The Environmental Protection Agency of Sierra Leone has approved the environmental, social and health impact assessment (ESHIA), the associated environmental, social and health management plan (ESHMP) and the public disclosure report for ASX-listed Sierra Rutile’s Sembehun project, in Sierra Leone.

The approval of the ESHIA and the ESHMP is an important milestone in the process required for the development of Sembehun, which the company says is home to one of the world’s largest and highest-grade natural rutile deposits.

“The approval of the ESHIA and the ESHMP is one of the major items required prior to a final investment decision for development of the Sembehun project. The ESHIA and the ESHMP approval demonstrate Sierra Rutile’s commitment to environmentally responsible project development with close community engagement, and we will continue to work closely with local stakeholders.

“The Sembehun definitive feasibility study is in its final phase and is expected in the middle of [the first half of] 2024. Discussions are ongoing with major development partners to potentially fund key infrastructure, and strategic equity opportunities are also being explored. Sembehun is intended to be a major supplier of rutile, and given the limited substitution and recycling of titanium, we foresee long-term sustained demand for natural rutile,” notes Sierra Rutile MD and CEO Theuns de Bruyn.

THIRD AMENDMENT AGREEMENT 

Meanwhile, Sierra Rutile disclosed that the government of Sierra Leone had advised Sierra Rutile, the operating subsidiary of Sierra Rutile Holdings, that it was seeking to renegotiate the terms of the third amendment agreement between Sierra Rutile and the government.

The third amendment agreement is in relation to the fiscal regime applying to the remaining production from the existing Area 1 operations – Sierra Rutile’s current mining and mineral processing operations.

Negotiations on potential amendments have been ongoing since May 2023.

A decision to commit the necessary additional capital to enable production from the Mogbwemo sub portion of Area 1, in Sierra Leone, is also, in part, contingent on the outcome of the negotiations.

On January 22 this year, Sierra Rutile received correspondence from the government stating its intention to proceed on the basis that, with effect from July 1, 2023, the fiscal regime set out in the third amendment agreement would no longer apply to Sierra Rutile, and that Sierra Rutile would revert to the fiscal regime in place as at November 20, 2001.

Reverting to the previous fiscal arrangements would require a substantial payment to be made by Sierra Rutile to the government in relation to the 2023 financial year, which would have a significant impact on the company’s financial and operational sustainability, the company states.

While no formal assessment has been issued, if the concessions in the third amendment agreement were removed, several concessions on taxes and charges might otherwise apply – including withholding taxes at 0.5% rather than 5.5% and fuel duty of 1% rather than 12%.

However, the most significant concessions under the third amendment agreement, being a royalty on sales at a rate of 0.5% rather than 4% and minimum corporate tax of 0.5% of revenue rather than 3.5%, would no longer apply as of July 1, 2023.

The company posits that the third amendment agreement cannot be amended without the mutual agreement of Sierra Rutile. Reverting to the previous fiscal arrangements would make continuing operations in Area 1 uneconomic.

The dispute resolution provisions under the third amendment agreement contemplate that the parties will attempt to resolve any dispute in good faith through negotiation.

If the dispute is not settled by negotiation, the dispute can be referred to arbitration in the UK. Sierra Rutile has initiated this dispute process with the government, which starts with an obligation to seek to negotiate an agreed outcome.

“The recent correspondence received from the government on the Area 1 fiscal regime was extremely disappointing and we are continuing to engage with the government on the matter as a priority,” comments De Bruyn.

The current uncertainty concerning the fiscal regime does not provide a stable platform upon which Sierra Rutile can make ongoing strategic, capital or investment decisions or enter into the required major contracts necessary to continue production for the remainder of Area 1’s mine life, the company says.

Consequently, Sierra Rutile has issued a suspension notice to government for operations at Area 1 under the relevant mining licence and mining act, which is expected to take effect from March 11 this year.

The board of Sierra Rutile Holdings will consider a restart of Area 1 operations if agreement can be reached with the government on an appropriate fiscal regime that would again support production, alongside supportive market conditions.

PRODUCTION

In an update on its production for the quarter ended December 31, Sierra Rutile reported that rutile output was 29 000 t, taking production for the full-year to 113 000 t.

Rutile sales of 34 000 t exceeded production and allowed for drawdown of finished goods inventory held.

Following the end of the quarter, rutile sales volumes of over 20 000 t have been contracted for delivery in the first quarter of this year, albeit at lower pricing than the current quarter. 

Additionally, the realised rutile price reached $1 258/t free-on-board, with soft pricing aligning with the previous quarter. 

Net unit cash production costs reached $1 268/t, up 9.7% on the third quarter of 2023, on the back of increased mining volumes and deferred ilmenite by-product sales. 

“Rutile sales volume for the December quarter were a major improvement on the September quarter, and, albeit at soft pricing, it is good to have signed contracts for over 20 000 t in rutile sales for [the first quarter of] this year,” says De Bruyn.

The company also achieved a lost-time injury frequency rate of 0.33 and total recordable incident frequency rate of 0.55. No lost-time injuries were reported in the second half of the year.

“Our safety performance, which has significantly improved, was a positive in the December quarter and is now industry-leading. This performance can be largely attributed to improved contractor management and onboarding processes.”

Unaudited net cash as at December 31 reached $7.8-million with significant increase in receivables as some excess finished goods inventories were sold. Capital expenditure substantially reduced. 

Meanwhile, unaudited working capital as at December 31 reached $66.1-million – 19% lower than the previous quarter – primarily reflecting sales of inventory during the quarter at prices below total cost of production. 

“Sales volumes in [the fourth quarter] exceeded production volumes, which were solid. Net unit operating costs exceeded the price we are able to realise in the current market.

“While the increase in net unit costs was partially as a result of a delayed by-product shipment it is, nevertheless, unsustainable, and a concerted effort commenced to identify material cost savings to enable Area 1 to remain viable in current market conditions is ongoing notwithstanding the notice of suspension of operations at Area 1 that will take effect from March 11,” says De Bruyn.

In light of the notice of suspension following the end of the quarter, no guidance will be given for 2024.