Exercise of option to purchase a further 29% of the shares of KGHM Ajax Mining Inc.

Monday, 02 April, 2012
Report no. 17/2012

The Management Board of KGHM Polska Miedź S.A. („KGHM”) announces that on 2 April 2012 KGHM exercised the option to purchase 29% of the shares of KGHM Ajax Mining Inc. with its registered head office in Vancouver („Ajax”) from Abacus Mining & Exploration Corporation („Abacus”), based on the Joint Venture Shareholders Agreement dated 12 October 2010, and increased its share of Ajax from 51% to 80%. The shares were purchased for the amount of USD 29 907 880.85 (the equivalent of PLN 92 765 274.03, according to the average rate of the National Bank of Poland for USD/PLN of 2 April 2012). 

Ajax, whose shares are held by KGHM and Abacus, will advance the Afton–Ajax copper/gold project located in Canada. 

The decision of the Management Board of KGHM to exercise this option was taken following analysis of the Bankable Feasibility Study for the Afton–Ajax project, received in December 2011. This document describes the specific technical and economic conditions related to the construction and operation of the future copper and gold mine located in the vicinity of the town of Kamloops, in British Columbia, Canada. 

Under the Joint Venture Shareholders Agreement, when KGHM exercised its option to purchase an additional 29% of the company's shares, the commitment arose by KGHM to arrange financing for the project. 

The Bankable Feasibility Study was prepared in accordance with Canadian standard NI 43-101 by a consortium of independent consultants under the direction of Tetra Tech WEI (Wardrop). 

Measured & Indicated mineral resources amount to 512 million tonnes of ore containing 0.31% copper and 0.19 g/t of gold. Proven & Probable mineral reserves were calculated at 1.34 million tonnes of copper and 2.75 million ounces of gold. Average annual production of copper and gold in concentrate amounts respectively to 50 000 tonnes of copper and 100 000 ounces of gold. Mine life was calculated at 23 years. 

Under the base scenario, the investment payback period is approx. 8 years, while at current metals prices this period is less than 3 years. 

Capital expenditure is estimated at USD 795 million (the equivalent of PLN 2 466 million, according to the average USD/PLN exchange rate of the National Bank of Poland of 2 April 2012). 

The cost of producing one tonne of copper was calculated in the range of USD 1740 – USD 2800. Mine construction will last two years. Considering the progress to date and the time needed to obtain further permits and administrative approval, the start-up date for the mine has been set at 2015. 

See also current reports nos. 15/2010, 28/2010, 29/2010 and 45/2011. 

Legal basis: art. 56 sec. 5 of the Act dated 29 July 2005 on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies (Journal of Laws from 2005 No. 184, item 1539 with subsequent amendments)