Ivernia To Resume Lead Shipments After Bird Deaths

Having established a safe shipping method, the government of Western Australia has approved a plan by Ivernia (IVW-T, IVWFF-O) to resume the shipment of stockpiled lead concentrate from the port of Esperance, but its Magellan lead mine will remain closed.

The company stopped shipping concentrate in March 2007, after it was discovered that lead was leaking into the environment as bulk concentrate from Magellan was loaded in the port of Esperance. Thousands of birds died of lead poisoning as a result.

Ann Candelario, Ivernia’s director of investor relations and corporate communications, says the company has solved the problem by placing the concentrate in sealed double bags inside shipping containers, which will be trucked from the mine and then shipped by rail to the port of Fremantle, a container port.

“We have been working for almost two years on the lead removal plan for the port of Esperance,” Candelario says. “On December 23, we announced that we had (conditional) government approval to go ahead and implement that lead removal plan.”

Shipments will restart by the end of the second quarter.

At present, Ivernia’s staff is bagging the 8,000 tonnes of bulk lead carbonate concentrate, which was stranded for almost two years at the port of Esperance. This is anticipated to be completed in April, at which time the bagging equipment will be moved to the mine, and the company will begin to ship 21,000 tonnes of lead carbonate concentrate through Fremantle. The packing and shipping of concentrate will be monitored and reported on by an independent environmental auditor.

Ivernia has also agreed to pay the government of Western Australia A$9 million for an environmental cleanup of the port and town of Esperance. The payment will be spread over three years, and is dependent on Ivernia’s earnings, in that the agreement allows the company to make payments as it earns revenues from lead sales. Ivernia will also contribute A$1 million over three years to a community fund in Esperance, to be used for community projects. In addition, the company will have to post an A$5-million bond before resuming lead concentrate shipments.

Candelario says that shipping of lead concentrate through Fremantle will continue for the rest of the year, during which time the company will work on a reopening plan for Magellan. But the mine will only be restarted if it can operate at a profit. It remains to be seen whether Ivernia can mine lead profitably at current prices, US51¢ per lb. at presstime.

In December, Patrick Scott, executive vice-president and chief operating officer, who was based in Sydney, resigned, and his duties were assumed by Alan De’ath, the company’s president and CEO. Candelario says this was done to cut costs.

Magellan is 30 km west of Wiluna, Western Australia. Concentrate production from the mine is subject to a 5% state government royalty, and lead metal production is subject to a 2.5% royalty. In addition, a royalty of A8¢ per tonne ore processed is payable to two aboriginal groups.

According to a resource estimate for Magellan from December 2007, at a cutoff grade of 2.1% lead, measured and indicated resources are 21.5 million tonnes grading 4.9% lead, equivalent to 1.05 million tonnes lead, while inferred resources are 10.2 million tonnes of 4% lead, for 410,000 tonnes lead.

A January 2008 estimate of Magellan reserves, which are included in resources, uses a 2.1% lead bottom cutoff, and a lead price of US$2 per kg (about 75% higher than the current price). The estimate puts proven and probable reserves at 14 million tonnes grading 5.7% lead.

Candelario says the company has a US$20-million convertible note outstanding that matures on April 27. Ivernia’s chief financial officer, Robert Wickham, is leading efforts to restructure the note or refinance it.

For the nine months ending Sept. 30, Ivernia did not generate revenues, and lost US$15.9 million. Cash and equivalents were US$16.7 million. Lead concentrate inventory (not included in cash and equivalents) was valued at US$14.8 million. Current liabilities stood at US$22.8 million, and long-term liabilities were US$12.5 million.

A company is suing Ivernia for A$2.8 million, disputing the validity of the force majeure clause the company invoked when it closed Magellan. Ivernia is defending the lawsuit.

The financial statements do not include the A$9 million to be paid for the environmental cleanup, or the A$1 million to be contributed to Esperance.

In addition, the US$14.8 million in lead concentrate inventories has fallen in value since September because of lower lead prices, so it will likely be written down to some extent.

The company has 180.2 million shares outstanding, and 188.4 million shares fully diluted. At presstime, the shares were trading at 13.5¢. The shares have traded in a range of 4¢-$1.85 over the last 12 months.

“Obviously, it’s been arduous for the company,” Candelario says. “The issues of the last few years have certainly been resolved, and when we restart, the sealed shipment process is going be a tremendous asset for us. It’s state-of-the-art, and it’s just where we are going to be focused.”