FOCUS MINERALS LTD — Capital/Financing Update 2013

Sep 19, 2013

Level 2, 159 Adelaide Terrace East Perth WA 6004 PO Box 3233 East Perth WA 6892 T: +61 8 9215 7888 F: +61 8 9215 7889 E: info@focusminerals.com.au

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ASX ANNOUNCEMENT

20
September
2013

**FOCUS

MINERALS
STRATEGIC
UPDATE**

The
Chairman
and
the
Board
of
Directors
of
Focus
Minerals
Ltd
would
like
to
provide Shareholders
with
an
update
on
the
company’s
restructuring
post
the
suspension
of
its Laverton
and
Coolgardie
operations,
and
its
plans
for
growing
shareholder
value
moving forward:

_**Changing

Market
Conditions**_

The
resources
industry
has
been
experiencing
a
period
of
intense
turmoil
due
to
the
steep
fall
in
the price
of
gold
and
other
metals
in
a
rising
cost
environment.
This
has
led
to
a
number
of
major international
gold
producers
recalibrating
their
Australian
assets
and,
unfortunately,
many
smaller operators
facing
significant
funding
cash
constraints.

Focus
has
acted
decisively
during
the
course
of
these
global
headwinds,
taking
the
strategic
decision to
suspend
mining
at
all
operations
in
order
to
preserve
cash
and
shareholder
value.

Our
actions over
recent
months
have
enabled
the
Board
and
management
to
plan
comprehensively
for
a profitable
future
rather
than
trying
to
reset
the
business
on
the
run.

Focus
has
unique
strengths;
having
a
large
bank
balance
and
the
strategic
support
of
major international
gold
producer
Shandong
Gold
as
a
cornerstone
investor.
Shandong
Gold
understands the
industry
challenges
first
hand
and
maintains
its
long-­‐term
view
on
its
investment
in
Focus.
The company
is
supporting
Focus’
need
to
make
necessary
changes
and
encouraging
new
growth opportunities.

We
expect
the
price
of
gold
to
go
through
what
many
will
interpret
as
signs
of
recovery.
In
Australian dollar
terms,
the
exchange
rate
will
also
have
an
impact
from
time
to
time.
This
being
said,
we
are
of the
very
strong
view
that
irrespective
of
what
the
gold
price
does
in
the
next
year
or
two,
Focus needs
to
concentrate
on
the
margin
it
makes
from
mining
and
processing
its
gold
resource
to maximise
the
end
result
for
the
Company
and
its
shareholders.
We
have
spent
a
considerable amount
of
time
since
my
domicile
in
Perth,
restructuring
the
business
to
achieve
this
aim
and
locking in
a
business
model
with
a
much
lower
fixed
cost
base
and
with
people
that
can
manage
this
new business
environment.

The
group’s
vision
is
for
Focus
to
become
a
low
cost,
high
value
gold
producer.
To
achieve
this
we are
pursuing
a
Three
Point
Plan:

_**1. Establish

a
new,
low
cost
operating
structure**_

Focus
is
establishing
an
outsourced
business
model
for
its
operations
moving
forward.

This
is possible
because
of
our
recent
actions
allowing
us
to
take
a
clean
sheet
approach
and restructure
the
business.

Importantly,
we
will
not
be
outsourcing
management
control
of
the
business.

We
have
the opportunity
to
establish
a
framework
that
enables
the
company
to
achieve
a
more
stable, predictable
cost
base,
both
now
and
moving
forward.

==> picture [567 x 27] intentionally omitted <==

==> picture [59 x 41] intentionally omitted <==

To
this
end,
the
business
has
made
further
changes
to
its
organisational
structure
to
ensure
it
is resourced
appropriately
for
this
stage
of
its
re-­‐development.
This
recognises
that
the
immediate future
will
be
built
on
exploration
and
business
development
and
we
have
retained
a
small
and committed
group
of
core
leaders
and
technical
experts
who
can
continue
to
pursue
these
goals, whilst
having
the
capability
to
gear
the
business
for
future
growth.

This
team
will
be
supported
by
a
number
of
outsourced
functions.
We
have
already
arranged
to outsource
the
payroll
system,
company
secretarial
function,
human
resources
capability
and investor
relations.

We
intend
to
outsource
as
much
of
our
operations
as
is
logical
which
will include
all
mining
services
on
a
future
return
to
production.

When
not
undertaking
mining
and
processing
activities,
the
biggest
single
expense
for
the business
is
salaries
and
wages
and
on-­‐costs.

During
the
mining
boom,
this
expense
grew
very fast
for
all
industry
participants
in
an
effort
to
both
attract
and
retain
the
right
staff.

