Hi all, I've been involved with mineral sands for quite a while and wanted to share some insight.
For those whodon’t fancy reading the entire post, please let me give you the abridgedversion: this could be an outstanding deposit. To illustrate just how valuablethis deposit could be, I’ve run a rudimentary financial model with conservativeinputs outlined below, arriving at an NPV of approximately$1.5billion. I fully expect that many of the model inputs will be blown outof the water by upcoming drilling results announcements, pushing this NPVupwards.
For aproject in infancy like Muckanippie, I’ve applied a very low NAV factor of 33%,and I see no reason why PTR shouldn’t be pushing a market cap upwards of $500min the very near future – on the back of drilling results that are inline with or exceeding the model inputs.
Firstly, let’s look at the dirt:
- Asmall amount of overburden, which won't be a huge factor in driving OPEX orpost mining / rehabilitation liabilities. Should be easy digging, pendingconfirmation on reasonable amounts of rock/oversize.
- Wealready have confirmation on a deposit of around 2km x 3km, at approx. 15m orethickness and 10% HM – with an assemblage of 20% rutile, 4% anatase, 68% ilmenite/leucoxene. Lock this in as an absolute worst-case scenario (with an NPV of around $600m).
- Thereis significant potential – and in fact a high degree of likelihood – for a muchlarger deposit. We are all eagerly awaiting drill results to confirm the sizeof the prize, but even if we take a fairly conservative 2.5km x 5km x 15m weget a resource of 319Mt. Per below, it is realistic that this conservative caseis a >20 year mine. From what I’ve seen so far, I’d also expect a much betterresource conversion to reserve than 60%... but let’s run with 60% for now.
- Afew further notes on the HM quality. There are insignificant amounts of zirconand monazite (which is a shame), low U/Th (which is great), low amounts of trashHM (aluminosilicates etc). No other nasties noted in there that couldcompromise the TiO2 product quality (arsenic etc), but this is a risk that hasn’tbeen publicly addressed by PTR yet. Note that there are downstream processingoptions to remove some contaminants like this, they just add to CAPEX and OPEX,and shouldn’t be a fatal flaw.
- TheTiO2 content of the ‘pseudo rutile’ is an interesting subject and a keydeterminant in its value. From the HM Geochem Assay and the HM XRD results formet bulks, I’ve inferred a TiO2 content of approximately 60-62% in the ‘pseudo rutile’.This puts it in the ‘chloride ilmenite’ range, which suggests it will fetch areasonable price from pigment producer customers or could be used as syntheticrutile kiln feed.
- Itis worthwhile touching on the higher slime in the lower part of the ore body(Met 3 Bulk). A high slime content such as this would be a problem if it wasfor the entire ore body, however in this instance the high slimes could readilybe blended out with the lower slime ore. A few cyclone clusters, athickener and probably some flocculant for tailings deposition will take care ofslime processing with relatively low expense.
Next, lets look at some basic financials and mining/processingphysicals. There are quite a few assumptions made – and I’ll stand behind mostof them – but let’s not get too caught up on them in replies please.
- I’vegone with a nominal mining rate of 1300tph and for simplicity have assumed thatwe’re selling magnetic split wet concentrates. There may be a case fordownstream dry separation (particularly if the SA govt wants to continue proppingup Whyalla/Port Augusta region and subsidises it). The product prices have beendiscounted to account for their sale in concentrate (75% of finished goods,using an amalgam of publicly available prices).
- Whilewe’re on the SA govt, this is a particularly favourable jurisdiction to developand operate a mining project. Similarly, the traditional owners here are familiarwith mining and execution of a native title mining agreement shouldn’t inhibit things.
- CAPEX estimate has been derived from multiple other mineral sands developments or studies in recent years.
- OPEX estimate is based on studies and actuals (and some gut feel).
- Forthose out there who don’t quite understand mineral sands dry mining andprocessing, here’s a brief summary of what to generally expect. Nothing here isparticularly complex, technically difficult or expensive – which means low riskfor project development and operations:
- Digoff the topsoil, overburden. Put in stockpiles for later rehabilitation, orreturn it directly to any ongoing mine rehabilitation.
- Usebulldozers (or loaders) to push ore into a mobile mining unit/s. The mobilemining unit screens out rocks, slurries the ore, and then pumps it to the wetconcentrator.
