AIMR Aim Res.

    RNS Number : 2687Z
  AIM Resources Limited
  17 July 2008
   

    AIM RESOURCES LIMITED 

    17 JULY 2008

    AIM PUTS PERKOA ZINC MINE ON CARE AND MAINTENANCE



    AIM Resources Limited ("AIM Resources", "the Company") (ASX:AIM;AIM:AIMR) advises that the Board has decided to suspend development
activities at the Perkoa Zinc Project ("Perkoa" or "Project") in Burkina Faso until further notice and place the Project on a "care and
maintenance" program.

    Key points

    *     Current zinc prices and forecasts have made funding difficult for zinc projects, and a downturn in both debt and equity markets
has also significantly reduced financing opportunities

    *     A range of alternative funding options has been explored, including strategic industry partnerships, but the Company has been
unable to secure a deal the Board considers to be in the best interests of shareholders

    *     A care and maintenance plan will be put in place to keep Perkoa's strategic assets in good condition, with consideration being
given to re-start the Project when zinc prices are more favourable and funding options improve

    *     Efforts to improve the business case have yielded tangible benefits, but these changes do not compensate for the significant
recent reductions in the zinc price

    *     Cash reserves of the Company following the implementation of the care and maintenance plan (estimated to be in the order of USD15
million), will be used in the following areas:

    *     Continue to strengthen the Perkoa business case, including assessing the feasibility of extracting a silver concentrate, and
increasing the reserve estimate and geological model

    *     Continue exploration activities in Burkina Faso, Zambia and South Africa 

    *     Identify and evaluate business development opportunities for expansion of the exploration portfolio

    *     The Board will continue to evaluate funding and strategic options for Perkoa, and most importantly, the Company will continue
active work in Burkina Faso and contribute to social, environmental and community projects


    The decision to suspend expenditure on the Project and to put a care and maintenance program in place is driven by prevailing economic
conditions for zinc, and a thorough analysis and comparison of alternative courses of action. 

    Economic Environment

    The key economic factors leading to the decision include:

    *     The reduction of spot zinc prices to levels well below the price required to provide an adequate return on investment, and below
the predicted cash break even point for the Project
    *     Global debt markets have tightened significantly
    *     Global equity markets have also fallen significantly. Raising equity would be very difficult and would also result in significant
dilution of existing AIM Resources shareholders

    Improvements to the Perkoa business case

    Since November 2007, the Company has delivered a number of improvements to the Perkoa business case, including:

    *     Production rate increased from 45kt/month to 60kt/month
    *     LOM ore production increased from 5.856Mt to 6.337Mt
    *     ROM grade increased from 13.2% to 13.8% Zn
    *     Downstream costs reduced

    While these improvements have significantly boosted Perkoa's fundamental economic parameters, they have been unable to compensate for
the reduction in the zinc price.

    Alternatives Considered by AIM Resources 

    Given the importance of this work, the Company engaged UBS Investment Bank as financial advisers, to assist with identifying the course
of action that would provide the best outcome for existing AIM Resources shareholders. This process involved a detailed cost/benefit
analysis and careful consideration of the risks involved. Particular importance was placed on preserving the Company's cash position, to
provide AIM Resources with the flexibility to address organic opportunities from within its existing portfolio of mining interests.

    A range of alternative strategies have been actively pursued and evaluated including: 

    1. AIM Resources to fully fund the Project

    Since the publication of the updated SRK Mining Consultants' Report in March 2008, extensive work has been done to identify and consider
a range of funding options for the Company to complete the Project. These have included debt only options, as well as other hybrid debt
based convertible facilities. Negotiations and discussions were held with a range of potential financiers. A number of these withdrew,
citing zinc prices as the key issue. 

    However, two financial institutions were actively interested in the Project and offered Term Sheets to the Company which set out
applicable interest rates and other commercial terms.

    Careful evaluation was made of the above funding options, which included factoring in "worst case" scenarios into the zinc pricing in
the critical first three years of operation. The Board reached the conclusion that establishing a funding package in the current market,
would bring with it serious disadvantages and risks.

