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10/3/2003...Australian Silicon to ASX re Decision to Suspend Work on Bankable Feasibility Study

From Australian Silicon to the Australian Stock Exchange
Decision to Suspend Work on Bankable Feasibility Study
Document date: Mon 10 Mar 2003 Published: Mon 10 Mar 2003 18:05:58
Document No: 234002 Document part: A
Market Flag: Y
Classification: Progress Report - Other , Other
2003-03-10 ASX-SIGNAL-G

Australian Silicon Limited (ASO) today announced that it plans to suspend further work on its bankable feasibility study into the establishment of a world competitive silicon smelter on the East Coast of Australia. As a result the carrying value of the Silicon Project will be written down by $11.3 million in the Company's December 2002 financial results.

"In 1997/1998 when the decision was first made to develop a second Australian silicon smelter in New South Wales, demand for silicon was increasing strongly and the industry was in short supply. Moreover silicon continued to offer very attractive growth opportunities due to strong demand from the silicones, aluminium and electronics industry. Since that time the rapidly increasing low cost Chinese
production which now sells below the cash costs of most Western producers has had a depressing effect on prices. Moreover the sustained slowdown in the major western economies over the past 3 years has resulted in a more subdued outlook for ASO's potential customers and a reduced appetite for green field silicon production.

Faced with this outlook ASO has been forced to target a progressively lower cash cost of production for its proposed smelter in order to ensure project viability and a satisfactory risk-adjusted rate of return on capital.

This in turn has placed additional downward pressure on all of the key cost inputs for the proposed smelter, in particular electricity which represents 25 to 30% of the cash operating costs of a typical Western World smelter.

Following the Company's decision in October 2002 to abandon efforts to establish the smelter in New South Wales, the focus shifted to other states in Eastern Australia. To date the Company's expectations of a long term world competitive electricity tariff have not been met by any electricity generator or retailer. Moreover, based on experience to date, the Company lacks confidence that these expectations can be met in the foreseeable future.

Faced with this fact and continued difficulties in gaining long term, environmentally-sustainable access to a wood resource for wood flux and charcoal production, the Company has come to the conclusion that the establishment of a second silicon smelter in Australia at this time is not viable.

Although the Board of Australian Silicon stands firm in its belief in a positive future for silicon metal, we are facing up to the reality of developments in the market place, and the deterioration of certain fundamentals in Australia's domestic environment.

It is a sobering fact that the greatest growth in demand for silicon metal over the next 20 to 30 years will almost certainly be in the Asia Pacific region. Australian Silicon's proposed smelter was prospectively the only non-Chinese silicon producer around the whole of the Asia Pacific Rim (excluding the "captive-to-Shin Etsu" Simcoa plant). While this remains a strategically compelling vision, the board has been forced to recognise that this vision is unachievable at the present time.

The Company has reached agreement with Lakewood Mill Pty Ltd to sell mining leases M26/242 and M26/367 (East Kalgoorlie tenements). As consideration for the sale ASO will receive $100,000 cash and will be entitled to a royalty of $15 per ounce of gold recovered, from any
gold bearing ore mined from the tenements.

The Company plans to turn its attention to rapidly seeking out other business opportunities where it is able to demonstrate a clear and sustainable strategic competitive advantage from an Australian cost base. ASO has sufficient funds available under its loan facility from Portman Limited to fund its minimal working capital requirements pending its consideration of proposals to restructure the Company.

M Spratt

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