Operational & Corporate Update

    RNS Number : 6181U
  Van Dieman Mines plc
  16 May 2008
   

    
    16 May 2008

    VAN DIEMAN MINES PLC

    Operational and Corporate Update


    Van Dieman Mines Plc (AIM: VDM), the AIM listed mining company with 100% owned tin - sapphire projects in Tasmania, Australia, ('Van
Dieman' or 'the Company'), announces today that the Scotia Project Review initiated by the Board and led by Ron Goodman (Executive Director,
Operations) has presented its initial report and recommendations. These have been adopted by the Board, and a Revised Mine Development Plan
is being implemented.

    *     Scotia Project Review confirmed that the proposed mining methods and components of the original plant design are inappropriate to
deal with the mining conditions encountered upon initial trial mining and pre-commissioning. However, significant progress has been made on
site since the last update.
    *     The Revised Mine Development Plan incorporating certain process plant modifications is expected to optimise mining and simplify
ore transport methods.
    *     Reduced capital expenditure and operating costs expected from the Revised Plan:
    *     reduce capital expenditure requirements for mining and process plant equipment by an estimated A$4M to A$6M across the Scotia and
Endurance Projects, including expected disposals and termination of equipment on order;
    *     as yet unquantifiable operating cost savings from simpler mining and processing plant across the Scotia and Endurance projects;
and 
    *     potential to increase plant throughput post full commissioning.
    *     Proposed plant and mining changes mean Scotia commissioning now expected to commence in July with ramp up to full production by
end 2008.
    *     Given the delays in commissioning and in achieving full production, the Board cannot rule out a modest short-fall in the Company's
working capital requirements. The Board is therefore reviewing a number of financing options.
    *     Endurance Project timetable remains on track and will benefit from the Revised Plan.


    Project Review and Revised Mine Development Plan

    The Scotia Project Review, which follows the removal by the Board of Neil Kinnane as a Director (announced on 15 April 2008), and the
resignation of Clive Trist as a Director (announced on 14 February 2008), examines and provides recommendations on the mine plan, plant and
processing operations, management / reporting structures, resources / reserves and OHS and site security issues.

    The Scotia Project Review has taken place over the past 2 months, during the completion of construction of the Scotia Project as
originally envisaged, and will continue as more information emerges from implementation of the new plan outlined below. The main findings of
the operational review were that the proposed mining methods and significant components of the original process plant design for Scotia (and
also planned for Endurance) were inappropriate, given the water-saturated characteristics encountered in initial pre-stripping of the
overburden and pre-commissioning of the process plant.  

    The Board has carefully considered and accepted the key recommendations made to date from the Scotia Project review, which will result
in a Revised Mine Development Plan. The Revised Plan will result in significant changes to aspects of mining and processing at both the
Scotia and Endurance Projects. These will include examination and trialling of alternative and potentially simpler methods to deliver the
"wet" ore from the mine to the plant. It also involves ongoing investigations to further reduce risk and to optimise the total mining
operation, including drilling, dewatering, trial mining and bulk sampling. Some modifications will also be required to the Tin Shed
Concentrating Facility.

    The Company expects that there will be material benefits to the Scotia and Endurance Projects that will result from the implementation
of the Revised Mine Development Plan including reduced capital and operating costs. The current expectation is that overall capital costs
may be reduced by an estimated A$4M to A$6M at the Scotia and Endurance Projects on the basis of expected disposal proceeds and termination
of surplus equipment on order. Subject to the final mining and ore transport methods finally adopted, operating costs are also expected to
be lower, although those savings cannot be quantified until more information is available from the drilling, dewatering and trial mining and
processing.  

    The proposed dewatering program and plant modifications mean the commissioning at Scotia is now not expected until July, with a
consequent ramp up to full production by the end of 2008. 

    Importantly, the Company and its consultants are examining options for increasing mining rate and plant processing rate with a view to
increasing long-term production rate, and maximising near-term cash flow during ramp up. 


    Scotia Project Progressing

    The Company can report the following achievements since its last announcement.
    *     The freshwater and tailings dams have been completed and signed off by the relevant authorities for immediate use. Filling of the
freshwater dam has commenced.
    *     Erection, electrical connection and plumbing of the (as-delivered) main processing plant have been completed. Modification of the
USA manufactured plant to meet Australian Occupational Health and Safety (OH&S) standards is nearing completion, and the upgrades to suit
wet ore delivery have been planned and are about to commence.
    *     The Tin Shed Concentrating Facility has been thoroughly reviewed, with most improvements completed and additional shaking tables
being sourced. An initial parcel of a few tonnes of stockpiled concentrate from an earlier operation of the Bulk Sample Plant has been put
across a shaking table to produce a preliminary tin concentrate. Samples from this processed material have been sent away for assay.
    *     Consultants have undertaken an initial hydrological study, including some drilling, and have provided recommendations for trial
dewatering of the overburden at the planned  initial mining area. Earthworks to commence dewatering of the overburden according to this plan
have begun.
    *     A review of OH&S and site security has been completed and the Company is well advanced on implementing its recommendations in
full, bringing the Scotia and Gladstone sites and all staff and equipment to industry best practice.
    *     Management, reporting and site administration have been thoroughly overhauled and streamlined. The Company is in discussions to
appoint an experienced candidate as Plant Manager, which will complete the staffing complement to take the project to production.


