Flinders Resources Limited (TSXV: FDR) wishes to clarify its disclosure relating to the status of production at its 100% owned Woxna graphite mine and processing plant in Sweden Woxna. The Company has completed stage 1 of its development plan with the successful restart of the plant and mine, commissioning and establishment of meaningful graphite production at Woxna, however, commercial production, as determined under accepted accounting practice considering International Financial Reporting Standards, has not yet been achieved.
Commercial production is a convention for determining the point in time at which the commissioning of the mine and plant has been completed after which production costs are no longer capitalized and are reported as operating costs. The determination of when commercial production commences is based on several qualitative and quantitative factors.
The Woxna processing facility was refurbished and upgraded with new equipment in the first half of 2014 after which the processing plant commenced operation by feeding stockpiled graphitic material into the plant during July 2014. The plant was operated until the end of 2014 on stockpiled graphitic rock and mining of graphitic rock commenced in Q1 2015. The freshly mined graphitic rock was fed into the Woxna processing facility and operated at normal design capacity producing graphite concentrate inventory. This inventory was stockpiled instead of sold due to declining global flake graphite demand during 2015 that has pushed prices to a four year low. As previously disclosed, given these weakening conditions, the Board of Flinders has chosen to reduce production at Woxna and only supply larger volumes when improved graphite prices return thus conserving working capital.
The Woxna project has never defined a mineral reserve and the previous preliminary economic assessment (PEA) on Woxna dated October 29, 2013, has been superseded by the Company’s current technical report dated May 11, 2015 that increased the measured and indicated mineral resource on Woxna to 7.7Mt @ 9.3% Cg so the PEA is no longer valid. The decision to recommence mining at Woxna was not based on a feasibility study of mineral reserves demonstrating economic and technical viability as the Company is of the view that the establishment of mineral reserves is not necessary. There is increased uncertainty and risk of economic and technical failure associated with such production decisions. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, socio-political, marketing or other relevant issues.
The Board of Flinders is of the view that the costs of undertaking a feasibility study for a brownfield project of this type and scale is cost prohibitive. Therefore, the Company determined it was the most responsible utilization of financial resources to restart the mine and processing plant to establish itself in the graphite market as quickly as possible to develop credible sales and marketing presence. The Company acknowledges that there is increased uncertainty and risk of economic and technical failure associated with such production decisions not supported by pre-feasibility and feasibility studies that are structured for a large greenfield project. With the cost of this brownfield project, Flinders believes its financial decision to restart the Woxna mine was justified without the contribution from an extensive series of studies.
It is noteworthy that the Woxna mine and processing facility currently has all environmental, permitting, legal, title, sociopolitical approvals in place and is in operation. It was concluded that the risk of restarting the plant was manageable which is demonstrated in the cost effective manner the facility was refurbished and restarted for a low capital cost and rapidly integrated into the graphite market. As previously mentioned the graphite market is at a 4 year low so the decision was made to operate the plant on a production ready status until the graphite market conditions improve. The Woxna plant can be restarted in a matter of days once viable economics return to the graphite market. The qualified person as defined in National Instrument 43-101 for the Woxna project, Blair Way, President and Chief executive Officer and a director of the Company, and a Fellow of the Australasian Institute of Mining and Metallurgy, has reviewed and verified the contents of this release.
On behalf of the Board,
Blair Way, President and CEO
For more information contact:
+1 604 685 9316