E25 is unfortunately, still effectively in an extended start-up commissioning phase.
While operational, the commissioning is not yet effective because its not achieving planned production volumes. There is the triple hit - volume is down, grades are understood to be lower than planned and presumably recovery rates are below expectations. All of these factors create something approaching the cost situation that Rocket notes - if nothing changes. They also create the current low share price because if they had worked as planned and E25 was generating A$35.4m/yr of EBITDA with growth potential and probably nearer $2+ even without HPMSM.
If there were not a solution, yes the ore business would be in a lot of difficulty but there is a solution and its DMS plant. DMS relies on the relative density of minerals so its far less sensitive to whether the clay has been fully washed off. DMS isn't new technology, is used in other places including coal, diamonds and in Lithium within the battery metals space. Using DMS chunks of ore with different specific gravities can be separated.
Water has a Specific gravity (SG) of 1.0 so items lighter than this like pumice and most woods float. Everything else sinks. If you start to increase the specific gravity then more things float. I saw a video once of a tub of mercury with an anvil floating in the tub. With a high enough density, lots of things float. Between these two extremes is DMS. If you set the SG to 3.0 then anything lighter than 3x water floats. Heavier items sink. While the optical ore sorter is confused by a lump of Mn ore with a little bit of residual clay/clay colouring, the DMS system isn't. The heavier Mn metal in the ore is recognised and the ore sinks. Clay and lighter bits of rock float. The capital cost is however higher than for the optical ore sorter. DMS can be built for high throughout situations with Core's DMS plant is designed around processing 1.1Mt/yr of crushed ore.
Sample B was an example of the product the ore sorter struggled with. The ore sorter chucked away 17.9% of the Mn while only increasing the grade of what was left from 21.5% to 24.4%. To get to 28% (or is it 30%) you needed to blend this with 32%+ ore and possibly rep3rocess it with further recovery losses. At a 2.7SG, the DMS system chucked way only 7.8% of the Mn while increasing the grade to 32% - a massive improvement on the ore sorter. As noted in the text, a SG of perhaps 2.5-2.6SG might have delivered a grade slightly below 32% but further increased the Mn recovery into the mid-high 90%'s and far better than the original scoping study modelling of 82%.
So what does this mean for the costs that Rocket harps on about?
1. Throughput can increase. The front end of this operation could already run at circa 2Mt/yr if operating double shifts (16hr/day). With a 24/7 operation something approaching 3Mt may be possible. The squeeze point would appear to be the Ore Sorter. Its nominal capacity was 75tph so if operating even 16hrs/day its input would be 108kt. If working well with 27% source feed and 20% being rejected, output would be 86kt/qtr. Output was 50-60kt/qtr so this was a key part of the nameplate blockage.
If a DMS plant with over 90tph is put into this system and operated 18hrs/day (2x9hr shifts - operating during breaks) at the input volume could be as high as 146ktpa. If the rejects volume is 36.5% then you are at 92.6kt per quarter aka non-expansion nameplate. If the DMS system being installed has higher capacity, a 2nd Rince Screen, Screen and Log Washer are installed, you are into the double to triple capacity scenarios.
Transportation to port costs decreaseIf we assume E25 was trucking a blended 30% product and can now deliver a 33% blended product, all trucking and shipping costs decrease by 10%. Additionally, Crude oil spent a period over $110/barrel and is now back nearer $70/barrel. This will feed back into lower diesel prices. A return to "normal" oil prices is also contributing to lower shipping costs.
Shipping costsThese would appear to be about 1/100th of the Baltic dry per ton. The Baltic dry shipping index spent a short period over 5,000. A number of months were above 3,000 (i.e. when shipping 30% ore, losing over $1/dmtu in shipping costs). The Baltic Dry index is now down at 1,386 which indicates shipping costs may be back at around US$14/t. This is aligned to the original Scoping study reference of having got quotes between US$12 and US$16/t. If the product is upgraded to 33% shipping costs are back under US50c/dmtu.
Site and other fixed costsIf DMS allows volumes to double or more from current levels, these fixed costs half (or more). Where previously they were spread across 50-60kt/qtr they may now be spread across 90-180kt/qtr.
Mining costsThis slide May 2020 but repeated in November 2020 indicates that if operating around nameplate and not reprocessing to get grades up to acceptable levels, Mining and Processing costs might be US$1.15/dmtu. Even if wrong by 20% the Mining and Processing costs are modest. This is what you would expect because its a non-blasting, dig crush, wash, sort and ship operation. Everything is inefficient due to a lack of volume (which DMS should solve) and rework from the Ore sorter (which the DMS should solve). Royalties of $0.26/dmtu will continue to be payable. Corporate and Site Admin will decrease per dmtu if volumes increase. The closer that royalties get to being 10% of costs, the better.
Logistics of transporting to Port have been more than planned below but should be in the process of dropping with lower oil prices. There may still be labour shortage issues keeping trucking costs above expected levels.
Will DMS get costs back to US$2.80/dmtu (or $2.65/dmtu in the 3x scenario). That's unclear but they may well return to low US$3's/dmtu. Shipping takes this to mid-high $3's and grade discounts means a reported 44% Mn price in the US$4's is needed for break-even.
The graph below is my attempt to look at pricing. On a USD viewpoint prices are at early 2021 levels (but above late 2020's when the decision to progress was made). The situation is better when looking at AUD values.
With DMS are these current prices big profits - no. Could they be profits - Yes but with existing E25 reporting its very hard to tell.
(20min delay)