This is my own speculation to determine potential of a Direct Shipping Ore (DSO) operation at Thompson Bros. It is based on my own analysis and assumptions. It is obviously difficult to know if I am in the right ballpark. It's my best attempt at an estimate.
The intent is to determine potential cashflows from the current resource whilst also taking into account potential resource upside already defined by current exploration targets.
You are encouraged to do your own research and make your own decisions.
No specific advice is intended.
Read the announcement from yesterday for background:
https://www.asx.com.au/asxpdf/20190802/pdf/44757nv0mqrr9k.pdf
Summary
Results below are from my own analysis. The company has not published an Economic Analysis for the project.
On the basis of 159 kt per annum of Beneficiated DSO my scenario results in NPAT CAD $34.65M (AUD $ 38.57 M). The profit figure is determined by the Life of Mine parameter selected. I used 25 years. A shorter mine life could therefore be used to increase annual revenue and free cashflow.
From my analysis and for the project parameters I used, the implied value per NVA share once they are in production is AUD $0.312 (24 to 36 month target) on a fully-diluted basis (current known NVA dilution). This is also based on NVA's current 73.852% stake in Snow Lake Resources.
Hopefully my results are realistic.
Ore Sorting technology is used to increase head grade of shipped ore and NVA have already been looking at this technology.
I assume Beneficiated DSO increased to grade > 2% Li20, is sold at USD $250 per tonne and with OPEX USD $117 per tonne. See below for my reasoning for price and OPEX. Essentially there are fewer tonnes shipped at a higher grade, sold at a high price for lower OPEX and this boosts margins.
Cabot Corporation ( the former owners of the Tanco Mine ) have a patent for Ore Sorting for Cesium and Rubidium … some great expertise to bring to bear …
Resource and Reserve
The current JORC resource is 6.30 Mt @ 1.38% (Inferred). There are stated exploration targets of 3 to 7 Mt at between 1.3% and 1.5% Li20.
https://www.asx.com.au/asxpdf/20180725/pdf/43wrddfhz64jzx.pdf
If we take the midpoint of the exploration target then we can add 5 Mt at 1.4% Li20 to the resource. Including this upside we will get to a resource of 11.3 Mt at 1.41% Li20.
An assumption of 60% conversion of Resources to Reserves will arrive at a Reserve of 6.78 Mt at 1.41% Li20. The Reserve is the portion of a Resource used as the basis for production.
Production Assumptions
I have assumed a mine life of 25 years and mine dilution of 10% (conservative) to arrive at 244 kt mined and processed per annum.
6.78 Mt reserve / 25 years x 0.9 (adjustment for dilution) = 244 kt pa (mined)
Shipped tonnes of product is calculated at 159 kt pa due to waste reject from Ore Sorting.
Direct-Shipping Ore Pricing
The Ore needs to be transported to Bernic Lake which is located 150km to 200km from Winnipeg. Winnipeg is approximately 1,000km by rail from the Snow Lake region. A mix of rail and road transport would be needed.
6% spodumene concentrate is currently selling for USD $608 per tonne.
disallowed/business/companies/lithi...ow-charge-for-wa-product-20190729-p52bsw.html
In November 2018 Pilbara Minerals DSO price for 1.3% Li20 grade was USD $150 per tonne.
https://unauthorised investment adv...like-a-lithium-winner-as-it-expands-capacity/
1,200 km is a long way to transport ore over land. It would need to be beneficiated to improve project economics and margins. Let’s assume we can increase the grade to improve economics.
European Lithium did some test work in 2017 with an Ore Sorter. This was able to reject over 31% of the feed as waste. The head grade of their deposit is 1.0% Li20.
https://www.asx.com.au/asxpdf/20170209/pdf/43fwjb737lpf96.pdf
NVA have previously had initial discussions with Tomra on the use of Ore Sorting, however there are other manufacturers of the technology including Oututec and Steinert. The difficult thing to find is processing capacity of Optical (i.e. laser-based) Ore Sorters however there are other multi-sensor technologies that can achieve the necessary tonnage throughput. Test work needs to confirm whether high-capacity ore sorters can achieve the mass reject performance assumed below.
The head grade of Thompson Bros is somewhere in the 1.3% to 1.5% Li20 range. Let’s assume a higher grade feed will result in better mass reject performance when the feed is run through an ore sorter. So assume 35% mass reject instead of the 31% achieved by European Lithium.
That would increase grade of ore from nominally 1.4% Li20 to approximately 2.17% Li20.
On the Pilbara Minerals price figures above:
- USD $150 x 2.17% / 1.3% = USD $250 (for beneficiated DSO at greater than 2% Li20.
Operating Costs
Feasibility Studies in Canada are published to the NI 43-101 standard. These have significant detail so we can use this as the basis for obtaining some representative costings.
https://www.frontierlithium.com/downloads/PAK-NI-43-101-2018APR16.pdf
I have used the following figures:
- Open pit mining cost at CAD $4.06 / tonne mined
- Milling/processing cost at CAD $18.01 / tonne mined … however my expectation is this cost will be much lower for Thompson Bros as they don’t need to build and run their own floatation circuit.
- G&A at mine site of CAD $50 / tonne of DSO shipped … however my expectation is this cost will be much lower for Thompson Bros as complexity of the processing and hence management at the mine site is much lower.
Transport Costs
Indicative costs per tonne for transport of various commodities by rail in Canada was up to CAD $0.025 per km per tonne in 2008. Let’s assume the rail freight cost is double this now ... so CAD $0.05 per km per tonne now. 2008 pricing is from Exhibit 6 (page 18) of the below.
http://publications.gc.ca/collections/collection_2008/tc/T22-149-2007E.pdf
From Australian government data in 2015 we can take as a guide that cost per tonne of road transport is approximately double the cost of rail transport. This assumption is based on Figure 1 in the below.
https://www.bitre.gov.au/publications/2017/files/is_090.pdf
I assume CAD $0.10 per tonne per km for road transport.
I am assuming 1,000 km of rail transport and 200 km of road transport between Snow Lake and the Tanco Mine. Not precisely measured. I just had a look at google maps for a general perspective.
Capital Costs
Pre-production capital costs for FL.V’s project is CAD $150M however since Snow Lake don’t need to build a Dense Media Separation Circuit and Floatation Circuit I think a much more reasonable CAD $50M is achievable. They don't need to build a large permanent camp due to the close proximity of the town of Snow Lake. There is a power line running across their claims.
This assumption is also partly based on the Capital Cost estimate of AUD $50M that applied for Tawana's project in 2017.
https://www.asx.com.au/asxpdf/20170711/pdf/43kkjk14z4kr79.pdf
... obviously need them to do a Canadian NI 43-101 Preliminary Economic Analysis or Feasibility Study to confirm if my figures are right ballpark.
Results
My scenario results in NPAT CAD $34.65M (AUD $ 38.57 M). I assumed interest at 10% of CAPEX and Depreciation/Amortisation at a rule of thumb 5% pa.
TSX-V composite P/E in 2018 was 17.0 so assuming a conservative P/E 15.0 I determined an approximate Market Cap CAD $519.8M for this scenario at full production (AUD $578.59M).
http://siblisresearch.com/data/tsx-composite-return-dividend/
Value of this per NVA share (fully-diluted) is AUD $0.312. This is based on NVA's current 73.852% stake in Snow Lake Resources.
Worksheets
(the table above calculates total from figures calculated in the scenario below)
(20min delay)