We
have
moved
to
arrest
this.

In
addition
to
the
savings
made
through
outsourcing,
we
have put
in
place
a
salary
freeze,
the
Board
has
volunteered
a
10%
reduction
in
remuneration
and
I have
volunteered
a
33%
reduction
in
my
per
diem
rate
as
Acting
CEO.

When
I
took
over
as
Acting
CEO
in
March,
group
salaries
were
$22
million
per
annum. Suspending
operations
at
Laverton
and
Coolgardie
and
placing
them
on
to
care
and maintenance,
coupled
with
this
final
restructure
work
in
the
Head
Office,
has
resulted
in
Group salaries
of
less
than
$5
million
per
annum.
With
this
new
model,
it
is
my
expectation
that
very few
additions
will
be
required
in
the
business
going
forward
and
this
cost
will
largely
move
in line
with
market
realities.

We
have
also
acted
to
ensure
our
balance
sheet
appropriately
reflects
the
underlying
values
for our
assets.

The
market
has
endured
some
significant
impairment
charges
from
major
gold companies
and
miners
this
reporting
season.
Australia’s
accounting
standards
require
Focus
to undergo
a
similar
review
each
year.

The
Company
has
undertaken
an
independent
review
by BDO
Corporate
of
our
carrying
values,
and
we
expect
to
book
write-­‐downs
for
the
fiscal
year ended
June
30
2013
of
$84.9
million.
The
operating
loss
for
the
year
will
be
in
the
region
of
$67 million,
plus
takeover
costs
for
the
acquisition
of
the
remaining
minority
interests
in
Laverton
of circa
$4
million
and
shutdown
and
restructuring
costs
for
the
operations
of
$10.5
million.
This will
take
the
full
year
loss
to
circa
$166
million
(unaudited).
The
bulk
of
these
profit
and
loss matters
are
non-­‐cash.
The
annual
audit
is
almost
completed.

Allowing
for
the
majority
of
shutdown
costs
associated
with
Coolgardie
having
now
flowed through,
our
cash
in
the
bank
as
at
31
July
2013
was
$101
million
(excluding
$15
million
in
DMP security
deposits),
which
ensures
a
significant
war
chest
remains
in
place
for
the
business.

The
business
is
now
lean,
with
low
capital
expenditure.
It
has
a
strong,
unencumbered
balance sheet
moving
forward
and
the
right
people
and
support
structure
in
place
to
enable
us
to
pursue our
vision
of
returning
to
production
as
a
low
cost,
high
grade
gold
producer.

_**2. Business

Development**_

The
second
pillar
in
our
Three
Point
Plan
is
to
leverage
our
financial
strength
to
pursue
targeted business
development
opportunities.

Focus
has
removed
all
financial
encumbrances
from
its
asset
base
in
order
to
have
the
option
to offer
first
ranking
priority
on
any
future
financing
should
it
choose.

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Our
strategic
partnership
with
Shandong
Gold
enhances
our
access
to
international
capital markets,
and
Focus
has
a
flexible
remit
in
its
business
development
strategy
contemplating
a
full suite
of
options
including
acquisitions,
divestments,
mergers,
and
joint
ventures.

The
most
important
principle
for
any
business
development
opportunity
is
that
it
must
create sustainable
value
for
shareholders.
Over
the
last
few
years,
Focus
has
not
consistently
created value.

Investment
timing,
some
internal
resource
allocation
decisions,
and
the
massive
fall
in the
gold
price
have
contributed
to
this.

Moving
forward,
I
and
the
new
management
team
have
recommended
to
the
Board
a
set
of stringent
criteria
for
assessing
projects
in
that
they
must
be:

• High
  grade
  assets
  that
  can
  be
  economic
  across
  a
  range
  of
  potential
  gold
  prices
  especially against
  the
  consensus
  view
  from
  time
  to
  time
  of
  the
  long
  term
  gold
  price
  and
  exchange rate
  position;

• Synergistic
  to
  Focus’
  existing
  operations
  –
  either
  adjacent
  to
  and
  releasing
  value
  in Focus’
  current
  ground,
  or
  within
  economic
  trucking
  distance;

• Australian
  assets
  that
  are
  in,
  or
  very
  close
  to,
  production
  outside
  of
  our
  immediate footprint;
  or

• Overseas
  assets
  that
  are
  in,
  or
  close
  to
  production.

Importantly,
with
a
well-­‐managed
cost
base
and
a
strong
balance
sheet,
Focus
can
act
on opportunities
with
patience,
not
haste.
Indeed,
we
have
already
reviewed
a
number
of
adjacent opportunities
to
our
current
operations.

