Saudis back Tertiary with funding package for giant Ghurayyah Tantalum project

A consortium of two Saudi companies has signed a preliminary agreement with AIM-quoted Tertiary to provide funding of up to US$7m, which will enable completion of feasibility studies at the project.

The Ghurayyah deposit, likened to a giant 'plug' in the earth's surface, displays remarkable continuity of tantalum grade. Located 55kms from the Red Sea port of Dhuba, it is believed to be the largest tantalum deposit ever discovered, and covers an area equivalent in size to 90 soccer pitches.

On successful completion of the feasibility studies a special purpose vehicle will be created to develop the project with Tertiary and the Saudi consortium each owning 50p.c. The 400m tonne deposit, grading 245g/t tantalum pentoxide, is capable of being extracted entirely by inexpensive, open pit methods and could support a mine life of up to 200 years. Mining in the first 10 years would be concentrated on the more accessible, outcropping hills of the deposit.

The consortium comprises two of Saudi Arabia's leading family companies - A.H. Algosaibi & Bros Co and ALNahla Trading & Contracting Co. Both are diversified industrial companies with a wide range of domestic and international business interests.

This will be the first mining joint venture between Saudi Arabian interests and a non-Saudi company to be established under the terms of the current Saudi Investment Code and the newly introduced Mining Code. As such, it represents a seed, which, on successful germination, could result in Saudi Arabia becoming one of the world leading producers of tantalum.

Tantalum is used for capacitors throughout the electronics industry, especially in mobile phones and computers, and in the aerospace industry.

Commenting today, Mr Patrick Cheetham, Tertiary's Executive Chairman said:

"This agreement is a major step forward in unlocking the huge potential of the Ghurayyah deposit. The agreement comes at a time when the tantalum market has substantially recovered from the volatility of the year 2000 'electronics bubble' and demand is now growing at 5p.c-8p.c a year. I believe that Ghurayyah has the potential to become a significant supplier to this exciting market and I look forward to working with our new partners to bring Ghurayyah to production."

15P.C. SHAREHOLDING IN TERTIARY

Under the preliminary agreement, the consortium will immediately subscribe for 5m new ordinary Tertiary shares at 10p each (£500,000), a premium of 100p.c. to the current share price of 5p. The parties will then seek to implement a full joint venture agreement under which the consortium will fund the estimated US$2m cost of the Ghurayyah preliminary feasibility study.

This will comprise US$300,000 from the part proceeds of the initial share placing to the consortium, US$850,000 from the issue of zero-coupon convertible notes and a further US$850,000 direct contribution to the joint venture expenses.

The notes can be converted into ordinary Tertiary shares at any time prior to completion of the preliminary feasibility study at either 15p per share or 80p.c. of the average market price in the 30 days prior to conversion, whichever is the greater. The share placement and full conversion will give the consortium up to a 15p.c. holding in Tertiary, based on expansion of the current issued capital.

The estimated US$5m cost of the bankable feasibility study for Ghurayyah will be met by direct contribution as to 90p.c. by the consortium and 10p.c. by Tertiary.

On construction, the JV will seek to maximise the benefit of available project debt funding, including that available through the Saudi Industrial Development Fund and the Al Yamamah Offset programme. This could reduce Tertiary's equity requirement to as little as 6.5p.c. of the US$75-US$100m total capital cost of the project estimated in the 2003 Scoping Study.

The Ghurayyah deposit was discovered in 1964, partly drilled by the Saudi government in the Seventies, with further drilling taking place in 1999 by the U.S. Geological Survey. The licences were acquired by Tertiary in 2002 which later undertook and completed a successful scoping study.

Tertiary, with 46.4m shares in issue, is capitalised at £2.3m at today's opening price of 5p.