AIM RESOURCES LIMITED
AIM - Shareholder Information Meeting - Mr Scott Lowe, MD and Mr Bill Cash, Executive Director
Fri, 8 Aug 2008 09:30AM
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AIM RESOURCES LIMITED (AIM)
Friday, 8 August 2008 09:30am AEST
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AIM RESOURCES LIMITED (AIM)
ASX code: AIM
Website: http://www.aimresources.com.au/
Industry: Materials
Principal Activities:
Acquisition and development of mining ventures in Africa and Australia.
Address:
80 William Street, Suite 201, Level 2
SYDNEY
NSW
Phone: (02) 9357 9000
Fax: (02) 9332 1336
Executives & Directors
Mr Victor Bradley , Chairman
Mr Scott Lowe , Managing Director, CEO
Mr William , Bill Cash
Mr Louis Mnguni , Non Exec. Director
Mr Chris Brown , CFO
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Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
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AIM RESOURCES LIMITED (AIM) Events
Australia/NSW
AIM RESOURCES LIMITED (AIM)
| Investor Briefing Presentation | Thu, 7 Aug 2008 |
| Amended Investor Briefing Presentation | Thu, 7 Aug 2008 |
| VTEM Results Burkina Faso | Tue, 5 Aug 2008 |
| Mumbwa Project Update | Tue, 5 Aug 2008 |
| Quarterly Cashflow Report | Thu, 31 Jul 2008 |
| Quarterly Activities Report | Thu, 31 Jul 2008 |
| Managing Director Appointment | Thu, 31 Jul 2008 |
| Investor Briefing | Tue, 29 Jul 2008 |
| AIM Commences Legal Proceedings | Wed, 23 Jul 2008 |
| Perkoa Zinc Mine Put On Care and Maintenance | Thu, 17 Jul 2008 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
PRESENTATION BY SCOTT LOWE, MANAGING DIRECTOR, AND BILL CASH, EXECUTIVE DIRECTOR (AIM)
“AIM - Shareholder Information Meeting”
”http://www.brr.com.au/event/49235
FRIDAY, 8 AUGUST 2008 09:30 AM
AIM Good morning ladies and gentlemen and welcome to our shareholder briefing
10 this morning. A couple of administrative matters that I’d like to run through with you before we get the full part of the session underway. You’ll see shortly our usual disclaimer slide. I’d ask you to take note of that. I must inform you that the actual presentation segment is going to be recorded by Boardroom Radio and that will be available for review, the audio file will be available on
15 our website later today. Our website for those of you who don’t know is aimresources.com.au. There will be a question time after and the question segment, question time segment will not be recorded. A copy of the presentation slides will be available also on our website later today, but we won’t be handing out copies of those at this session. I’d ask all of you that
20 have mobile phones to turn them off please. And most importantly, toilets are just around the corner here beside the bar. To help things flow smooth and keep the presentation segment to the timetable we’ve set, we do ask that you keep any questions to the end when we have the question time segment. For those of you that aren’t equipped, there are some pens and some paper for
25 note taking at the back of the hall.
For those of you that don’t know me, I’m Bill Cash, I’m now an Executive Director of AIM Resources. I joined the Board in May 2007 and in January was asked by the Board to assume the role of CEO and Managing Director
30 on a temporary basis until we could find a permanent appointee. I’m please to introduce Scott Lowe who joined the company last November as Chief Operating Office and Scott was appointed CEO in June this year and effective the 1st of August has assumed the role of Managing Director. And that being so, then I would need to step down from the temporary position.
35 I’m also pleased to introduce Mr. Chris Brown, our Chief Financial Officer and Company Secretary. Chris joined the company just a year ago in August 2007. On behalf of the Board, I do wish to acknowledge the hard work and dedication of both Chris and Scott in helping to get the company back into focus. I’d also like to record apologies from our Board Chairman, Vic Bradley.
40 Vic resides in Toronto and is unable to join us today because of business commitments. Louis Mnguni, a Non-Executive Director, was recently appointed by the South African government to the post of Ambassador to Guinea-Bissau and because of his commitment to state, Louis also wasn’t able to join us today.