    Endurance Project Development Timetable on Track for Early 2009 Start

    The Endurance Project will be a major beneficiary of the Revised Mine Development Plan and will be able to take full advantage of its
findings. Subject to permitting approval and changes to the mine plan to accommodate the Revised Mine Development Plan, the Endurance
Project is expected to commence production early in 2009.

    The draft Development Plan and Environmental Management Plan has been submitted to the relevant Tasmanian Government agencies, as per
the previously announced schedule, and it is expected a decision will be forthcoming during Q4 2008.  


    Reserve and Resource Estimates to be Reviewed

    The currently published JORC reserves and resources support a mine life of approximately 10 years, based on a production rate of about
1200 tonnes of contained tin per annum when both Scotia and Endurance / Pioneer are at full production. The mine life does not include
potential resource additions from future exploration at other project areas, but it does include some Inferred Resources at the Scotia,
Endurance and Pioneer projects.

    The Board has accepted the conclusion from the Project Review that the basis upon which the previous management team determined the JORC
reserves and resources was not consistent with current best practice. This is largely because of the almost total reliance on drilling data
that is 70 to 100 years old.

    The Board, therefore, considers it prudent to embark on a limited (~5,000 m) confirmatory drilling programme to validate the previously
determined JORC reserves. The drilling program will also provide information to fine-tune mining options, assist with dewatering, and
enhance mine planning. The proposed drilling programme will initially focus on the Scotia Project resource and will take about 4 to 6 months
and A$0.5 million to complete.




    Financing

    The Board currently expects that there will be some reduction in capital funding required to implement the Revised Mine Development Plan
at both the Scotia and Endurance Projects. This will be achieved by a combination of simpler mining and processing methods, expected capital
disposal proceeds and the termination of surplus equipment on order. However, given the delays in commissioning and in achieving full
production, the Board cannot rule out a modest short-fall in the Company's working capital requirements.  

    The Board is therefore reviewing a range of options to source additional working capital, and the Company is in advanced discussions
with a number of banks and financial institutions to that end. The Board is reviewing a suite of financing options, and is sensitive to
shareholders' concerns about further equity financing. 


    Ongoing Guidance

    The Board expects to be in a position to provide more detailed guidance on the costs and benefits of implementation of the Revised Mine
Development Plan and Scotia Project commissioning within two months. It will also report as soon as possible on the forecast financial
status of the Company and the requirement for additional working capital.


    Mike Etheridge, Non-Executive Chairman, commented:

    "Your Board has acted decisively in recent months to deal with previous operational and management deficiencies in the Company.
Following a thorough and professional operational review by our new management team and external consultants, the Board has adopted the
Review's initial recommendations, and implementation of the Revised Mine Development Plan is underway.

    "The Board regrets the delays in commissioning resulting from deficiencies in the original design of the plant and the unforeseen mining
conditions we encountered in trial mining and plant pre-commissioning, but we consider that the Revised Plan will address these.

    "The Board is now satisfied that we have the people in place to deliver the Revised Plan, and can move confidently to commissioning the
Scotia Project within the next few months. Subject to the results of the proposed drilling programme, the Board currently considers that the
Scotia and Endurance Projects will be technically and economically robust, given the expected reductions in both capital and operating costs
that the Revised Mine Development Plan envisages."


    Enquiries

 VAN DIEMAN MINES plc              Tel: [phone]        
 Mike Etheridge, Chairman          Email:
 Ken Frey, Managing Director       [e-mail] 
                                    
 GRANT THORNTON CORPORATE FINANCE  Tel: [phone]
 Gerry Beaney / Fiona Owen

 FOX DAVIES CAPITAL LIMITED               Tel: [phone]
 Richard Hail, Corporate Finance


 BANKSIDE CONSULTANTS              Tel: [phone]
 Michael Padley / Libby Moss



    Background on Van Dieman (AIM: VDM)

    Van Dieman is in the process of developing its alluvial tin, sapphire and accompanying mineral deposits in the northeast of Tasmania,
Australia where it owns 15 exploration and retention licenses. Pre-production development Van Dieman's Scotia tin and sapphire mine is
currently well advanced and, once in full production, Scotia will produce annually an estimated 700 tonnes of tin and 1.5 million carats of
mine rough, gem quality sapphire.

    A six-year contract is in place with tin smelter and refiner, Thaisarco, for the off-take at prevailing London Metal Exchange prices of
the Company's entire tin concentrate output from the Scotia and Endurance mines expected to be 1,350 - 1,500 tonnes of contained tin per
year. A joint venture marketing agreement is also in place for the marketing of the Company's sapphire and spinel production. Output of mine
rough, gem quality sapphire from the Scotia and Endurance mines is expected to be approximately 3 million carats annually.  

This information is provided by RNS
The company news service from the London Stock Exchange
 
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