Being
careful
not
to
over-­‐extend
our
financial resources,
we
have
chosen
not
to
acquire
any
of
these
opportunities.
We
remain
confident
that the
current
environment
will
continue
to
present
opportunities
that
are
capable
of
being
value accretive
in
the
short
term.

_**3. Asset

Development**_

Thirdly,
Focus
will
leverage
its
capital
to
develop
its
current
assets
for
a
return
to
production,
or for
potential
sale:

_**Coolgardie

Targeting
a
long
term,
high
grade
reserve
to
return
to
production**_

In
Coolgardie
we
have
reset
our
exploration
goals.
With
the
suspension
of
mining,
we
have
been able
to
shift
our
focus
from
short-­‐term
tonnes
to
feed
the
mill,
to
high-­‐grade
targets
on
which we
can
build
our
future.

Coolgardie
has
a
history
of
proven,
high-­‐grade
underground
mining
success.
We
have
developed a
three
year
exploration
plan
goaled
with
building
a
solid,
sustainable
reserve
base
that
provides at
least
three
years
of
mining
confidence
(see
Appendix
1).

Critically,
we
are
targeting
future
Ore
Reserves
at
Coolgardie
that
are
of
sufficiently
high
grade to
safeguard
the
operation
against
future
down-­‐turns
in
the
gold
price.

Our
exploration
plan
has
been
designed
with
a
view
to
re-­‐starting
operations
within
two
years.

Delivering
on
this
would
also
enable
us
to
lock
in
highly
competitive
commercial
contracting arrangements
before
any
restart
is
contemplated
to
ensure
the
business
has
a
predictable, sustainable
cost
base
going
forward.

As
a
part
of
this
exploration
plan
we
are
kicking
off
Phase
One
with
four
new
programmes (approved
at
the
August
Board
meeting)
focusing
on
targets
that
range
from
resource
extension to
advanced
greenfields
(see
separate
ASX
announcement
20
September
2013).

==> picture [59 x 41] intentionally omitted <==

During
this
exploration
phase,
the
Three
Mile
Hill
mill
remains
a
key
asset
that
can
continue
to be
monetised
for
shareholders.
It
is
one
of
the
only
operating
mills
within
a
100km
radius around
the
Coolgardie/Kalgoorlie
gold
belt
with
significant
spare
capacity
for
processing,
and there
are
a
number
of
developers
in
the
region
who
have
a
need
to
process
their
ore.
We
will explore
this
potential
as
long
as
it
is
economically
viable.

_**Laverton

Multi-­‐option
approach:

Pursuing
business
development opportunities
in
parallel
with
greenfields
methodology
to
exploration**_

The
Laverton
district
is
one
of
the
best
gold
endowed
regions
in
Australia.
Over
28
million ounces
of
gold
have
been
produced
in
recent
history
and
it
is
home
to
three
world
class producing
mines.

We
mined
over
100,000oz
of
gold
in
Laverton
last
year
but
without
full
control
over
our processing
arrangements
the
economics
of
mining
in
Laverton
have
not
stacked
up
and
were made
worse
by
the
gold
price
collapse.

Given
the
exploration
potential,
and
sheer
scale
of
resources
in
the
region,
we
are
pursuing
a multi-­‐option
approach
to
how
we
can
best
unlock
this
value
in
the
ground.

On
the
exploration
front,
this
has
seen
us
return
to
first
principles
in
the
area.

We
have developed
a
conceptual
model
based
on
the
regional
stratigraphy,
geology
and
past
mapping
to develop
a
set
of
priority
targets
where
our
exploration
geologists
believe
there
are
the
best opportunities
for
discovering
large
scale,
high-­‐grade
deposits.

As
a
part
of
this
work,
we
have
determined
to
rationalise
our
tenement
holding.
We
have,
over recent
months,
removed
a
lot
of
the
encumbrances
that
we
inherited
across
some
of
our Laverton
tenements
and
this
has
in
turn
allowed
us
to
drop
a
number
of
unprospective tenements
to
rationalise
our
minimum
expenditure
commitments.

This
now
means
we
are
in
a
position
to
steadily
pursue
nine
priority
target
areas
in
Laverton
that are
not
exposed
to
extraneous
royalty
constraints
and,
we
believe,
are
highly
prospective
for discovery
(Appendix
2).

In
parallel,
we
are
continuing
to
pursue
an
active
business
development
path
looking
to
the potential
for
either
pursuing
strategic
acquisitions
in
the
region,
or
entering
into
ventures
that would
enable
us
to
unlock
the
value
we
have
in
our
assets
across
Laverton.

