News: Diatreme moves towards DFS

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Clive Tompkins: Hello Clive Tompkins reporting for the Finance News Network. Joining me from diversified minerals explorer and developer Diatreme Resources (ASX:DRX) is Executive Chairman and CEO, Tony Fawdon. Tony welcome to FNN. Can you start by introducing the Company?



Tony Fawdon: Yes the Company’s been around since about ’93 and went through several hoops as an explorer for gold and minerals. And we eventually - the Company got put into a dot bomb and disappeared forever, and the subsidiary was called Diatreme. And we went on after we had a vote by the shareholders, there were 2,000 of them and they put us back on the board, and away we went again with new projects. And we were looking at that time for diamonds, later on we were looking for mineral sands and that’s where we’ve ended up.



Clive Tompkins: Thanks Tony. So what’s your share price and market cap?



Tony Fawdon: Okay the market cap at this time is about $30 million our later share price is about 7.5 – 8c



Clive Tompkins: Now to your zircon project in the Eucla Basin of WA. What does it contain and what stage is the project?



Tony Fawdon: OK, we’ve come very near to the end of a pre-feasibility. We have a reserve there of 97 million tonnes at a rate of 2.5 per cent heavy minerals, of which 0.79 per cent is zircon and the rest is titanium. It actually makes it the highest grade zircon deposit in Western Australia and it’s one of the highest grades in the world, after Jacinth-Ambrosia which of course is with Iluka. At this time, we’ve got to a point where we’re about to start the definitive feasibility. And this will lead us in about a year’s time, hopefully to find that we’re going ahead to mine and start to finance the operation.



Clive Tompkins: Thanks Tony, now your pre-feasibility study is due for release in early March. What have you learnt during the study?



Tony Fawdon: We learnt that number one that the project is off the shelf, in terms of the technologies needed. There’s nothing frightening there in terms of the metallurgy, which is very good indeed. The usual spirals, we don’t even need high speed winds or anything like that. We can just use ordinary shaker tables and the recovery is about 98 per cent of the concentrates. When we take it through to the mineral separation plant, we get a recovery of the zircon at about 85 per cent zircon, which is pretty good.



Clive Tompkins: And will this be an open pit operation?



Tony Fawdon: Yes it’s 1.1:1 stripping ratio, so there’s going to be about 106 million tonnes of overburden and about 100 million tonnes of actual ore. The overburden is approximately 17 metres thick and the ore is about 15 metres thick.



Clive Tompkins: So Tony, what are your costs and where will this put the project relative to other producers?



Tony Fawdon: The CAPEX of the operation is going to be about $230 million. This will include a mineral separation plant in China and a deep-sea port, and also the hot acid leach plant as well. If we’d have built the whole lot in Australia, the whole operation would be in excess of $300 million. So that’s a great saving, plus we can sell the product in China at a premium. Revenue is going to be about $160 million a year with about $70 million to $80 million costs. So this is going to be a very robust operation, we’re going to be looking at the moment, at a net after tax of about $88 million as work from the resource. This might change once we finish the pre-feasibility.



Clive Tompkins: So what’s the next step - Board approval to move to a definitive feasibility study?



Tony Fawdon: Right, we will probably finish the pre-feasibility in about three weeks’ time, then the Board will come together to make a decision on the definitive feasibility. The definitive feasibility is going to cost round about $12 million, that’s including running the company through for about a year.



Clive Tompkins: And based on a positive outcome to the DFS, when do you anticipate first production?



Tony Fawdon: The first production will most likely come in about the middle of 2014 and be steady-state mining, will be probably 2015. It’s going to take the rest of the year to finish the definitive feasibility and then of course, we’re going to the financing of the operation.



Clive Tompkins: Now you have a number of other projects in Queensland and South Australia covering mineral sands, copper and gold. What’s taking place?



Tony Fawdon: OK we have been exploring for some time and located a whole copper porphyry belt in central Queensland, at our project at Clermont. There are literally hundreds of copper and gold workings in the particular area; no-one was able to hang these together. But we found in very subdued geology in the middle of the area, this whole porphyry and these porphyries have the capability of producing mines of 50 up to 2 billion tonnes. So we now find copper, gold and silver, and molybdenite over a wide ranging area approximately about 10 kilometres long by about three kilometres wide. So we put it out – we realized that the cost of doing and bringing this on, at the same time as trying to do Cyclone is too heavy for a small company. So we’ve approached several majors and at the moment we have two majors who are considering doing a joint venture with us. And one of them is very close to coming to do a deal, so we should know more about that in the next three weeks.



Clive Tompkins: On to corporate matters. Who’s been funding the Company to date and are you looking at JV partners, offtake agreements etc.

to fund the zircon project?



Tony Fawdon: It’s been funded mainly from the shareholders; we have a major shareholder in Andrew Tsang who’s an industrialist from southeast China, Fujian. And a number of Chinese in Hong Kong and other parts of southern China, we also have advisors in Phillips Capital who is Intersuisse and now Austock. And these people have been raising capital for us for a number of years, so we’ve had a very strong support from all these groups including the current shareholders. So from that perspective, we really haven’t had to scratch too hard to get funding for our operations. With Cyclone we’ve been talking for quite some considerable years with Beitai who are a major player, Chinese player from central China from a place called Benxi, west of Xi’an, the old capital. And these people are one of the biggest producers of titanium end products and zircon end products. Now we’ve had a very good relationship in swapping data information and they’ve been very, very helpful. They are waiting for several things to happen like for example, the discovery of water which we are now going to be drilling immediately under the mine site. We’re expecting to see there some aquifers which are well known within the Officer Basin, so we don’t see too many problems there. Once we’re through that process, then I think the Chinese will come on board but failing that, we already have quite a few other major parties who are end users themselves and processors.



Clive Tompkins: Last question. What’s the priority for the next six months?



Tony Fawdon: Obviously our priority is to get the definitive study underway and move this process as fast as possible. We’ve heard lots of exploration mining companies’ whingeing about compliance, well it’s real and we have to push it very, very hard. I have to say we’re dealing with the WA Government and the WA Government is streets ahead of anything in the eastern States. So that’s going to be a big plus in moving forward. They want production here.



Clive Tompkins: Tony Fawdon thanks for the introduction and congratulations on progress so far.



Tony Fawdon: Thank you very much indeed.



Ends