45
The objective of today’s session is to give a brief recount of the history over the past few months leading up to in detailing the background to our recent decision to put a temporary stay on the development of the Perkoa Zinc Mine. To acquaint you with the critical issues the company is and was facing and to broadly outline the strategy to go forward with business recovery plan. Our intention is to keep this brief and as short as possible, but also as informative as practical. We realize that many of you will have important commitments today and we expect the presentation to take less than an hour followed by
5 the question time that I mentioned earlier, which again I do ask that you hold your questions until then. I also should inform you there will be some matters that will be mentioned today about which we’ll not be able to answer specific questions due to some legal issues there involved on that. After the conclusion of the question time, those of you who are able to stay on, we
10 invite you to join us to some light refreshments and we will be also available for a chat if you so wish. I’d now like to hand over to Scott who will take you through the presentation. Thank you ladies and gentlemen.
AIM Thanks Bill. Welcome everybody and thanks for taking the time out of your
15 busy schedules to join us today. This is my first week in the job as Managing Director of AIM Resources. As Bill mentioned, I joined the company in November last year. I thought I’d just take a moment on meeting most of you for the first time and just tell you a little bit about my background. I’ve worked in the mining industry for 25 years, 23 of those with BHP Billiton, mostly in
20 operations but also in marketing and business development. My last assignment at BHP Billiton was Vice President of Operations in South Africa where I was responsible for some existing mines but also for starting up a new coal mine called Klipspruit and for negotiating a joint venture agreement with Anglo-American for engaging black economic empowerment partners for
25 the business and for negotiating mining rights with the South African government.
I’d like to welcome you all here today but begin by just restating the reasons for this meeting. The company has certainly been in a difficult position and we
30 believe that we owe you an explanation, that you deserve an explanation for what issues are confronting the company right now and what we are doing to turn that situation around. I can’t resist the temptation to make the comparison given that we are here at the Rugby Club between sport and business. We are certainly in a tough game right now and success in sport
35 and in business is reserved for teams who have the right people on the team, for teams with a game plan, and above all, teams with a commitment and drive and the determination to succeed. So our aim today is to explain to you what we are doing right now with the company to deal with the issues that we are facing, but also to map out a recovery plan and a long term strategy that
40 gives us the best chance of creating value for our shareholders. This is the statement that Bill referred to, the disclaimer.
So let me just outline the agenda for my presentation this morning. There are a number of culprit issues that I’d like to update you on, update you on the
45 Management and Board composition, the legal case that we are currently involved in. I know that many of you have concerns about that and so we’d like to speak briefly about that and also give you a snapshot of the company’s corporate position. Then, before describing our recovery plan, our strategy for turning this business around, we think it makes sense to take a few minutes to take a look at the factors that are driving this business, both external factors, business environment factors and also internal business factors.
Our recovery plan for this company has three phases. The first phase is what
5 we call the cleanup phase. Making the hard decisions and dealing with the difficult issues that are confronting the business right now. The second phase, and we are running this actually in parallel with the first phase is what we’re calling the fix it phase. That is addressing each of our four individual assets and positioning them with the best chance for future success. And the third
10 phase is the medium to longer term business strategy and direction for the company.
So let me begin with the corporate issues and the first of those is the management Board and composition. As Bill mentioned, our Non-Executive
15 Chairman is Vic Bradley based in Toronto. I’ve assumed the position of Managing Director, Bill is staying on as Executive Director and I want to take this opportunity to thank Bill for the great work he has done in the acting Managing Director’s role and also to thank him for agreeing to stay on. It’s a good news for the company that Bill has agreed to stay on as an Executive
20 Director. That means that there is a smooth transition between he and I, and that the expertise that he has in a whole range of areas relating to the mining industry continue to contribute to the company, so thanks Bill. Louis Mnguni, a Non-Executive Director. He is actually the South African ambassador to an African country called Guinea-Bissau, he’s a Non-Executive Director and
25 Chris Brown. I want also to take the opportunity to thank Chris for all the support that he is giving me since joining the company and it’s great to have him as a part of our team.
One of the questions I get quite a lot by people in the industry, colleagues,
30 friends and family is, “Why are you taking on this assignment, Scott? The company is going through a very difficult time, it’s in a tough position, why are you taking this on?” And I have two very good reasons for accepting this assignment. The first is that I have confidence in this Board. I wouldn’t be here today if didn’t have respect and didn’t believe in the abilities of that
35 Board. And the second is because I believe in the inherent value of the assets that AIM Resources has and the potential to realize that and to be a part of turning this company around. We also have a strong management team. We have Mr. Adama Barry. He is a well-respected Senior Geologist who happens to be our Country Manager in Burkina Faso. He’s an important
40 part of our team. Derek Pang is our Senior Geologist based here in Sydney. And we have a new member of our management team, McDonald Madamombe. He has joined our team and they’re with us here today.
