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Sunkar Resources Plc: Update on Chilisai Phosphate Fertilizer Project

Wednesday, December 8th, 2010

Sunkar Resources plc (AIM:SKR) is pleased to announce an update on operations and development of its Chilisai Project.
Highlights:
• The Company has achieved its revised 2010 mining target of 1 million tonnes of ore earlier than planned
• To date, 236,000 tonnes of 17% P2O5 concentrate has been produced as a feedstock for the milling complex
• The Company is currently commissioning the new milling and loading complex
• The Company is actively negotiating with farmers in Kazakhstan and Russian fertilizer plants on phosphate rock sales for 2011 and Sunkar has applied for the inclusion of Chilisai direct application rock (“DAR”) in the Kazakh subsidised fertilizer list
• The Chilisai DAR Project has been included in the Kazakhstan Government Support Programme for Accelerated Development. The potential benefits of the Programme may include tax reduction, lower customs duties, fast-track document turnover with the local and central Kazakhstan’s authorities and additional infrastructural grants dedicated to the Project
• Temir Service LLP (“Temir”) has negotiated a US$15 million credit line from Joint Stock Company “ATF Bank”, Kazakhstan (a member of UniCredit Group) to support operations during 2011
• Sunkar has established a new, wholly owned, subsidiary in Kazakhstan, Chilisai Chemical LLP, the entity which is intended will build and own the future fertilizer plant
• Work on the Bankable Feasibility Study is progressing. Preliminary results are expected to be released before the end of 2010
Mining and beneficiation
In June 2010, the Company announced that the Government of the Republic of Kazakhstan had approved the changes to Temir’s Subsoil Use Contract (“SUC”) Work Programme from 2010 onwards. In accordance with revised mining obligations, Temir has to mine at least 1 million tonnes of ore per annum during 2010-2012. The Company expects the formal amendment to the SUC stipulating the agreed changes to be signed before the end of the year.
This year, due to dry weather and progress with mining works optimisation, Temir has completed its ore extraction programme of 1 million tonnes much earlier than it was initially planned. Having achieved the ore mining target for 2010, Temir has ceased mining operations for the rest of the year.
Beneficiation operations (dry crushing and screening) have produced 236,000 tonnes of 17% P2O5 concentrate (the “phosphate rock”) which is now stockpiled awaiting commission of the milling and loading complex. The design capacity of the mills is in excess of 240,000 tonnes per annum and therefore the Company’s existing dry beneficiation plant will be mothballed during the next few months.
During all periods of operation, Temir has maintained an excellent safety record and passed all inspections by local safety, sanitary and environmental authorities.
Milling and Loading Complex
The milling and loading complex is now at a stage of mechanical readiness with one of the two mills undergoing trial runs and commissioning. The milling tests have been successful and have clearly demonstrated that Temir can produce phosphate flour compliant with National Standard for DAR GOST 5716-74. The equipment installed so far has been running in accordance with the manufacturer’s specifications and has not incurred problems during commissioning. The mill crew have been recruited and are participating in commissioning in order to obtain early hands-on experience. The first mill is expected to be fully operational by the end of December 2010.
Marketing and sales
In 2010, Russia and Western Kazakhstan have experienced their worst drought in decades. The resulting negative impact on farming in the region meant that no market for DAR was developed in 2010, and 2011 may be challenging. The Company is now conducting intensive negotiations with agricultural buyers in Kazakhstan and with nearby fertilizer plants who use phosphate rock as an input. The use of fertilizers produced and sold domestically in Kazakhstan is subsidised by the Government. The Ministry of Industry and New Technologies of Kazakhstan has recently included the Company’s wholly owned subsidiary Temir in the list of domestic producers of fertilizers, so farmers purchasing DAR will be able to receive this subsidy.
The Company is also seeking co-operation with agriculture equipment manufacturers to offer farmers DAR application solutions.
State Support
The Company’s DAR production project has been included in the Kazakhstan’s State Support Programme for Accelerated Development (the “Programme”), a major Government support initiative in the country. The potential benefits of participation the Programme may include tax reduction, lower customs duties, fast-track document turn over with local and central Kazakhstan authorities and additional infrastructural grants dedicated to the Project.
Financing
The Company recently announced that Temir has negotiated a US$15 million credit line from ATF Bank (Kazakhstan), a member of UniCredit Group. The funds will allow Temir to sustain mining and beneficiation operations during 2011 and will add to working capital locally in Kazakhstan.
Bankable Feasibility Study
The Company is now reviewing the preliminary information memorandum draft of the Bankable Feasibility Study. A significant amount of detailed technical, operational and financial assumptions are now being reviewed. Further details will be provided once this process is complete and this is currently expected to be before the end of December 2010. Preparations are also being made for all the relevant approvals and permits applications to be submitted.
Serik Utegen, the CEO, commented:
“2010 has been a very busy year for the Company.
The weather and improving skills of our field crew has allowed us to complete the mining programme much earlier than we planned. We are pleased to acknowledge that we maintain compliance with the conditions of the SUC.
We are very pleased with the co-operation and support of the Government of Kazakhstan and by local authorities in the successful renegotiation of SUC Work Programme and would like to thank our management team for their contribution to this. In addition, we have recently been included in the State Support Programme for Accelerated Development and therefore we look forward to receiving further sustained support.
We are delighted to have finished construction of the first line of milling and loading complex which we plan to commission by end of the year which will enable us to manufacture standard compliant DAR. This will enable us to commence DAR sales next year. I believe that once Chilisai DAR, now an officially approved DAR product, starts to be supported by state subsidies, our sales potential for the 2011 planting season will be significantly improved.
We have collected most of the foundation data for the Bankable Feasibility Study. In the meantime our contractor, SNC Lavalin, has demonstrated its world class technical and organisational competence while performing complex engineering tasks. Currently we are progressing a review of the preliminary DFS data submitted by SNC Lavalin.”
(Ref 2213)

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