Thanks AGM13 - thought this might make it a bit easier.
NSL Consolidated to earn cash flows from iron ore production, QLD thermal coal provides "blue sky" Tuesday, November 22, 2011 by Proactive Investors Here are the NSL metrics and they are impressive: 6.6-18.7 billion tonnes of thermal coal potential in Queensland, and iron ore production in H1 2012, earning $10 million net cash flow per year. It is little wonder Indian and Chinese groups are taking a close interest in NSL. NSL Consolidated (ASX: NSL) is set to commence cash flow generation (H1 2012) from its Indian iron ore operations, as well as aggressively explore its Queensland coal tenements.
To date, NSL is the only foreign company (PIA is aware of) that has been granted the right to own and operate iron ore mines in India, which is the world’s third largest iron ore exporter in parallel with having a strong domestic steel market.
NSL is aiming to become a dual bulk commodity company, with Indian iron ore production and Australian coal. It is closing in on the first goal.
This is a “re-born” NSL with a new bulk commodity focus in two countries, with cash flows from a planned nine months to iron ore production strategy in India in 2012. It has high leverage to near-term iron ore prices - not a “2014+” production story. It also has exploration upside and “blue sky” from its large tonnage coal tenements in Queensland.
Management and directors have invested significant amounts of their own funds and acquired NSL shares on market backing themselves which is impressive.
Indian iron ore prices actually rose 5% while iron ore prices fell 33% recently to $US120 a tonne. Many mines have closed in India, the world's second most populous nation, as availability of iron ore has become more difficult now.
NSL has targeted the Indian iron ore sector because it is highly fragmented, and contains many small scale opportunities that can be consolidated to produce synergies with near-term cash flow opportunities.
NSL is likely to be cushioned from major impacts of these developments because of the nature, scale, low cost and local domestic market conditions that are favourable to the company in India.
NSL has fielded serious approaches from Chinese, Korean and Indian interests wanting to participate in the company’s offtake, technological and project financing as well as joint venture options.
NSL will look at further investments where it can leverage direct opportunities afforded by the company’s Indian iron ore business, where it can acquire and expand, leverage cash flow asset base. AP14 is part of the next generation/expansion plans.
The company can leverage its Indian knowledge and thermal coal demand into future offtake agreements.
There is a real opportunity for NSL to link its maiden iron ore start-up operations and first revenues with its exploration and development of the Queensland thermal coal assets, given the shortage of electricity and power in the Indian domestic market and that country’s impending demand for thermal coal.
Cash
A successful equity raising of $4.3 million was completed in September which will fund Kurnool, Kuja, and Mangal through to commissioning, production and maiden revenues that are expected in the first half of calendar 2012.
The closing cash balance for the quarter ended 30 September 2011 was $4.71 million.
The company is also developing a grass roots coal exploration project in South Western Queensland. The highly prospective tenements are located in the Eromanga Basin, and are close to significant thermal coal resources and infrastructure including power, water, sealed roads and a rail link to coastal export facilities.
India
India is the world’s third largest iron ore exporter and has low production costs and well established infrastructure. Iron ore is a large but fragmented industry with small-scale operations with:
- 223 million tonnes per annum production - 80 companies - 250 operating mines - 250 inactive mines - 100 million tonnes per annum is exported: China, Japan, Taiwan and Korea
This feeds into a strong domestic market for steel, forecast to increase substantially. India's leading steel producer JSW Steel Ltd forecast recently that Indian steel consumption is seen rising to about 130 million tonnes in 2020 from about 67 million tonnes this year as growing incomes and urbanisation drive demand. JSW said it expects steel consumption will be close to 70 million tonnes this year and about 80 million tonnes in 2012.
The country is selling iron ore and other iron products to Chinese and Asian customers that are seeking supply diversification, and is also the world’s fifth largest steel manufacturer with an annualised growth rate of 10%.
Kurnool
The first leg of the business plan involves the construction and commissioning of the Kurnool Beneficiation Plant, which is located in Andhra Pradesh, in South East India.
The company intends to leverage beneficiation plant investment across multiple projects and then construct pellet plants for significant profit advantages.
NSL’s focus is on value addition and the utilisation of low grade iron ores. Kurnool is within an established iron ore region that is approximately 360 kilometres from an export port by road and rail, and has good access to labour.
NSL holds extensive local infrastructure and supporting assets around Kurnool to enable production to commence:
- Local stockyard with necessary infrastructure and space to support beneficiation plant including weighbridge, office and support buildings. - Water resources from Kuja bore wells. - Local laboratory, under the ownership and control of NSL local management. - Secured port plot area and export capacity.
The Kuja Mine abuts the processing facility and has approval for the extraction of 331,297 tonnes of ore per year for a term of 5 years, and will provide feedstock to the process plant.
A second ore source has been developed at the Mangal hematite mine, which is located 5 kilometres from the process plant.
