Happy to play the clown, but maybe the wrong insult considering...

Happy to play the clown, but maybe the wrong insult considering nobody's laughing. Unlike the latest Sprott update, had me in stiches. If long posts offend please move on now...

Seriously, I was going to take the Mickey again but the dude is just doing hi job...feigning surprise, gushing praise and rising the valuation with a straight face. Not easy to do when nine months ago you "stopped counting" because it was obviously getting so big more wasn't going to change the dial. In June 2020 he was "Province scale", "world's largest", "world class", "industry disruptive"... flagged the train arriving long before it reached the station, as the market and everyone here understood. Where do you go from there? Well, you start counting again lol, and keep increasing the valuation by increasing the project tonnes in the 'valuation table' with dutiful surprise and hyperbole.

The long term path for sell side brokers to steadily increase a project's value as drilling, MRE, feasibility studies are ticked off is as well worn as the exploration process itself. No problem with that, unless as for Kasiya, boxes are so well flagged and priced in before officially ticked that in reality nothing new is known by the market. Expectations haven't changed, known are known and critical unknowns are unknown. The MRE is large, inflated 40% by adding 4m depth onto an average 10m hole depth (why not 2m or 8m depth extension if we're going to guess?), and the headline size changes from 0.6Mt to 9.1Mt contained rutile depending on the cut-off grade one chooses to use. The MRE is big, Inferred, and subjective/rubbery as is the valuation methodology of multiplying a chosen cut-off MRE contained rutile x $1300% x 5% ... talk about a thumb suck.

To be clear, my sentiment and valuation is just as subjective and subject to being wrong as Sprott. Until some critical processing variables and costs are 'estimated' (because lab to plant scale isn't guaranteed) project valuation will continue to be highly subjective and dependent on assumptions. Specifically, dependent on operating margins at depth for economies of scale. Only economies of scale can turn a very large but modest in-ground value deposit into the sort of profit engine that drives high NPV with commensurate strategic takeover premium. I'm a self-confessed nerd who enjoys bottom-up resource project evaluation (an opening right there for neutralopinions insult lol) as opposed to Sprott's current top-down guess. So often devil in the detail puts top-down to the sword such are the inconvenient truths of mining reality.

Preamble dribble over, today's technical dribble challenges Sprotts claim of " 'repay the mill’early-years grade is critical; the 59Mt @ 1.6% rutile does just that, beating our own 1.5% estimate. In fact,at 10Mtpa (~150ktpa rutile, or ~5% market size), 1.5% is sustainable for a remarkable 14 years". Either this dude doesn;t understand resource geology and mining reality or he does but is just doing the job schilling for his client.

Problem 1
The MRE at a 1.2% cutoff simply sums all block model cells >1.4% into a single number regardless if cells are not continuous but surrounded by lower grade cells. Most, but not all, high grade cells are of variably shallow, from surface in the enriched ferruginous layer. Look at the block model surface map, ~25% of the MRE area has surface grade >1.4% but spread out across the project like a mad women's breakfast. Sensible shaped mining pits have to include some <1.4% Rt cells which lowers the mining grade, a substantial amount of <1.4% if any sort of economy of scale is the be achieved.

In the post https://hotcopper.com.au/posts/53218384/single, I calculated a sensible 'high-grade' from surface pit over the best situated high-grade area to show what a future starter pit might look like. Inside the red rectangle is 19Mt @ 1.32% Rt using sectional mean for an average HG depth of 5.2m (to be fair it will be a touch higher grade with inverse distance squared from the MRE). A sensibly located east-west pit maximising high-grade, permitting, social license, infrastructure and reality of bulk mining providing 2 years feed to a 10Mtpa plant.


Inside pink rectangle (1600m x 400m) over a continuous run of 8 holes >1.4% along the centre drill line (average HG from surface in this line is 1.57% Rt to 6m depth). Using 2:1 weighting for the HG centre line against neighbouring lines, this smaller high-grade starter pit contains 6Mt @ 1.38% Rt (because lines either side average 1.33% and 1.06% Rt over 8 holes). Hopefully this explanation is clear enough, the highest grade assays can only ever dilute to lower and lower mine void averages as the mining void gets larger encompassing more lower grade holes. In this case, cherry picking a small 6Mt starter pit provides ~6 months feed @ 1.4% Rt, maybe 1.5% using inverse distance squared and removing some the lowest grade holes north and south to lose 1Mt.

Problem 1 should be obvious; the cost and relentless effort of moving to new small pits every 6 months does not make economic or practical sense against chasing an extra 0.1-0.2% Rt... this is low margin, bulk mining exercise.

Problem 2
Strip mining large, shallow mineral sand pits requires continuous processing of solids and clay tailings back into the mine void for eventual rehabilitation. Not just the open pits, but the tailings ponds for such a high clay ore will combine into a huge footprint and double, treble handing just won't make bank. If SVM chose to run around with shallow HG starter pits to 6m max average depth, then returning 99% of the ore volume back into the pits sterilises the saprolite ore underneath the shallow HG. No deeper ore, no economies of scale that comes with thicker ore bodies, and no graphite credits which is strongly depleted in the upper ferruginous layer.

This self-evident fact is a massive contradiction to Sprott's claims SVM can somehow have 10 years of HG shallow starter pits, but also the next 50 years of lower grades underneath and graphite credits only found at depth You know I'm right... does the Sprott dude know he's wrong?

Longer post than I intended, but just one example of challenging easily made high level assumptions. Other assumptions that bear futher consideration include likely operating costs, recoveries, and long term rutile pricing. Another contradiction in Sprott's report I'm not interested in is the Africa Risk factor. Yes the COo of RIO's SA min sands operation was assassinated 5 weeks ago (second guy in 2 years). Yes Sierra Rutile is plagued with worker strikes, productivity issues and corruption. yes Madagascar has stalled Base's Tolliara project for 2 years negotiating a better share and trying to appease locals opposed to the mine. Same thing Base went through with Kwale in Kenya early days and struggles with today, similar reason STA cannot get Fungoni developed in Tanzania etc. Africa risk is real but not a fatal flaw... just attracts a heavy investor discount and rightly so.