    2. Strategic partnership

    The Board has also worked on a strategy that would involve establishing a strategic partnership or alliance with an appropriate third
party to share business costs, benefits and risks. While discussions with a number of parties did progress, no agreement was reached.

    3. Sale of the Project

    The Board considers that a sale of the Project in the present market would not be in the interests of shareholders.

    4. Equity raising

    Raising equity either through exisiting shareholders or via new shareholders in a public or private offering was considered, but was not
deemed viable. The capital markets are experiencing a period of significant weakness relative to recent years, and the Board has sought to
avoid, if at all possible, dilution of exisiting shareholders.

    Benefits of Care and Maintenance

    Following detailed analysis of the alternatives outlined above, the Board has decided that the care and maintenance strategy for Perkoa
represents the most appropriate course of action. This strategy provides the following benefits for shareholders:

    1. Cash

    Following implementation of the care and maintenance program, the Company will retain funds sufficient to pursue ongoing exploration
projects, undertake further business development strategies, and maintain an active presence in Burkina Faso.

    Exploration

    Preserving a cash balance is critical to allow maximum value to be gained from the Company's exploration project portfolio that
currently includes:

    *     5 exploration permits in Burkina Faso
    *     Joint venture with BHP Billiton in Zambia
    *     Mokopane Nickel and Platinum project in South Africa

    Consideration will also be given to growing the Company's exploration interests through a structured program of business development.

    Presence in Burkina Faso

    The Company enjoys a positive reputation and relationship with the government and local communities in Burkina Faso where it holds five
explorartion permits, including two immediately surrounding Perkoa.
    The Fraser Institute Annual Survey of Mining Companies 2007/2008 rated Burkina Faso highly among African countries in terms of mineral
potential, and for its mining and exploration policies and other factors such as political stability and security.

    Exploration work on these important assets along with contributions to social, environmental and community programs will continue and
will not be interrupted.

    2. Zinc markets

    Completing the Project and commencing production at a time when the zinc market is stronger will mean a more economically robust
project. The Board considers that the Project will then be better positioned to provide adequate returns to shareholders and service any
future financing options.

    3. Funding options

    With the Project on hold, more time will be available to identify and evaluate a wider range of funding and strategic alternatives.

    4. Additional Business Case Improvements

    Adequate time will also be available to build and strengthen the Perkoa business case by finalising work that is progressing in the
following areas:

    Silver

    Extraction of a silver concentrate present in the ore, which has a LOM average of 30g / tonne.

    Reserves

    Five additional exploration holes were drilled in the ore body early in 2007. The assay data from the ore body intersections has
recently been received, and will be used to extend the geological block model and to assess the potential for an increase in the Life of
Mine reserves.

    Additionally, the results of the VTEM survey flown over Perkoa and the neighbouring exploration permit areas earlier this year have now
been received and are currently under review.

    Conclusion

    Given the current economic circumstances, the Board is confident that the care and maintenance program will provide the best opportunity
for creation of future shareholder value from exploration projects, and from the Perkoa Project. AIM Resources' exploration properties
continue to represent significant potential and inherent value that is yet to be realised.

    It is the Company's objective to maximise shareholder returns by focussing primarily on high potential exploration projects, and by
closely managing the risks and benefits associated with the zinc project in Perkoa.

    This decision will be implemented with immediate effect.

    The Company intends to conduct a series of meetings with shareholder and stakeholder groups in the near future to discuss this matter,
along with business plans and the future direction of the Company.

    The details relating to these meetings will be communicated in the near future.



    Should you require further information please contact:

    Bill Cash
    Managing Director
    Ph: + 61 2 9357 9000

    Scott Lowe
    Chief Executive Officer
    Ph: +61 2 9357 9000

    Fiona Owen
    Grant Thornton UK LLP
    Ph: +44 20 7383 5100




    www.aimresources.com.au


This information is provided by RNS
The company news service from the London Stock Exchange
 
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