Draft Terms of Reference have been presented to the Indian Ministry of Environment and Forests, which allows the construction of the low cost US$2.3 million beneficiation plant to commence.
Trial mining and beneficiation testing program complete
- Trial mining correlated back to magnetic intensity readings, subsequent pit designs on higher intensity zones. - Accurate costs estimates derived for all aspects of mining, crushing, screening and transport to port – accurate modelling of expected cash costs. - Extensive plant test work demonstrates potential to lift ROM grades from 25-27% Fe to 58%-61% Fe product.
All remaining Environmental Clearance steps are now procedural in nature, allowing NSL to proceed with the development of the project under clear environmental boundaries:
- Process to order long lead beneficiation equipment items commenced. - Nine months for completing final plant design, construction and commissioning, contingent on receipt of necessary approvals. - Construction phase commences on Kurnool Beneficiation Project. - First commissioning to commence late in 2011, production in first half 2012.
The plant circuits include three stage primary crushers, and twin ball mills for final grinding, low intensity magnetic separator and wet high intensity magnetic separator, wet high intensity magnetic concentrate cleaning circuit shaking tables, and disc vacuum filters for water recycling; and utilises a Chinese plant manufacturer that has successfully deployed similar plant configurations across Asia, Pakistan, and Brazil.
Trial mining has been undertaken, port facilities secured, assay laboratory in place with the project receiving advanced approvals and costs now known.
Plant economics look very robust and take run of mine ore grading 25% to 27% Fe to a concentrate grading 58% to 61% Fe.
Robust economics – modest cost (US$2.3M), cash back within 2-3 months post commissioning.
Cash costs to process one tonne of concentrate are estimated at US$57.22 per tonne, and include mining, maintenance, transport and beneficiation, with royalties and export duties adding from US$17.90 to $22.90 per tonne for a maximum total of US$80.12 per tonne of produced concentrate.
Significantly, it is estimated that cash costs could be reduced by 10-20% in future increasing margins for NSL.
NSL is modelling an annualised production rate of 196,000 tonnes of concentrate and is based on the modelled price of US$128 per tonne at a time when spot prices are in the range of US$130 to $150 per tonne.
Assuming that the company can secure this pricing and meet its modest production goals, will propel annualised revenues to US$25.088 million, and after deducting cash costs, royalties and export duties, should translate into a net cash flow (steady state) US$800,000 per month, or an EBITDA of US$9.6 million for the year.
NSL will look to expand its portfolio through acquisition of projects with significant resource potential and near term production capability, where it can leverage its beneficiation plant investment across multiple projects.
The company has established relationships with Chinese, Korean, and domestic Indian metal manufacturers who are seeking long term supply contracts, and who may also supply funding for additional iron ore production and processing for future development efforts.
The company undertook recruiting of an Indian team for senior level management positions to support Safety, Environment, Construction, Planning and Mining Operations, and now has management in place with multi year experience operating a 7.5 million tonne per year beneficiation plant, and construction of a 3.5 million tonne per year iron ore pellet plant.
Kuja and Mangal – trial mining complete, production next step
Mangal
Acquisition in September 2009. Key points:
- Direct road access to port and 25km from rail siding - Evaluations undertaken include drilling, independent assessment, geophysical interpretation and trial mining. - Trial mining undertaken - 2.5km site access road constructed, weighbridge installed - Mining operations started and iron ore trucked to the port - Trial mining data correlated back to magnetic intensity readings – pit designs completed on higher intensity zones - Magnetic surveys and electrical resistivity imaging indicate average depth of mineralisation
Kuja
- Acquisition in October 2009 - Located 5km from Mangal Mine
Evaluations undertaken include drilling, independent assessment, geophysical interpretation and trial mining.
- Small-scale trial mining undertaken, but limited by scope of previous mining plan licence. - Modified mining plan now approved, increased 331,297 tonnes per annum over the 5 year period of validity for the Mining Plan. - Adjacent to NSL stockyard facilities.
AP14 Magnetite Project
The most recent acquisition of the AP14 Magnetite Project, which covers 290 acres and is located in Northern Andhra Pradesh, allows NSL to grow its current management and development skills into a much larger project.
It represents a “second generation” for NSL in India – significantly larger potential than the Mangal and Kuja projects currently underway.
Mapping and sampling across AP14 indicate the presence of a conceptual Exploration Target that may host from 62 to 125 million tonnes of magnetite at grades of between 20 to 50% Fe.
Banded Magnetite Quartzite style mineralisation – spot samples ranging from 39.72% Fe up to 69.23% Fe
The area is well served by infrastructure including:
–Two ports (Vizag & Krishnapatnam) for international export –Singarenicoal mines for power generation –Railway siding within 30km, linked by sealed road –Domestic power within 5km –Nearby perennial water source for process water -Low acquisition and holding costs during early development stage, with royalty based acquisition
AP14 is surrounded by excellent infrastructure and has access to an export port, and has a 2 to 3 year development timeline. The company is also seeking offtake agreements with owners of unsalable and low grade iron ore resources in the Cuddapah Basin for beneficiation.
