Odd as that might sound it is the reason why the share price of TNG Ltd, the company behind the proposed development of the Mt Peake vanadium and titanium project in Australia’s Northern Territory, has taken a battering over the past week.
From a low of A7c late last year TNG had been on a charge, hitting a five-year high of 29c on September 10, at which point the temptation to take a profit was too much for Ao-Zhong International, a big Chinese investor in TNG.
Ao-Zhong’s purchase price in 2011 for its 9% stake in TNG was 11c, with the sell-down of three-quarters of that stake likely to have yielded a profit of around $8 million – too much for most people to ignore in a difficult market for mine development stocks.
Unfortunately for TNG the Ao-Zhong sell-down, reported the day after TNG hit that five-year peak price of 29c, knocked the confidence of other investors with the stock’s price plunging to 16c earlier this week – at which point it started a slow recovery and is now back to 19c.
For TNG’s long-serving chief executive, Paul Burton, the Ao-Zhong share trading is a difficult topic because it’s not really his business if an outside investor decides it’s time to take some cash off the table. But the signal sent to the market was not good, leaving Burton with the job of rebuilding confidence in the Mt Peake project after years of convincing the market that TNG really does have a project with excellent potential.
He should not find the next phase of TNG’s evolution as testing as the past seven years because the 2008 discovery of Mt Peake, located 235 kilometres north-west of Alice Springs, coincided with the start of the global financial crisis – and all that followed.
Since finding what is a true polymetallic structure rich in vanadium, titanium and iron, TNG has drilled the discovery up to what it described as a “technically and financially robust project”.
Completion earlier this year of a definitive feasibility study (DFS) has outlined a development lasting at least 17 years with three primary product streams, vanadium pentoxide (used in steel making), titanium dioxide (paint pigment) and high-grade iron ore which is expected to be upgraded to pig iron.
“We’re in the final stages of the government approvals process and making good progress with financing discussions,” Burton told Mining Journal this week.
“If all goes to plan we will be in a position to start construction next year, possibly by the end of the first quarter, but more likely in the second quarter.”
The project has been designed as an open-pit mine producing three million tonnes of ore a year in the first stage, upgradeable to six million tonnes a year after the first four years of operations.
Early-stage processing will take place at the mine, with further upgrading to finished products in Darwin. High quality infrastructure, including proximity to a railway, has bolstered the project’s financial appeal. A large portion of the electricity required will come from a solar power installation.
Burton said the first stage development would require pre-production capital of A$970 million (US$698 million), funded by a mix of debt and equity, and backed by a number of offtake agreements with some of Asia’s biggest metal processing companies.
Korea’s Woojin Industries has provided a life-of-mine to take all of Mt Peake’s vanadium products, with another big Korean company, Hyundai, lined up as a cornerstone investor, or partner in the mine.
The Korean Government’s export/import bank, along with the German Government’s export credit bank, are among the financiers considering involvement. Australian Government support via a northern development fund is also possible.
Burton said a decision to keep all processing in Australia, rather than export part-processed material to Asia, had helped “de-risk” Mt Peake.
“Our DFS shows a project yielding an internal rate of return of 41%, based on annual average production of 17,560 tonnes of vanadium pentoxide, 236,000 tonnes of titanium dioxide and 637,000 tonnes of pig iron,” he said.
“On those numbers the projected pay-back period on the capital cost is just four years with the life of mine cash flow estimated to be $11.6 billion.”
On paper, Mt Peake looks to be an attractive development with three potential revenue streams. Based on recent prices titanium dioxide will dominate the early years, accounting for 60% of revenue, followed by the pig iron and vanadium – a pecking order that could easily change as prices fluctuate.
Vanadium, for example, is a notoriously cyclical metal, moving from extreme highs to extreme lows, but an emerging factor which could lift the price is uncertainty about the financial strength of South African vanadium production which is being hit by that country’s erratic and increasingly expensive supply of electricity.
The next six months are important for TNG as it finalises approvals and financing agreements, with Korean corporate and government involvement an increasingly important factor – and perhaps a reason why China-based Ao-Zhong decided it was time to cut its exposure to TNG. Korea and China do not always mix well.
TNG Price at posting:
18.0¢ Sentiment: Hold Disclosure: Held