In the future, there are two other positions that we’re looking at filling. One is
45 an additional independent Board Member, another Non-Executive Director. This isn’t an urgent or pressing issue for us. We’ll certainly wait for the right candidate, but it is something that we will look to do in the future. And also, we’re going to look at recruiting a Global Exploration Manager. That fits with our strategy and our vision for the company going forward and you’ll see later on through this presentation why we are going to recruit someone into that position.
The current legal case, I know that many of you have questions and concerns
5 about the legal case. There is a limit to what we can say but I will say this much. Firstly, where did this legal case come from? Having joined the company in November and being a Chief Operating Officer, new to the company, I had some concerns and issues that I had noticed. Chris Brown had concerns, and when he assumed the role of acting Managing Director,
10 Bill Cash also had some concerns. Collectively, we investigated those and we also took the step of undertaking an independent review. Our investigation and independent review highlighted some serious issues and we then took legal advise on those issues and matters that were highlighted out of our investigation and internal review. The action that we are taking is appropriate
15 given the serious nature of those issues. We have legal advice. We’ve engaged Minter Ellison as our legal advisers and they’ve advised us not to discuss that in any further detail the case before us. I do want to stress though that the case has no link or is in no way connected to previous litigation including the North Sound litigation which I’m happy to say has been
20 concluded and in my recent correspondence with North Sound everything is positive, but this case has no bearing on that. And also very importantly from the shareholders’ and investors’ point of view, the AIM Resources’ Assets are not affected and we continue to conduct business as normal.
25 Here is a slide that has the snapshot of the company. Many of you will be familiar with these details already. We have just over a billion shares; we have 132 million options, approximately about 160 unlisted options. Our Directors don’t hold any options. Our market capital on the first of August was A$33 million and our Top 20 shareholders held 60% of the company. We
30 have a total of almost 6000 shareholders. We have five assets in AIM Resources. We have cash. On the 30th of June at the end of the financial year, that cash equalled approximately US$55 million. We have five exploration permits that we are working on in Burkina Faso. We have the Burkina Faso Perkoa Zinc Mine and we have a joint venture with BHP Billiton
35 in Zambia, and we also have a Platinum Group minerals exploration property in South Africa.
In a moment I’m going to ask Bill Cash to talk about the outlook for zinc but I’d like to begin by showing a comparison of the AIM resources share price
40 with the zinc price. Now we all know that, I’m sure everybody in the room knows that our share price has been impacted significantly by the zinc price, but this graph just shows how closely related those two are. You’ll see that this slide shows one year. The zinc price has dropped 50% or even more in a year and the AIM Resources share price on the ASX has dropped 90%. You
45 can see in those first few months where the zinc price dropped from about $3,500 down to about $2800 and you see the slide in the AIM Resources’ share price. Now I’m not a statistician or an economist, but you don’t need to be to see the very strong and positive correlation between the zinc commodity price and our share price. Take for example here, the zinc price lifts a little and so does the AIM Resources share price. Again, in January/February, again in March and again in May. So one of the challenges, one of the central challenges for this company, for this organization is to demonstrate to the market that there's more to AIM
5 Resources than simply the zinc business in Burkina Faso. Having said that the zinc price and the zinc market outlook is a critical external factor for our business, so let's ask Bill to take you through the next few slides that look at the zinc market and where it's headed.
10 AIM Thanks, Scott. As Scott has pointed out, the most significant factor of zinc over the last...all the while has been the falling zinc price and the outlook forward. We've just come out of a .....certainly as far as zinc is concerned and some other base metals, a boom, a boom period and we're now seeing hopefully not very much looking like the end of that boom. Zinc is a very high,
15 highly volatile metal, probably more so than the other base metals. Zinc’s always the first to fall and the last to rise and that's in terms of prices and is referred to by a lot of analysts and experts in the industry as the poor cousin of the base metals industry. Right at the moment, there's an anomaly with zinc that stocks a very low and I'll comment on them lately. There is a
20 concentrate circles in the market which affects the demand for concentrates and analysts generally agree that the shortfall in zinc concentrates is probably going to take effect during 2010. I guess in relation to the price and the impact on various things, projects are difficult to finance, mine closures….there have been a couple announced recently including Teck
25 Cominco’s Lennard Shelf mine in the northwest-west Australia and most of the experts also predicting that there will, no doubt, be more to come.