The
Board
is
pleased
with
the
progress
being
made
so
far
on
this
Three
Point
Plan
to
set
the
business up
to
drive
to
become
a
low
cost,
high
value
gold
producer.
The
Board
has
asked
me
to
commit
to continue
to
lead
these
changes
beyond
the
original
date
of
September
2013
in
an
unchanged capacity.
Accordingly
I
have
given
my
commitment
to
the
Board
and
the
team
to
remain
in
the
dual role
of
Chairman
and
Acting
CEO
based
in
Perth
until
we
have
delivered
the
foundations
for
the changes
we
are
driving
towards
as
a
team
and
re-­‐established
the
path
for
value
and
growth
for
our shareholders.

I
have
discussed
with
the
Board
the
impact
this
extension
could
have
upon
our
Corporate Governance
principles.
Whilst
I
know
how
to
handle
the
two
roles
and
which
hat
is
being
worn
at different
times,
we
must
also
be
seen
to
be
doing
the
correct
thing
as
well.

As
a
result,
we
have
made
significant
changes
to
our
Committee
structure
(Appendix
3)
which underpins
the
board’s
Governance
activities
in
order
to
improve
the
transparency
–
especially
in
the key
area
of
Audit
and
Risk
–
of
this
approach.

Included
as
an
appendix
is
the
Board
structure
for your
information
and
the
Committee
Structure
supporting
the
Board
and
the
responsibilities
of each.

==> picture [59 x 41] intentionally omitted <==

With
a
low
cost
operating
model
moving
forward,
some
smart
acquisitions,
a
high-­‐grade
focus
at Coolgardie,
multiple
options
around
our
Laverton
business,
a
strong
cash
balance
and
the
support
of our
corner
stone
investor,
Focus
is
well
positioned
to
pursue
its
vision
of
returning
to
production
as
a low
cost,
high
value
gold
producer.

The
road
ahead
will
still
be
influenced
by
market
volatility,
but
we
have
put
the
company
in
the
best possible
state
to
seize
opportunities
that
will
arise.
We
are
clearly
focussed
on
building
a
strong
and stable
platform
for
future
growth.
I
know
this
has
been
a
concerning
time
for
shareholders,
but
the Company
remains
very
sound,
well-­‐funded,
and
well
supported
through
Shandong
Gold.
The
Board thanks
its
staff,
shareholders
and
partners
for
their
patience,
understanding
and
support.

DON
TAIG Chairman & Acting CEO

==> picture [59 x 41] intentionally omitted <==

APPENDIX

1. Coolgardie Three Year Exploration Plan

Focusing
on
eight
regional
structures
over
a
three
year
exploration
period
goaled
with
establishing
a high
grade,
three
year
reserve
upon
which
the
business
can
return
to
production.
The
first
phase
of exploration
will
focus
on
the
Bayleys
and
Brilliant
trends
(see
ASX
Announcement
20
September 2013)

==> picture [433 x 593] intentionally omitted <==

==> picture [59 x 41] intentionally omitted <==

2. Laverton Three Year Exploration Plan

A
first
principles
regional
review
has
enabled
us
to
identify
what
we
believe
to
be
the
most prospective
targets
for
discovering
high
grade,
large
scale
deposits.

This
has
also
enabled
the business
to
rationalise
its
tenement
holdings
and
drop
a
number
of
unprospective
tenements thereby
reducing
the
minimum
expenditure
commitment
in
the
region.
The
business
is
now
focused on
nine
priority
targets
with
drilling
already
underway
at
Karridale.

==> picture [452 x 593] intentionally omitted <==

==> picture [59 x 41] intentionally omitted <==

3. Committees

3. Committees
Board Member	Position		Committee
		Audit & Risk	Technical	Remun- eration	Appoint- ments
Don Taig	Chairman & ActingCEO		M
JishengLu	Director,Non-Executive			M	M
Phil Lockyer	Director, Independent Non-Executive	M	C	M	C
Yuhuan Ge	Director,Non-Executive		M	M	M
Bruce McComish	Director,Non-Executive	M		C	M
Gerry Fahey	Director, Independent Non-Executive	C	M	M	M
WanghongYang	Director,Executive
Zaiqian Zhang	Alternate Director, Executive

C
=Chairman;
M=
Member

Management Team

Don
Taig Chairman
&
Acting
CEO Paul
Fromson Company
Secretary Peter
Ganza General
Manager
–
Operations
&
Technical
Services Andrew
Paterson General
Manager
-­‐
Exploration
&
Resource
Development Wanghong
Yang General
Manager
-­‐
Finance Dane
Etheridge General
Manager
–
Business
Development
&
Improvement