AUY Yamana Gold Inc.

RNS Number:2963C
AuIron Energy Ld
19 April 2001

19 April 2001

Open Briefing. AuIron Energy. CEO Updates Current Issues

Record of interview :

corporatefile.com

AuIron Energy Limited recently announced that pig iron is being produced at
rates that are in line with expectations from the demonstration plant at its
90 percent owned South Australian Steel and Energy project (SASE). Are you
confident that the successful operation of the demonstration plant will
translate to the successful operation of a commercial plant?

CEO Neill Arthur

We are encouraged by the performance of the demonstration plant to date. The
fact that marketable quality pig iron has been produced, sold and used
successfully is independent evidence of significant progress.

We are however, only part way through the operating phases planned for the
demonstration plant. We'll continue to test different coal types and optimize
plant performance before starting to use our own coal in June. We've begun
extracting a 5,000 tonne coal sample at Phillipson for this purpose.



corporatefile.com

The AusIron technology has been used commercially for smelting base metals but
not yet for a commercial pig iron plant. When do you expect to complete test
work at the demonstration plant and when do you think the $1.2 billion
commercial plant will be operating?



CEO Neill Arthur

We aim to complete the demonstration phases by the end of July 2001. We should
formally commence a commercial plant feasibility study shortly and complete it
later this year. We expect to begin construction of a first commercial plant
in the first half of 2002 with production beginning in late 2003. We should
ramp-up to commercial operation in the first half of 2004.



This production schedule assumes financing will be arranged quickly. We
appointed the banks (ANZ, Citibank, Deutsche and West LB) in October last year
and the bank's independent engineers, Hatch, who are working with us on the
project, checking things as we go.



corporatefile.com

From results received from the demonstration plant so far, have you been able
to confirm your expectation that the capital and operating costs will be lower
than for traditional pig iron producing technologies?



CEO Neill Arthur

The results to date are encouraging. If the current trends hold when we use
our own coal and the scale-up issues are addressed successfully, then I
personally have little doubt that capital and operating costs could be much
lower than for traditional blast furnace/coke oven based pig iron production.
Scale-up for other base metal applications of the top submerged lance smelting
technology have been achieved commercially in bigger step-ups than we are
proposing.



The operating results have been based on third party coal and iron ore to
minimize costs. We have consistently bettered a number of performance design
criteria for the commercial plant, some by substantial margins.



We will test our own coal in June/July 2001 and we need to succeed with higher
intensity smelting tests. We are also confident that commercial SASE plants
will be much cleaner environmentally than existing technologies.



corporatefile.com

Do you know how much power will be generated from the planned commercial
plant?



CEO Neill Arthur

This is one of the outcomes that has to be assessed in the remaining test
programmes to the end of July but it should be 250MW or more from a 2.5
million tonnes per annum pig iron plant.



corporatefile.com

You plan to produce around 2.5 million tonnes per annum of pig iron from the
commercial plant. What progress have you made in securing sales contracts for
this production and for the power, which will be generated from waste heat?



CEO Neill Arthur

There is considerable interest from local and overseas pig iron consumers
(traders and steel mills). However, it's prudent for us not to conclude sales
contracts until the feasibility study and commercial plant financing steps are
completed.



The electricity sales side of our business is becoming more and more
important. Electricity markets in the south east of Australia are tightening
and prices have risen considerably. As a potential new, low-cost power
supplier, SASE is being keenly watched by the industry. We appointed expert
electricity market consultants last year to help us maximize shareholder
returns from this side of SASE.



corporatefile.com

What feedback have you had from customers on the quality of the pig iron
produced from the demonstration plant?



CEO Neill Arthur

The results from the first trial parcel of pig iron exceeded the expectations
of our customer who reported it had clean melting characteristics and was
generally within his specifications. We expect to supply him with additional
orders.



corporatefile.com
What current market conditions exist for pig iron?



CEO Neill Arthur

Export markets remain at lower than long-term trend prices. Within the last
month, spot prices in Korea were reportedly in the range $US126 to about
$US131 per tonne. The growth in electric arc furnace (EAF) steel production,
EAF steelmakers' continued preference for pig iron and growing shortage of
good quality scrap are expected to underpin the demand and price for
good-quality pig iron from suppliers in politically stable countries. We are
committed to establishing SASE as a long-term stable supplier of assured
quality pig iron to the developing ferrous metallics market.



corporatefile.com

On 3 April, you announced a placement to institutions of $6.3 million. In
February 2001, you announced a 1 for 4 rights issue at A$0.90 to raise
approximately A$53m (net) to help fund the South Australian Steel project.
What will be your cash balance after these equity raisings and for how long
will that fund the company?