Just looking at some short term price outlooks, Reuters Macquarie Bank recently published some figures on their annual base metals price survey and
30 for 2009, the consensus worst case for zinc was $1,543, the best case was $2,700 and the mean of those was $2,000. Interestingly, Brook Hunt, a very well-respected analyst in the base metals industry are forecasting a zinc price for 2009 of $1,425 and their forecast for 2010 is even worse at $1,325. Now I've yet to see a forecast that's got it right. Obviously, by the Reuters survey,
35 there's a wide variety of views on the outlook for the price. Looking at the - there are some comments from various organizations, banks and other respected people in the industry on the outlook. I just want to deal briefly with the concentrate circles is that are currently happening. In 2008, there has been fairly large circles of concentrates and the supply of concentrates is
40 obviously exceeding the demand. Forecasters are saying that that will pertain in 2009 and it will start to ease in 2010 which is good news. Our potential customers as early as 2007 had started signaling that their outlook was that during 2009 they would be restricting their intake of concentrates and it was of some concern to us looking then on the basis that we were going to be
45 producing during 2008. I have to say that they were quite happy to see that we've deferred the start-up of Perkoa to mid-2009 which meant that the requirement on them to take concentrates from us in ‘09 was probably half of what they committed to. The intention is that they will take their full quarters from 2010.
I guess falling demand is another factor that is having an impact on zinc. A global decline in the auto industry, uncertainties for steel and there's that fear back there somewhere of a global recession just around the corner. Let's
5 hope that doesn't happen. I mentioned previously about stocks and it's quite out of character. Currently, the LME stock for zinc metal is 165,475 tonnes and it is slowly climbing. A month ago it was 150. This is only five days global consumption of zinc, and, of course, that doesn't take into account smelter stocks and other unreported and unofficial stocks around the world which
10 could be as high as 300,000/400,000. Compare this with the early 90s when there was a million tonnes of zinc on the LME and over a million tonnes of concentrates sitting unsold in various local locations around the world. The outlook for zinc then was no different to what it is today. Looking at the long‑term outlook and subject to all the usual qualifications, natural disasters,
15 economic downturn or upturn, forecasting the long-term zinc price, the outlook for the zinc industry is a bit akin to predicting the share market. Forecasters generally don't predict beyond more than two to three years out at best. Brook Hunt, for one, does give a very long-term forecast going up to 2020 but it's interesting to note from about 2010, their predictions for metal
20 price supply/demand are flat so that doesn't really tell you much about the longer term future of the zinc industry.
Current indications post 2010, the outlook is good but I caution zinc is always the most volatile of the base metals, and as I said before, the first to react
25 negatively, the last to react positively and still the poor cousin of the base metals industry. However, I have to say that we in AIM do have a positive longer term view on the zinc beyond 2010 and our decision to put a stay in Perkoa is predicated on that. Thanks, Scott.
30 AIM Thanks, Bill. So our recovery plan, our business improvement strategy for AIM Resources has been put together taking account of the external factors primarily the zinc market, and as we've shown, our share price has been largely driven by the zinc price. We're certainly not alone in the impact that the zinc prices had on our share price. Perilya, CBH, Cagarra, Oxiana, Zinifix,
35 OZ Minerals, any company on the stock exchange with a heavy exposure to zinc and we've been perceived as essentially having only a zinc asset and that's part of that challenge, has been negatively affected. So our strategy going forward is one that addresses that and seeks to show the market that we're more than just a zinc play. We've also considered what's going on not
40 just in commodities but in the financial markets. I think everybody in the room would be aware that there has been a weakening and a downturn in global financial markets, many analysts are referring to a credit crisis. We've seen interest rates increasing. Terms and conditions when dealing with banks and raising debt have certainly been tougher than they were a year ago. In the
45 equity market, just the markets generally, there has been a downward trend and corporate activity has certainly been affected by the change in the financial markets. One example of that is the deal between CBH and Perilya that fell through. That's the summary of what's going on in the outside world. We've also given a lot of thought in prior to preparing our recovery plan on what's been going on inside the company and what are the critical internal business drivers.
