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Ten Year Tantalum Offtake Contract

Tuesday, November 13th, 2007

Gippsland Limited, the Egyptian focused tantalum developer, announce that its 50% owned subsidiary Tantalum Egypt JSC has secured a 10 year contact (“Offtake Agreement”) with the German major HC Starck GmbH (“HC Starck”) for the supply of six million pounds of tantalum pentoxide (“Ta2O5”) from its 40 million tonne Abu Dabbab project in Southern Egypt.
The milestone Offtake Agreement covers the delivery of 600,000 pounds of Ta2O5 per annum – almost the entire expected initial annual production of 650,000 pounds of Ta2O5 from the project. As is traditional for the tantalum industry, the Ta2O5 Offtake Agreement prices are confidential however based upon present Ta2O5 spot prices the Abu Dabbab project is expected to generate Ta2O5 revenue in excess of US$280 million over the initial 10-year period of operations.
In addition to Ta2O5, the Abu Dabbab project will produce approximately 1,530 tonnes of tin metal per annum which will be sold on the open market or via the London Metal Exchange. Based upon the present LME tin price Abu Dabbab project is expected to generate tin revenue of approximately US$250 million over the initial 10 years of its estimated 20 year mine life.
Importantly, the Ta2O5 Offtake Agreement contains price escalation clauses tied to production cost increases and a floor Ta2O5 price which will largely underpin the on-going viability of the project. The Offtake Agreement also contains a formula for the Ta2O5 offtake price to be varied to reflect a premium to spot market prices.
The Directors have ensured that the Offtake Agreement forms a solid foundation from which the Abu Dabbab project can diversify and expand significantly creating a focal point for world Ta2O5 production.
Discussions with a number of German and English project finance banks have been on-going during the negotiation of this expanded offtake agreement. The Company is well placed to finalise project finance arrangements early in 2008. The capital cost for the project, including financing during construction is estimated to be US$125 million which is expected to be funded on an attractive 80% debt and 20% equity basis.
The Offtake Agreement signed on 12 November 2007 replaces the smaller Ta2O5 offtake agreement between Gippsland and HC Starck referred to in the Company’s announcement dated 13 January 2005 for the supply of 480,000 pounds of Ta2O5 per annum for a period of 5 years.
The Offtake Agreement is subject to a number of standard conditions precedent including the placement of orders for SAG (Semi Autogenous Grinding) and Ball Mills by 30 April 2008, Execution of an Engineering, Procurement, Construction Management and Commissioning Services (EPCM) by 31 July 2008 and Commencement of siteworks construction by 31 January 2009.
Gippsland executive Chairman Jack Telford said “This expanded agreement is a major development for the Company and its shareholders which include the International Finance Corporation, the commercial arm of the World Bank. It is a great pleasure to announce this longterm contract with HC Starck, a company which represents the epitome of metallurgical excellence.”
This is a significant milestone in the development of the Abu Dabbab project. The offtake agreement largely protects Gippsland shareholders from production cost escalations, significantly reducing market risk. Additionally, the Abu Dabbab tantalum and tin extraction process is based upon industry standard gravity separation techniques which affords considerable protection against technical risk”.
Mr Telford added “We are fully focussed on taking this world-scale project into production and becoming a major, lowest cost supplier to the steadily growing global tantalum market”.
The Egyptian Minister for Petroleum and Mineral Resources His Excellency Eng. Sameh Fahmy stated “This agreement, which is a major milestone for the Egyptian mineral resources sector, has been made possible by our concerted efforts to attract top quality companies to assist in unlocking Egypt’s mineral wealth. The Abu Dabbab project has the potential to become the world’s leading producer of tantalum which is an essential component in the manufacture of many items used in our lives every day. We are fully committed to working with our joint venture partners Gippsland to bring the Abu Dabbab project into production in the shortest possible time frame.”
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