CEO Neill Arthur

By end June 2001, assuming the Rights Offer is fully subscribed at 90 cents
per share, we should have about $A55 million or more in cash after funding the
SASE operations and coal trial pit excavation through to end-June 2001.



The additional funds from the recent placement and the announced rights offer
will primarily be used to accelerate commercial plant feasibility studies for
SASE, some parts of which have already begun. Some funds will be used for
advancing the Ballymoney project in the current favourable energy market in
the UK. That level of funding we expect is adequate to take us through for at
least 18 months as a stay-in-business strategy. Of course, any additional
equity funding component required to support the commercial plant debt
financing strategies still needs to be determined from the outcome of the
feasibility studies.



corporatefile.com

We discussed the Ballymoney project in an Open Briefing on December 21. Why
have you decided not to go ahead with a separate UK listing of the Ballymoney
project in Northern Ireland (100%)?



CEO Neill Arthur

The interim rights offer announcement in February predated two significant
external environment developments. These were the dramatic downturn now
evident in the UK stockmarket's appetite for new floats and the significant
devaluation of the Australian dollar versus Sterling and most other
currencies. As a consequence, while AuIron's $A share price has held up pretty
well in an overall bear market, especially since our inclusion from 1st April
in the S&P ASX 200 index, the Sterling price of our shares has fallen by up to
20%. The latter of course makes the rights offer that much more attractive to
our many UK and German Shareholders.



The board has decided, as we announced a few weeks ago, that the cost and
complexity of an AUY rights offer coupled with a new float of Ballymoney was
not justified at this time. So we are restructuring the prospectus and
associated accounting reports to reflect solely an offer of AuIron shares.



A new schedule will be published and we expect that documentation would be in
shareholders' hands during May, with the offer closing before end-June 2001.



corporatefile.com

Why did you decide to make a placement to institutions after announcing the
rights issue?



CEO Neill Arthur

Following a major institutional roadshow in North America and the UK in
February/March this year, a major fund manager approached us, with the offer
to make a direct placement, which we accepted. We believe this transaction is
a significant first step in repositioning the company's share appeal to local
and international fund managers after our inclusion in the S&P 200.



corporatefile.com

What impact do you think the inclusion in the S&P 200 Index will have on your
share price?



CEO Neill Arthur

Even prior to the inclusion in the S&P 200, our shares had performed well.
Last Thursday The Australian Financial Review published a table showing AuIron
Energy was in the Top 20 performers of all ASX stocks for the 12 months and 36
months to the end of March 2001.



This sustained performance reflects the market's acceptance of our new focus
and direction and the continued support of our many shareholders in Australia
and overseas. With new fund manager attention via the S&P 200, we expect that
Index weighting will underpin the share price to a degree, however we still
have to continue to deliver the results to justify that support. This we are
determined to do.



corporatefile.com

Can you describe the current energy market situation in Northern Ireland?



CEO Neill Arthur

The competitive energy market in Northern Ireland and in the Republic has
moved strongly in favour of a Ballymoney development. The North is 96%
dependent on imported fuels - gas and steaming coal. The Republic is 80%
import dependent and moving to 90% next year.



The major proportion of power station fuels, in the North and South, is
natural gas imported from Great Britain via a single undersea pipeline from
Scotland. Transco, the British gas pipeline operator last month forecast a
physical shortfall in UK gas supplies within 3 years. Last year, the Republic
forecast it would have a physical shortfall of gas supplies by next year.



corporatefile.com

So where is this extra gas to come from and what will happen to gas prices?



CEO Neill Arthur

The extra gas can come only from the main existing suppliers to the Continent.
They are few in number and supply under long term contracts with prices
indexed quarterly to oil prices. So UK spot gas prices, which have rocketed up
by as much as 3 times over the past year, seem set to stay at high levels.



Similarly with steaming coal prices; they have doubled over the past 18 months
and rose by another 20% recently for Japanese contracts. I expect that the
Japanese contract price increase will add to further price pressures in the
European market.



So overall, we feel that Ballymoney's time has come and we will be pushing
hard to advance this project this year.



corporatefile.com

Thank you Neill. We look forward to the next Open Briefing with AuIron Energy.

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