Any successful company has a strong management involved with it
5 experienced integrity and we have that. A sound corporate governance, we've been working hard in recent months to improve our corporate governance, has disciplined approach to project management, has effective business processes, accurate reporting, has regular performance management, active business development, that is reviewing the assets in
10 the portfolio and changing them when appropriate, is transparent in its relations with its investors, has regularly clear communications and also has a solid position for project funding. We're not saying to you today that we're perfect in every one of those areas but what we are saying is that we understand what are the critical business drivers inside any company that
15 make it a successful company and we're working hard inside the organization to address and improve how we manage in each of those critical areas. The last point there was about being in a solid financial position for project funding that leads me to a discussion of our cash position. I mentioned in an earlier slide that we finished the financial year with around US$55 million in the bank
20 on the 30th of June. On the 31st of July, we're down to US$45 million. We've spent US$10 million in July alone. When I first joined the company, we were spending around $2 to 3 million a month. The reason we spent $10 million in July is that the Perkoa project had reached a point it was escalating in progress and we're beginning to burn cash at a greatly increased rate, so you
25 don't need a calculator to work out that at the rate that we've started to spend money, we would have run out of cash in the not too distant future, certainly before Christmas, and that was one of the key factors that led us to make Perkoa on care and maintenance. I'll talk more about that later.
30 Our forecast cash when we reach the care and maintenance phase, we're currently winding down to care and maintenance, is US$15 million. We announced that recently and so the obvious question is where did the $30 million go? From $45 million at the end of July to $15 million and the answer is that we've had a lot of orders and commitments in place for both goods and
35 services. Now we've done that forecast of our cash position based on receiving those goods and services and meeting all of our commitments and paying out all of our orders. Now what we're doing at the moment is reviewing that and asking ourselves, well, what assets should we keep and what assets should we sell. My phone has been ringing hot with people wanting to buy our
40 board mill, wanting to buy our filters, wanting to buy our crushers. Given that zinc's the only commodity in the mining issue that's had a downturn, everything else is booming, there are many people who want to buy assets and we've given them a solid no to those long lead time assets. We want to keep Perkoa, you know, a solid position so that when the time's right and we
45 have the financing in place we can hit the start button straight away but we are reviewing what assets could we liquidate and turn into cash that are not strategic, that are not long lead time. We're also in negotiations with our contractors in getting the best deal that we can in relation to cancellation fees or in deferring their contracts and payments to a later date. So we will work on maximizing our cash position but striking a balance between maximizing our cash and maintaining our strategic assets so that Perkoa is not just a shell but it's a mine on genuine care and maintenance where we could press the start button when the finances are in place.
5
Our future spent will include our operating expenses obviously. The care and maintenance costs at the mine that's currently under review, we're putting a budget together for that. Our exploration budget in the future, we're also working on an exploration budget and our community and social
10 commitments in Burkina Faso. The promises that we've made to the local community and to the government, we'll keep those promises to maintain our presence and our reputation in that country. Now many people ask me, how long will the money last and I'd love to be able to give a definitive answer for that but it really does depend firstly on the deals that we can do with our
15 contractors and how much money do we end up with, how ambitious do we want to be on our exploration budget and those are the factors that we need to take into account before we can give a definitive answer on how long the cash would last. Also, it obviously depends on how soon we can raise the finance for Perkoa and start to get an income.
20
So having regard to the external business environment and the internal position and internal business drivers, what are we going to do to turn this company around. I mentioned earlier that we have a three-phase recovery plan and the first is the clean up phase, that is, making the hard decisions,
25 dealing with corporate governance. We've resolved the North Sound issue, we're dealing with the legal case in front of us and getting our corporate governance and business processes right in our corporate office in Sydney. Second phase is all about fixing the four assets that we've got and that is what I'd like to talk about now in more detail. So let me repeat, we have four
30 assets, the zinc mine in Burkina Faso, we have separate exploration projects in Burkina Faso; the joint venture with BHP Billiton in Zambia and Platinum Group Minerals exploration property in South Africa. So what I'll do now is talk about what we've been doing to fix each of those assets and position them for business success in the future.
