Frontier with the opportunity to implement procedures and processes to optimise production over a 12-month operating period (as opposed to a 7-8 month ‘winter-restricted’ season)." 

RBC Ambrian added it will take no view on production numbers until metal recovery rates are better understood over both the summer and winter operating periods. 'Hold' is its view.

Shares rose  21% to 1.27p.

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Frontier Mining Timeline

January 23 2015

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