Matrix Metals | Copper Production and Exploration

Please find following the contents of a letter released to shareholders today.

Dear Shareholder

I take this opportunity to write to you to provide a timely update on the activities of your Company and particularly, to explain the amendment to the Mt Cuthbert operating plan ("Plan") that was announced to the ASX on 21 May 2001.

In summary, the amended Plan will provide a substantial increase in cashflow from Mt Cuthbert over the next twelve months by reducing operating costs and deferring capital expenditure. In addition, the Plan also reduces operational risk, particularly over the 2001/2002 wet season period. The implementation of the Plan will result in the cash reserves of the Company being replenished, which will provide funds to progress the Company's exploration and development activities.

As detailed in both the December 2000 and March 2001 Quarterly Reports, the severe rains and subsequent floods experienced in December 2000 placed the Company under operational and cashflow pressure, with daily copper production dropping to approximately 50% of the levels achieved in December prior to the rain. I am pleased to report the recovery from the problem period is now effectively complete with maximum daily production levels achieved in late April.

A further positive milestone achieved in April was the overwhelming shareholder vote for Summo Minerals Corporation (Summo) to become a 48% shareholder of Matrix, thereby offering an increased level of shareholder support and stability to the share register. Other benefits of the transaction are that two Summo representatives will sit on the Matrix Board of Directors and a loan facility of A$3.25m has been provided by Summo, of which A$1.25m has already been drawn down for working capital purposes. The remaining A$2m will be drawn down in June 2001 to fund the second tranche of acquisition costs for the White Range Project.

The stabilisation of production at Mt Cuthbert and of the corporate structure via the entry of Summo, has led to the next logical management step of initiating a strategic review of the Mt Cuthbert Operation and of the overall Company plans for the coming 2001/2002 year.

This review resulted in the adoption of the amended Plan as previously mentioned. The Plan is based on the optimised use of the existing ore grade and low grade stockpiles, the accelerated extraction of the copper inventories in the existing leach pads and the blending of the outsourced Electrostatic Precipitate Dust (ESP) with these available ore sources and copper inventories. The key to the Plan's success was the securing of a confirmed supply of ESP for the 2001/2002 year. Strategic use of the ore sources and copper inventory with the ESP will allow the deferment of open pit mining operations resulting in reduced operating costs, deferred capital expenditure on open pit development, reduced risk and a substantially improved cash flow from the operation.

I believe this plan presents a solid "recovery" profile from the past problems. With this recovery overlaid on the predicted upward movement in the copper price, which was a cornerstone of the strategy of creating and listing the Company last year, the potential of the Company has been reinvigorated. The copper price has been disappointing over the last few months due mainly to a fear that the world economy was slowing, however analysts are now noting there are positive indications that this slow down has receded and that the copper price is on the upward move again. A rise in the price over the last week coincident with a continuing reduction in inventory stocks at the London Metals Exchange ("LME"), offer support to this positive view. LME inventories have reduced significantly over the last year and an increase in the world demand of copper is predicted to result in a significant bounce in the copper price. For your interest, I have attached a press clipping from the London Financial Times (3 May 2001), which discusses the bullish outlook for the copper price in the coming months.

In considering the future outlook for copper and Matrix, I offer a few specific positive points of note to remember about your Company:

• We are a proven copper producer, with Mt Cuthbert having a 4 year production history.
• We are the only mining company in Australia that enjoys single commodity exposure to copper.
• Based on a firm policy of remaining unhedged to the copper price, the Company has unlimited exposure and leverage to a rising copper price.
• The Mt Cuthbert Operation has proved it can operate at its nameplate production capacity.
• Mt Cuthbert has the enviable reputation of consistently producing premium grade quality copper cathode.
• The medium term business plan provides for a quadrupling of copper production capacity over the next 2 to 3 years via optimisation and full development of the existing assets in the Company's portfolio.
• In addition to this organic growth profile, further growth potential may be realised via the acquisition of other operating assets.
• Since listing, we have acquired the highly prospective Mt Watson prospect (located near Mt Cuthbert), which has the demonstrated potential to significantly increase the life of the Mt Cuthbert Operation. Exploration has commenced at Mt Watson with drilling programmed for June.
• The Company's new major shareholder, Summo Minerals Corporation, is backed by a US based private equity fund, namely the Resource Capital Fund LP. The investment Summo made in Matrix was knowingly transacted at a level well above the prevailing share price in confidence of the intrinsic value of Matrix's asset base and the projected positive outlook for world copper demand and hence rising price.