Queensland thermal coal assets
NSL has established a presence in Queensland, in the quest for coal at EPCA 2336, 2337, 2338 and 2198, covering 2,585 square kilometres and hosting a conceptual exploration target of 6.6 to 18.7 billion tonnes of thermal coal.
This thermal coal project in SW Qld was secured for minimal upfront expenditure.
Attractive exploration targets of 6.6 billion tonne to 18.7 billion tonne in thermal coal already exist at the projects
The permits are considered highly prospective for thermal coal and are targeting similar style of mineralisation to the nearby and are located in the Eromanga Basin, and are adjacent to projects held by East Energy Resources (ASX: EER) which host Inferred Resources of 1.2 billion tonnes of thermal coal, and next to International Coal (ASX: ICX).
Coal Quality
-Potential coal quality can be garnered from the reported results of East Energy Resources (ASX:EER). -NSL is targeting the same coal bearing formations as adjacent EPC 2197 owned by International Coal Limited (ASX:ICX) which has an Exploration Target of 8.8-8.9 billion tonnes. ICX commenced drilling on EPC 2197 in August 2011
All of NSL’s tenements cover Winton and Mackunda formations, with the Winton formation being the main coal target with an estimated cumulative thickness of from 2.1 to 8.5 metres across the tenements. The Mackunda formation has a much smaller footprint, with a cumulative thickness of 0.5 to 1.0 metres.
The main exploration target is coal bearing sequences within the Eromanga Basin, mainly the Winton formation -Winton formation covers most of EPCA 2198 tenement area, intersection range in thickness from 1m to 7m (3m average) -The Winton Formation is the main targeted formation over EPCA 2337, 2338 which contains some 15 coal seams from surface to 130m at an average width of 3-5m per seam
Infrastructure
There is potential to link to East Energy and Hancock through existing and planned rail link to port:
–Blackall rail –Hancock rail -Potential link via southern railway to Brisbane port
-Good local infrastructure–power, water, sealed rods, nearby rail lines
The company is now in the process of completing final Government requirements for obtaining title, and has expedited native title and landholder discussions.
NSL has long term goals of building a coal resource that can supply thermal coal to the fast growing Indian energy market, and may seek contracts through its array of Indian contacts.
Key management strategy
NSL has methodically put the building blocks in place at NSL, including a strong management team de-risking at each step of the way and ensuring momentum is building for 2012. Backed by some key personnel in India including with extensive experience in iron ore beneficiation and palletisation and operating a 7.5 million tonnes per annum beneficiation plan and in the construction of a 3.5 million tonnes per annum iron ore pellet plant.
Analysis
This is a “re-born” NSL with a new bulk commodity focus in two countries, with cash flows from a planned nine months to iron ore production strategy in India in 2012. It has high leverage to near-term iron ore prices - not a “2014+” production story. It also has exploration upside and “blue sky” from its large tonnage coal tenements in Queensland.
Management and directors have invested significant amounts of their own funds and acquired NSL shares on market backing themselves which is impressive.
Indian iron ore prices actually rose 5% while iron ore prices fell 33 per cent recently to $US120 a tonne. Many mines have closed in India, the world's second most populous nation, as availability of iron ore has become more difficult now.
NSL has targeted the Indian iron ore sector because it is highly fragmented, and contains many small scale opportunities that can be consolidated to produce synergies with near term cash flow opportunities.
NSL is likely to be cushioned from major impacts of these developments because of the nature, scale, low cost and local domestic market conditions that are favourable to the company in India.
NSL has fielded serious approached from China, Korean and India interests wanting to participate in NSL’s offtake, technological and project financing as well as joint venture options.
NSL will look to at further investments where it can leverage direct opportunities afforded by the company’s Indian iron ore business, where it can acquire and expand, leverage cash flow asset base
The company can leverage its Indian knowledge and thermal coal demand into future off take agreements
There is a real opportunity for NSL to link its maiden iron ore start-up operations and first revenues with its exploration and development of the Queensland thermal coal assets, given the shortage of electricity and power in the Indian domestic market and that country’s impending demand for thermal coal.
These are the NSL metrics and they are impressive: 6.6-18.7 billion tonnes of thermal coal potential in Queensland, and iron ore production in H1 2012, netting $10million net cash flow per year.
It is little wonder; Indian, Chinese groups are talking a close interest in NSL. On one year out metrics, NSL’s current valuation of $24 million is likely to look very light.
NSL Price at posting:
7.0¢ Sentiment: ST Buy Disclosure: Not Held
(20min delay)