35
Let's start with Perkoa. This slide gives you a sense of the project. These are our tenements in Burkina Faso, in pink here that's the Perkoa Mine. It's actually contained within two other tenements that are exploration tenements and licenses that we have in Burkina Faso. This one to the left called Poa and
40 this one called Guido is the Perkoa mining license. We've got 6.3 million tonnes run of mine from that mine lasting about 10 years at the production rate in our budget, in our business plan. Now that mining license was granted in March 2007 and covered 6 square kilometers. These are just some snaps and photographs of the Perkoa project. One thing, I believe we've done very
45 well since late last year is project manage Perkoa. We set milestones for ourselves on completing the improvements to the box cut and starting the portal, getting the mining underway and we achieved every one of the milestones that we've set and having visited the mine half a dozen times since November, I can show you that the standards in place there are very good.
So what have we been doing to fix it? I just spoke about the improvements
5 operationally with project management but we've also been working very hard on the business case and giving Perkoa the best fighting chance at succeeding in a very tough zinc price environment. Back in November, actually December, we discovered some serious errors in a report that had been prepared which included financial analysis of Perkoa that had been
10 done by a consultant and having discovered those errors, we immediately set about commissioning SRK, an internationally recognized consulting company, to fix that, to address that and to redo that report. It was a technical report and a financial report and SRK delivered that in March. Since March, we've been using that report in an effort to raise funds for Perkoa knowing that it's
15 accurate.
We've also been working on six value improvement initiatives, four of which we've delivered. These have been described in our announcements. One of the first things we did when I joined the company was increase the throughput
20 at the mines. Every one of the mines that I've ever worked at, more is better and you lower your unit costs by spreading it over a larger volume so we increased the throughput in the process plant by 33% up to 60,000 tonnes per month. We also reviewed the mine plan and schedule using that consulting company. They reviewed the schedule and came up with a longer
25 mine life maintaining the 60,000 tonnes per month as run of mine but increased the mine life up to 6.338, I think it was a million tonnes run of mine. We also increased the grade from 30.2% to 30.8% and we reduced our downstream costs. We went out to other potential suppliers for downstream logistics to get the best deal we can. All of that was done to maximize the
30 profitability of Perkoa and give it the best chance it could have in coping with declining zinc price. I can tell you personally it was very frustrating that it seemed every goal that we keep here, the LME would rob us of the benefit by reducing the zinc price.
35 There are two other initiatives that we continue to work on. That is, increasing the reserves, we've drilled long holes into the Perkoa ore body, That’s the advice that we've got from geological experts is that the ore body is actually bigger than what is defined in the current geological block mine. We're going to continue with that work with the view to increasing the mine life and
40 we...there's about 29/30 grams per tonne of silver in the run of mine ore and we're doing a feasibility study on whether that can be commercialized and we will continue that work even though the mine is on care and maintenance, we'll continue that work so that when it comes to raising finance we put Perkoa's best foot forward, so to speak
45
The care and maintenance decision was a very tough decision but it was the right decision, so even though we've announced this, I wanted to take a few minutes and just explain to you the rationale and the logic behind that. Firstly, I want you to know that we carefully considered all other available alternatives before making this difficult decision. We were very far advanced in our negotiations with a European bank on raising the debt, but the terms and conditions we were offered represented two greater risks for Perkoa. If the zinc price lowered further or stayed low for longer than the analysts predict,
5 then we could have ended up working for the bank and shareholders wouldn't have seen any of the profits or retained earnings from that operation, it all would have gone to the bank and it would have ended up jeopardizing the entire company, so we withdrew from those negotiations with the bank. We thought about equity but given the amount of money that we needed to raise
10 and the market capitalization of the company, we did not think that was appropriate or in the interest of shareholders.
We were very far advanced also with negotiations on a joint venture on bringing in another company to partner with us that would have reduced our
15 exposure and risk and they would have provided funding to complete the mine. We were optimistic and we thought that would have been a very good solution for us, they withdrew, not because of the fundamentals of the project. The explanation they gave us was that their project pipeline was just too full. 15 Had we have come to them sometime earlier, they would have been only
20 too pleased to enter into negotiations with us but their project pipeline of about a billion dollars, could not take another project. So we missed out on that joint venture, but we will continue to talk to that company and to other potential partners in the future.
