PMA goes back to Santos for gas supply

Mine developer Precious Metals Australia Ltd has negotiated a new gas supply agreement for its Windimurra vanadium project with Santos, two months after Santos cancelled their original $35 million agreement.

PMA has been adversely affected by the sharp spike in gas costs in the Western Australian market, as the constrained supply has failed to keep pace with rising demand.

It announced a three-year gas suply agreement with Santos in May, and three months later advised that Santos had "purportedly terminated" the agreement after PMA asked for an extension of time while it completed financing arrangements.

PMA said at the time that Santos had offered a new agreement "but on terms that were unacceptable".

It announced today that it has negotiated a new three-year supply deal, with an option for a three-year extension, but did not disclose the new cost.

Gas is the single largest operating cost for the project, which will cost an estimated $300 million to develop.

A PMA announcement is pasted below:

WINDIMURRA SECURES GAS SUPPLY

Precious Metals Australia (ASX:PMA) is pleased to announced it has secured the supply of natural gas from the John Brookes field in the Carnarvon Basin to its world-class Windimurra vanadium project, 600km north east of Perth.

PMA has successfully negotiated a three year contract with Santos for the purchase and delivery of natural gas to the Windimurra mine. The supply agreement includes an option to extend for a further three years, subject to agreement being reached on price, providing long-term security for the project.

PMA Managing Director Dr Iain Scott said this was a milestone agreement and a positive outcome for PMA shareholders.

"This agreement marks another step towards production, and provides certainty for the future of the project" Dr Scott said.

"Finalising this agreement has taken time, but PMA has been focussed on securing an outcome that we believe is optimum for our shareholders," he said.

"In recent months PMA has taken some major strides toward our production goals, with the appointment of Merrill Lynch to secure a $200 million debt funding package, the signing of a 10 year, $300 million contract with Mineral Resources to build, own, operate and transfer the beneficiation plant and the receipt of the project's principal environmental approvals," Dr Scott said.

"Finalisation of the gas agreement will also further facilitate our progress toward completing financing for the project, as we move toward production in the second half of next year," Dr Scott said.

Gas will be a key fuel component for the Windimurra vanadium mine, and its use is unique in the vanadium industry.

The gas will be used to fire the existing rotary kiln at Windimurra, and to power the gas turbine power station.

Roasting the ore concentrate with natural gas has previously been shown at Windimurra to yield a higher purity vanadium product than is produced by competitors who use pulverised coal.

"The use of gas will provide Windimurra with a competitive advantage over our global vanadium competitors," Dr Scott said.

PMA is expected to commence production at Windimurra mine in the second half of 2008.The mine is expected to produce 6,400 tonnes per annum of ferrovanadium, which will represent approximately 7% of the world demand.