17 June 2020
The plan is to abandon Nifty's troublesome underground sulphide operation and to scoop up the remaining 600,000t copper resource from an open-pit operation. Nifty actually started out as an open-pit, based on oxide material, back in 1993 when it was owned by Western Mining Corp.Later sold to Straits Resources and then passed on to Hindalco's ASX-listed subsidiary Aditya Birla, Nifty transitioned to underground sulphide mining in 2004.Clearly, Nifty has not been a happy experience for Metals X since it acquired the operation through the A$100 million scrip and cash takeover of Aditya Birla in 2016.While cash and working capital that came with deal made the effective cost of the acquisition next to nothing, it became clear early on that Aditya Birla had got the best of Nifty - its centre of 2.5% copperMetals X was left to mine the halo of 1.3% copper, a very different grade proposition which made the economics very, very challenging. Last November's decision to shut up shop and conduct an all-options review of Nifty's future was no surprise - Nifty was bleeding cash. Like all mines, Nifty needs to be mined at a high enough production rate to produce enough metal to pay for the business. The underground mining operation as substantial as it was, could not be made to work at the lower halo grades, with the retreat in copper prices from elevated levels not helping. The task of salvaging value from Nifty has fallen to veteran mining engineer Mike Spreadborough. He was brought in as a consultant to the all-options review and has not left the building, becoming the new CEO in March. Spreadborough knows that success with the open pit plan is critical if Metal X is to repair its battered reputation, underscored as it is by a crash in its market value to $77 million, and its humbling removal from the S&P/ASX All Ordinaries index.After the Nifty shutdown, the board commissioned Hartleys and Canaccord to run an external process to find a buyer for Nifty, a joint venture partner, or some other value add option.Spreadborough takes up the story:"At the same time we started an internal process looking at how we could get the 600,000t of copper resource in to the money. Through that work, the open pit option emerged as a very, very good option."While we must remember it is at scoping study level, it has given us a clear indication of a very long-life economic pit that justifies being moved in to a $10 million feasibility study."So I think that is bloody exciting. I can't think of too many copper projects in Australia where in 12 months, all going well, you could be producing 30,000tpa of copper. Actually, there isn't any others,'' Spreadborough said.The scoping study envisaged a 10-year open pit life producing 26,000tpa of copper-in-concentrate from sulphide ore grading 1.24% copper.All-in sustaining costs were estimated at US$1.67-1.79/lb, with likely treatment and refining costs of 30c/lb. At the $2.54/lb copper price used in the scoping study, the total pre-tax net cashflow (Metals X has plenty of offsetting tax losses) was estimated at A$285-315 million.Bump up the copper price to an assumed long-term price of US$2.62/lb (copper is currently $2.57/lb) and the total pre-tax cashflow grows to A$405-435 million, with EBITDA over the life of mine put at $545-575 million.Critical to a "new" Nifty being able to generate decent returns at what could prove to be quite modest copper price assumptions is the low capital intensity of the open pit scenario, courtesy of the established infrastructure at Nifty that would cost $200 million to replicate.The scoping study estimated pre-production capital for the open pit sulphide operation at $40-60 million, including studies.A restart of the existing heap leach SX-EW operation was priced at $16-20 million and could be good for an additional 4000-5000tpa of copper in cathode form.It would reprocess the existing heap leach pads as well as oxide material that would be mined in the sulphide open-pit.At the long-term price copper price assumption, the operation could add another $95-115 million to total pre-tax cashflow, giving Spreadborough his 30,000tpa of copper from Nifty mentioned earlier.On the scoping study figures, the new Nifty looks to be an easy one to finance with a debt/equity mix. But Metals X will be looking at all funding options in an effort to keep dilution to a minimum.The need to be raising equity funds for Nifty, as well as optimisation work on the Area 5 high-grade tin resource at Renison in Tasmania, has the market holding Metals X at a miserable 8.5c share, despite the upside implied by the Nifty scoping study price.The market has also yet to get excited about the $32 million exploration farm-in agreement with IGO on Metal X's exploration ground in the broader Paterson province.Apart from Nifty, the Paterson is also home to Newcrest's Telfer, the high-grade gold/copper Havieron discovery of the Newcrest/Greatland joint venture, and Rio Tinto's ever-mysterious Winu copper-gold discovery.IGO can earn a 70% interest by spending the $32 million over 6.5 years, making it one of the more accelerated farm-ins around (including an $11 million commitment in the first 3.5 years), a testament to the high regard in which the Metals X ground is held.Because of the mothballing of Nifty and the tin price squeeze on Renison, Metals X was not in a position to advance its Paterson ground the way it should have been in the wake of the Winu and Havieron discoveries.So the farm-in by IGO should be welcomed news. Who knows, maybe it will come up with a Havieron or a Winu, the development of which could be leveraged off Nifty's infrastructure base, just as is the case with Havieron and Telfer.
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