25 We did consider selling the project entirely. When you're faced with a tough business environment like this, you look at all the possible alternatives but we don't believe that we will get fair value for Perkoa in the current situation. It would not be in investors best interests to sell Perkoa right now. With the zinc prices low as they are, we don't think that we would get a fair price for it
30 and we did even consider the M&A mergers & acquisition path. We considered what other companies that we should merge with that would get the best result and a deal simply was not available to us that made any sense for AIM Resources. In considering all of these alternatives, we certainly studied them in detail but we had advice from UBS all the way.
35
So having made the decision to put the mine in care and maintenance, what does that do so what is care and maintenance? Firstly and most importantly, this preserves our cash position. At a spending rate of $10 million a month, we wouldn't have lasted much longer, we would have run out of money. This
40 decision preserves our cash and keeps us in the game and keeps us in a position where we can build value into the future. The deals that were available were either very risky or not available at all. It allows us time to negotiate the best possible financing package for Perkoa. When the clock is ticking and you're spending at an increased rate and the people that you're
45 negotiating with know that time is critical to you, it does not give you a great negotiating position. Now that the mine is on care and maintenance, we have a little longer, we can now sit down with potential investors and negotiate the right deal. It allows us more time to strengthen the business case, that two value improving initiatives, the silver concentrate and extending the geological block model. We now have time to do those and include those findings into the financial evaluation that we then present to potential investors and we'll also be on the lookout for other value enhancing initiatives we can find.
5
Now the next point is what kind of funding solution are we looking for and this is a critical point. It was mentioned earlier that Teck Cominco and Xstrata closed the Lennard Shelf mine and they announced that two days before we announced putting Perkoa under care and maintenance. Now you may or
10 may not know that Lennard Shelf had been in operation for something like 18 months so Xstrata and Teck Cominco invested in a mine, put it into business and in 18 months or less, they had closed it down. Now that hasn't destroyed Xstrata or destroyed Teck Cominco but we musn't make that mistake with Perkoa going forward. We can't fall into the trap of seeing zinc prices
15 strengthen and then starting the mine and then a year or two later, zinc price does again what it's done in the last year, that is to drop 50% in a year, then we find we're bleeding cash.
So the preferred funding solution for us has this following characteristics.
20 Firstly, it allows us to commence production in time for the predicted increase in zinc price, but very importantly, we need a funding solution that mitigates the risk in exposure to the commodity cycle. Given that in the foreseeable future, we have one cash generating asset. We don't have a diversified portfolio, we don't have the luxury of saying, well, zinc is down but coal is up
25 and iron ore is up and that offsets any losses we might sustain. We don't have that luxury so we need to find a funding solution for Perkoa that mitigates that risk. Now there are a couple of different ways to achieve that end. One would be raising debt but with a hedging strategy. There are other alternatives. We get the right joint venture partner, then we may be able to
30 structure a deal where we achieve that same outcome but that's critically important for AIM Resources' long-term future that we are not overexposed to zinc and that even after firming zinc plummets again in the future that that destroys that project and ultimately jeopardizes the future of the company. We can't let that happen.
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So looking to the future for Perkoa, our strategic objective is to maximize value for investors via a suitable funding and to manage that commodity exposure very closely. We have a five-point plan of attack, things that we're working on right now. The first is we’re continuing negotiations with potential
40 investors. The mine is on care and maintenance but we're still working with and sitting down with potential investors. We're building that business case and looking for value enhancing initiatives to improve the fundamental economics of the mine. We're still working on us finalizing downstream logistics and sales agreements and that will depend too on the funding
45 structures that we've finalized and we'll continue our community and social programs. Many people ask me, well, when will the mine recommence and I certainly understand the reason for that question. It's an important question and a sensible question, but it's a difficult one to answer. It really does depend on the progress that we make with potential investors and it depends on the zinc market outlook. We certainly want to get Perkoa producing an income for AIM Resources but not at any cost and not without a deal that represents risk that will jeopardize the company in the future.
5 So moving on from Perkoa, I now want to focus on our other assets. As I mentioned earlier, we need to do a better job of explaining to the market that we're not just a zinc play, that we have three other assets. We have five exploration leases in Burkina Faso and I'd like to explain to you now what we've been doing to position those assets for future success. Let me just
10 show you a map which illustrates where these exploration permits are. This is Ouagadougou, the capital city of Burkina Faso and about two hours drive to the west is the Perkoa mining lease surrounded by two exploration permit lease areas with a prospective for copper and gold. Further south, we have three contiguous exploration leases, Bonzan, Fafo and Naboue, and they're
15 also a prospective for gold. I just like to point out that these permits are not too far. Certainly the ones in the south are not too far from the now completed Poura gold mine that produced 600,000 ounces of gold.
