Proactive investors

Equinox Minerals

Equinox Minerals starts copper concentrate deliveries from Lumwana

Equinox Minerals (ASX/TSX:EQN) announced that the Lumwana Copper Mine in Zambia had processed 1,070,000 dry metric tonnes of ore producing 20,046 dry metric tonnes of copper concentrate at an average grade of approximately 40% copper, with nameplate capacity being achieved.

Concentrate deliveries commenced, with 12,156 tonnes of concentrate produced.  Concentrate grade and specifications are both in accordance with design expectations, testwork and all offtake agreements. Throughput rates are now being progressively increased to test processing plant capacity. Concentrate production continues to ramp up towards steady state commercial production.

Concentrate Deliveries

Concentrate deliveries to offtakers commenced on December 13, 2008. Long term contract deliveries will commence later this month to Chambishi Copper Smelter (“CCS”), with interim deliveries of concentrate going to international metal traders’ facilities on the Zambian Copperbelt under short term contracts.

Scheduled tonnages of concentrate presented to the Mufulira Smelter of Mopani Copper Mines Plc (“Mopani”) (owned by Glencore/First Quantum Minerals), whilst in accordance with contract specifications, have not been accepted for delivery by Mopani and Glencore to date. Mopani and Glencore have claimed that the Lumwana concentrate does not meet contract specifications. The Company maintains that the Lumwana concentrates are within the contract specifications and the shipments have been re-directed to international traders. The Company intends to pursue its rights under the contracts with Mopani and Glencore.

2009 Production Forecast

With production ramp up progressing smoothly, the Company estimates production for 2009 will total 170,000 tonnes (375 million pounds) of copper metal in concentrates at a cash (C1) operating cost of US$1.15 per pound. As can be expected, unit production costs are anticipated to be higher in the early part of 2009 until steady state production activities are reached, which is expected by mid-2009.

The Company’s objective is then to reduce operating costs over time and increase throughput from 20 Mtpa to 24 Mtpa over an 18 month expansion program through optimization and de-bottlenecking. A further medium-term expansion objective to 30 Mtpa throughput will be the subject of a feasibility study.

Lumwana Uranium Project

due to current difficulty in international project financing as well as current market prices for uranium oxide, the Company believes it prudent to defer the implementation of this uranium project until such conditions improve sufficiently to deliver appropriate shareholder value.

Dispute with ZESCO

The Company is in dispute with Zesco, the Zambian power utility that is providing power to Lumwana, over electricity charges believed by Zesco to be incurred by the Company since late 2007. Zesco claims that charges of about US$12 million are owed by the Company, which the Company disputes. The Company has given Notice of Arbitration to the London Court of Arbitration to commence arbitration proceedings in an effort to resolve the matter. Zesco has given Notice of Termination of the parties’ Power Supply Agreement which could take effect on January 26, 2009. To ensure continued electricity supply and allow the arbitration process to proceed, the Company has applied for Protective Relief in the High Court of Zambia to prevent the Notice of Termination from taking effect, with a hearing scheduled for January 14, 2009.

Hedging

The Company has hedging in place, comprising Forwards and Deferred Premium Puts, for about 30% of its first three years of production. The Company’s hedging book covering the period from January 2009 to March 2011 currently totals 124,585 tonnes of copper at an average price of US$2.65 per pound of copper (US$2.39 net of put option premiums). Note that the hedging contracts between October-December 2008 have been closed out/matured, realizing a net benefit of US$22.4 million for the Company. As an indication of the current value of the remaining hedge book as of January 5, 2009, the Mark-to-Market value, net of costs, at a copper price of US$1.45/lb is US$243 million.

Comment

Equinox Minerals has steadily developed and moved the Lumwana Copper Project into production.  While timing is less than ideal with the economic downturn and lower copper price, Lumwana's lower cash costs than most new copper producers (and likely to be reduced further as production ramps up) provide some "moat" for the company.

Equinox has a platform in place to withstand the current economic downturn. Operating in a developing country is never without pittfalls, however the sheer quality of the Lumwana project and product combined with the compelling low market valuation and metrics - should prove attractive to medium to long term investors.  In the short term, the share price looks to have been over-bought.  Some further spice and upside is added by the (not exactly friendly) existence on the share register of First Quantum Minerals Ltd, the largest shareholder in Equinox and also a Zambian copper producer.