- Firststep at the wet concentrator is to separate the slime from sand, typically usingcyclones. The slime is thickened up and then pumped back to the mine void as backfilltailings (filling the void to start the rehabilitation process).
- Sandis then fed into wet gravity separation processes (spirals, classifiers), separatingthe heavy sand from the light sand. The light sand is then pumped back to themine void as backfill tailings as per slimes above.
- Heavysand goes through wet magnetic separation processes and screening, to removeany oversize trash and to split into magnetic (eg. Ilmenite, leucoxene) and non-magnetic(eg rutile, anatase) concentrates.
- Theconcentrates are then stacked on a pad, allowed to dry out, and are thentransported to customer/port or downstream dry processing.
- Allmining sequences are optimised and (generally speaking) target the higher-gradeore first to bring forward revenue and profit. For simplicity and erring again onthe conservative side, I’ve assumed a homogenous ore feed grade for financialanalysis. For this reason I haven’t stated an IRR or payback period – but giventhe extremely high grade areas at the southern extent of the ore body it wouldbe very fair to infer a payback period <2 years post-commissioning and anIRR >30%.
Finally,let’s consider what comes next for PTR. Assuming that the next round of drillresults are solid, we’ll inevitably see moredrilling occur. A few ways this might go down:
- Cap raise.
- An existingbig fish (Rio, Iluka, Tronox) enters the scene and earns a stake by fundingdrilling/studies etc. Similar to the arrangement between Rio Tinto and SVM forKasiya, or perhaps a JV with a pigment producer.
- An existingbig fish lobs a takeover attempt.
Of the bigfish out there:
- Riohas already committed to a much riskier play at Kasiya with SVM. South Australiais one of the most favourable mining jurisdictions globally, and if I was inthe boardroom at Rio I’d be excited to get away from Africa exposure (particularlyafter all the Richards Bay nonsense). It’ll be interesting whether the internalpolitics of Rio stops them having a go at PTR.. although they have deep pocketsand personally I think it’d be a no brainer for them to have both Muckanippieand Kasiya in their portfolio allowing them to dominate the TiO2 market fordecades to come.
- Ilukaare currently strapped for cash, undertaking two relatively risky projects at Eneabba RERefinery and the Balranald mine, while also facing a revenue slump as Jacinth Ambrosiawinds down to end of mine life. There would be some dismay in Iluka’sexploration team given that this deposit was found in their backyard a shortdistance from the Eucla Basin deposits. In the event that Iluka can get the requiredcash together, this would be a great acquisition to replace the synthetic rutile kilnfeed coming from an increasingly expensive Cataby operation and it would be alow risk investment compared to their other projects. Unfortunately I don’tthink there is cash on hand for a takeover (maybe cash and scrip at a stretch),and cash for an earn in arrangement might even be a struggle at the moment.
- Tronoxcould potentially be a good suitor. Their dry separation plant 700km away at BrokenHill has capacity to take Muckanippie concentrate (without extensive capex) inaddition to the 400ktpa currently filled by their other nearby mines. Thequestion for Tronox is whether Muckanippie would be a good strategic fit, giventhat their TiO2 mining is undertaken primarily to maintain full verticalintegration with feedstock supply for pigment production – not to sell TiO2 feedstockto competitors in the pigment arena. Because of the previous point, Tronox areless likely to go for an earn-in and would be looking at an acquisition, and itlooks as though they have enough cash and debt facility to do so (scrip wouldn’tbe so great given they’re US listed). Tronox currently do ~800ktpa of TiO2 feedstockfor pigment production, so they might not need production from Muckanippie fora while and would need to hold it in reserve for future when their currentmining operations wind down. Whether this fits their internal strategicplanning is a key question.Otherpotential parties to JV or acquire are big pigment players like Chemours, LomonBillions and Kronos. Of those three, LB probably have the deepest pockets and appetite.
Hard to say definitively how it will play out, but my guess is acap raise after the next round of results for some more drilling and resourcedefinition. Then after a while, one of the big fish will eventually overcometheir corporate inertia to pay a few multiples of what they could have a year earlier.
I hope thisall helps a few punters. Well done to anyone who got in at 2c, you couldvery realistically be looking to raise the bat for a 100 bagger. Please DYORand strap yourselves in.
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