MZI : a case for expansion to 8Mtpa+ ?

Hi guys,
Now that MZI seems to have implemented successfully the expansion to the new 5.25Mtpa mining plan (from previously 4.5Mtpa plan) with positive impact on both operational and financial metrics to be realised during the current september quarter. What is next for the company in terms of growth potential ?

IMO another low capex expansion to 8.0Mtpa+ plan in 2019 (or even doubling of production to 10.50 Mtpa) is very possible.

As you know, the drying/spearation of the Heavy Mineral Concentrate (HMC) into the three saleable final products (Leucoxene 70, Leucoxene 88 and Zircon concentrate) is done at the MSP (Mineral Separation Plant) in Picton (owned by Doral) via a "Toll" one month on/ one month off leasing contract. So in terms of drying/separation capacity of HMC, moving to a new full year contract at the MSP in picton will allow doubling of production (from 5.25 Mtpa plan to a 10.50Mtpa plan) almost for free with little or no more capex.

So to double production capex will be needed to upgrade/expand the Wet Concentrator Plant (WCP) in Keysbrook along with the Mining Feeding Unit (MFU). Probably adding a second MFU + a second Trommel and doubling the number of Spirals will do the job (10M$ - 20M$ capex ?).   

Any successful company should be forward looking and should plan its next growth moves while still implementing its current plans. The resources are sufficient to double production from current 5.25Mtpa plan or at least to increase to 8Mtpa plan, and the MSP in picton allows it. IMO it is the right next move for MZI.

This has already been discussed in the following old but still relevant research note by argonaut (dated 28th april 2015), titled : "A site visit : a case for expansion". You can download it on the company website here :
http://www.mzi.com.au/index.php/investor-relations/publications?start=20



Some interesting quotes from the report :

" The site tour reconfirmed the simplicity of the project and potential to generate high margins even during a cyclical low in the mineral sands market. In addition, ongoing test work indicates that product recoveries may be optimised to significantly lift production. There may also be opportunities to double production via higher utilisation or potential acquisition of Doral’s mineral separation plant (MSP)."

"Opportunity to double production: Heavy mineral concentrate (HMC) will be batch treated at Doral’s MSP on a month-on, month-off basis. When not treating MZI ore, the plant sources HMC from Doral’s Dardanup mine, which is scheduled to close in Q3/Q4 CY15 with no near term ore replacement. Argonaut believes MZI could negotiate 100% utilisation of the MSP to double production. We estimate that this would require a ~$25m expansion at Keysbrook, but no additional capital at the MSP. Alternatively, MZI may opt to acquire Doral from its Japanese parent Iwatani (further detail in pages 5-7)."

"Long life Keysbrook currently has ~18 years of mine life based on Resources. Ongoing drilling has proved mineralisation extends well beyond the current Resource boundary. Argonaut visited a drill rig operating 2km west of the known Resource, observing the area was clearly in mineralisation."

"Potential to increase recoveries MZI plan to commence a program to look at improving L88 recovery from the wet plant. This product accounts for ~55% of total revenue, but recoveries applied in the feasibility study and our model are just 71%. We see potential to lift recoveries well above 80% with minimal additional capex. Recovery of the lower value L70 is also likely to rise from 90% to ~95%."

"Strategic opportunity to double production
Given the Resource size, lateral area of the project and low technical complexity, Argonaut sees potential to expand the project. We believe there is a near-term opportunity, given a pending loss of feed Doral’s Dardanup mine, to increase throughput into the Doral MSP. We highlight some alternative routes to double production below."

"100% utilisation of Doral’s MSP
Doral’s Dardanup mine is scheduled to close in Q3/Q4 CY15 and first ore from the company’s next mine south of Busselton is not expected in the near term. This presents MZI with an opportunity to negotiate 100% utilisation of the processing plant. The MSP was scheduled to treat 100% of Keysbrook HMC (~110-120ktpa) with 50% utilisation on a month-on month-off toll treating arrangement. Therefore, increasing utilisation to 100% would enable 200% of Keysbrook HMC to be treated. The mine would require an upgrade to the WSP (mainly additional spiral circuits) and another mining field unit (MFU: This is the tipping point for trucks consisting of a hopper, trommel and slurry pump). The estimated capex for these upgrades is $25m. It must be noted that this option is temporary, making use of Doral’s hiatus in production while permitting is completed for the company’s next mine."

"Acquire Doral
A second alternative is the complete acquisition of Doral from parent company Iwatani. This would give MZI 100% access to the MSP and alleviate toll processing costs (est. $40/t). Additionally, the MSP has nameplate throughput of ~300ktpa, which is above the rate required if Keysbrook were to double production (~220-240ktpa). Therefore the plant is likely to have spare capacity to treat additional resources (i.e. Doral’s Busselton South deposit) or toll treat resources from other Southwest producers. "

"Upgrade the MZI annex at the Doral MSP
Finally, for minimal additional capex (est. $10-15m), MZI could upgrade the annex on the Doral MSP. This annex was constructed to hold additional circuits to process MZI HMC. An additional dryer and back end circuits are the key components required to develop a standalone Keysbrook processing unit. Under this scenario, MZI would still be required to pay tolling costs, so there is a lesser opex benefit. Note that an acquisition subsequent to the upgrades would result in ~500ktpa throughput capacity, able to handle double Keysbrook production with 250-300ktpa spare capacity."