Having said all of this, the reality of the situation and the obvious measure of our Company's performance is the share price. The share price, as we are all aware, is at a grossly unacceptable level. It should be noted that the downward movement in the share price has been on very low share trading volumes.

The reasons for this situation are many and varied, some being within our control, and others outside of it.

The Board believes the adoption of the amended production plan and the resultant strengthening of the financial position of the Company, combined with a turn around in the copper price, will recreate investor interest levels and support for the pursuits of Matrix.

Looking further ahead, the requirement for addressing the demands of development capital for the White Range Project, strategies for capital raisings and dividend policy in regard to the current financial year and beyond, are all issues to be addressed over the coming months. In closing, I take the opportunity to reiterate that the Management and Board of Directors are committed to achieving success with the operational and development pursuits of the Company with the ultimate intention of having the success reflected in the share price and hence, returning value to shareholders. All appropriate steps to achieve this objective are being undertaken and other value adding opportunities are under evaluation.

I trust the development and implementation of the amended operating Plan for Mt Cuthbert is taken as an indication of our ability to devise and implement innovative solutions to the problems inherent to the industry in which we operate.

As always, the Chairman, Mr Gordon Freeman and myself welcome direct contact with shareholders who may wish to discuss any matter in regard to the Company.

Yours Sincerely,

Andrew Chapman
Chief Executive Officer

 

COMMODITIES & AGRICULTURE: Experts see start of big bull market for copper METALS CONFERENCE TOLD UNDERLYING SUPPLY-TO-DEMAND POSITION REMAINS TIGHT:

Financial Times, May 3, 2001
By GILLIAN O'CONNOR

The copper price is close to a significant bull market, with perhaps six months to go to take off, predicted industry observers yesterday.

If the recent 5 per cent demand growth trend continues, the price could hit Dollars 3,000 a tonne before the end of 2002, compared with around Dollars 1,700 last night.

On a more conservative assumption of 4.25 per cent growth, the price should still rise to Dollars 2,315 a tonne.

Only if growth slows to 3.5 per cent will the price stay around current levels.

Peter Hollands of Bloomsbury Minerals Economics, who made these predictions, was one of two copper experts at CSFB's metals conference yesterday.

Simon Hunt of Simon Hunt Strategic Services, who concentrated on the explosive growth in Chinese demand, was equally enthusiastic about prospects for the red metal.

Looking at copper from a global perspective Mr Hollands suggested that the recent price weakness was not the result of a real supply surplus, but of the clearance of a temporary blockage in the supply pipeline.

The underlying supply to demand position remains tight. There was a substantial deficit last year, and there will be another smaller one this year, despite the global economic hiccup.

What is more, further deficits can be expected over the next couple of years as growth picks up, because there is no way the mining industry can expand output fast enough to satisfy even the most cautious demand projections.

Substantial planned additions to copper mining capacity before 2004, such as the Antamina mine in Peru and the expansion of Escondida in Chile, are already known about, and others further along the pipeline, such as Konkola Deep in Zambia, cannot suddenly be accelerated.

It is unlikely that moth-balled US capacity will reopen - unless strong demand and rising metal prices make it worthwhile.

After 2004, the market could return to surplus, if all the companies were to go ahead with all the projects already on their drawing boards.

China is now the second largest consumer of refined copper in the world: it accounts for around 12 per cent of the global total, compared with just under 20 per cent for the US, and its consumption has been growing at a remarkable 15 per cent a year.

Mr Hunt argued that the boom was likely to continue, with average Chinese consumption growth of around 9 per cent until 2005. He suggests three sources for the growth.

The first is domestic demand. Copper is used both in basic infrastructure projects and in electronic consumer goods, such as mobile telephones.

His projections for the growth in internet users and mobile phone users in China showed very rapid growth from a small base.

Second is import substitution. At present, China imports substantial quantities of semi-fabricated products, such as wire and tubes, partly because the local product has not been good enough. This situation is changing.

The third factor is foreign manufacturers moving operations to China.

The last two factors may mean that copper consumption in some countries outside China dips. But Mr Hunt's overall message was strongly positive for copper. Copyright: The Financial Times Limited