We recently had some independent geologists visit Burkina Faso to cast a
20 critical eye over our assets there and advise us on the potential and our exploration program and to help us prioritize our work in the future in Burkina Faso. I won't read out this entire quote other than to say that these independent geologists believe that these targets merit a high-priority exploration effort. They directed our attention more towards the northern Poa
25 and Guido exploration permits and we are putting together an exploration program that gives priority to those based on that advice. Just zooming in on Poa and Guido, we did do some drilling, nine holes that we drilled in 2007, some adjacent to and actually, just in the corner there of the Perkoa mining lease. Now there weren't any major discovery finds there, but given the
30 information that we have, we're encouraged to put together an exploration program. We continued on with the VTEM Survey that we recently announced. The objective of that was to assess the potential of those two lease areas Poa and Guido and to identify further exploration in targets. We hired a company called Condor Consulting analyze the data for us and
35 provide a report that we've recently announced, the bottom line being that there are nine high priority targets that we are going to address in our future exploration program.
Now to the known geologists in the room, this next slide may not mean a lot
40 to you but one thing I will point out is Perkoa and these are the two exploration areas. There's a general northeastern structural trend. Actually, if you look closely, I think most people can see that, if you look closely, you'll actually see that there's a southwestern trend here too and it's where those two trends intersect, the Perkoa mine is but the Condor Consulting experts
45 took these data and interpreted it and gave us some recommendations on high priority targets and they're shown in the next slide. So there's nine targets here.
We've also been working on the three exploration permits to the south. In 2008, we've been doing some geological mappings, some soil and rock geochemistry and stream sediment samples so we've been working on those as well and we'll continue to work on them into the future. So we've put
5 together a 2008/2009 exploration program for Burkina Faso that takes account of our existing data and information put together by our geological team headed up by Adama Barry in Burkina Faso, the VTEM results and the independent geologists' report, we've taken all those factors into account and put together a draft exploration program for 2008/2009 that includes targeting
10 those VTEM zones, geophysical surveys, preparation of exploration grids, soil geochemistry and trenches and we'll also do some drilling in 2008/2009, reverse circulation drilling down to 50 meters and then diamond drilling beyond that. In addition to the five exploration permits that we currently hold in Burkina Faso, we will be keeping an eye out for any exploration permits
15 that might become available. We see a long-term future for AIM Resources in Burkina Faso. It's a mining friendly country. The Fraser Institute recently rated it very highly in terms of not only its mineral potential but the government policies and security and safety and the systems for supporting the mining industry in Burkina Faso so we see a long-term future there.
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Moving away from Burkina Faso, just like to speak briefly about our joint venture with BHP Billiton in Zambia. We have a four-year deal with BHP Billiton that commenced in 2004 that we've recently revised. In this map here you can see the capital of Zambia, Lusaka. Again, about a two-hour drive to
25 the west is the Zambia joint venture project. We're very pleased with the outcome of the negotiations that have been going on for some months with BHP Billiton to revise and improve the joint venture agreement that we have. The details of the change in the joint venture agreement were included in our recent announcement, but I've summarized them here. The essence of the
30 change is that more time is allowed in the schedule for more detailed drilling to better define the scope and scale of the property and it also allows more time for detailed studies. In exchange for allowing more time, there are some commercial changes that are positive consideration to AIM Resources. The first of those is that we are required to fund less of the current drilling
35 program, about 2,000 meters less of the drilling in the current phase. The drilling will continue, but BHP Billiton has the option to fund that phase and it's come out very soon. Then later on, actually, at the start of the pre-feasibility study, AIM Resources has the potential to recover 150% of the money that's been invested in the money so far, and for a mining company the size of AIM
40 Resources, we see that as a considerable benefit to us.
By just taking a look at some of the more technical details of the Mumbwa joint venture, some drilling was done in 2006/2007, just over 4,000 meters was drilled there. We've drilled over 6,000 meters in the current phase. We're
45 committed to 8,000 before BHP Billiton then considers taking over the next phase. This is the exploration lease area that covers 1,300 square kilometers and these two areas here were excised and held by other companies. This is a map that shows the major anomaly, one of the major a