SPOTLIGHT: WA Zircon rising
27 Feb 2014
Diatreme Resources’ (DRX) chairman and chief executive officer Tony Fawdon believes the company has all the ingredients to bring its Western Australian zircon project into production in the near-term, with the attitude that “its been good for us so far, so until something goes wrong we’ll continue to be positive.”
Cyclone is part of the company’s wider Eucla Basin heavy mineral sands (HMS) project, which is located within the Wanna Lakes area of the northern Eucla Basin, 25 kilometres from the South Australia state border.
Diatreme has been exploring the zircon prospect since discovery in 2007 after acquiring the HMS-prospective tenements in 2004.
Prior to this the company was focussed on gold and base metal exploration. It still holds several base metal projects in Queensland, South Australia and Victoria and a silica sands application in Queensland it is looking to develop.
Earlier this year the company successfully negotiated a heads of agreement with Hong Kong-based Perpetual Mining Holding (PML) for PML to invest $2 million in Cyclone in return for a 6% equity.
De-risking zircon
Diatreme commenced negotiations with PMH in the middle of last year. The company received an advance of $1.5 million in mid-September, tasked with achieving three agreed milestones, the first of which was securing water supply for future operations at Cyclone.
The second and third milestone targets include securing approvals for development of a road transport corridor between Forrest and the Cyclone deposit, and grant of its existing mining lease application 69/141.
These achievements are time dependent due to their nature but Diatreme is hoping to have finalised them by the end of 2014 – in fact, Fawdon talks about them as if they’re already done.
He told Gold & Minerals Gazette at the RIU Explorers Conference last week that the success of the water drill bore, drilled late last year to a depth of 800 metres, was a crucial development. Now that they have hit deep water flows within E69/1920, adjacent to the proposed Cyclone mine site and treatment plant area, the company can breathe a sigh of relief.
“We took our hearts in our hands when we drilled the 13 inch hole,” he laughed. “We found huge supplies of water in an aquifer below the mine, and that’s just as important as the mineral – if you’ve got no water you’ve got no mine, you can’t do anything with the material.
“We knew there was water in the opposite basin but the nearest holes were over 100km away from oil wells and we thought well they all hit water, but when the hydrologist came along we said, ‘What fancy geophysics can you do to find the water?’”
“He said, ‘No, none – nothing’s going to go that deep. We’ll just drill a hole right into the mine site and see what happens.’ So you can imagine how happy we were with the result.”
A definitive feasibility study is ongoing at the project to confirm the potential to mine 10 million tonnes per annum ore over 10 years to produce 147,000 tpa HMS concentrate.
This would consist of 65,000 tpa zircon at 66% concentrate and two titanium oxide products at 10,000 tpa (86.6%) and 46,000 tpa (67.3% TiO2).
Capital investment is estimated at $223 million with average annual sales revenue of $191 million and annual net profit after tax of $78 million, equating to a net present value of $194 million and internal rate of return of 32% with payback within 2.1 years.
Diatreme announced a revised JORC-compliant resource estimate for Cyclone in January this year totalling 137 Mt at 2.2% HMS at a 1% HM cut-off grade, containing 3 Mt HMS. More than 90% of the resource is now classified as measured.
Fawdon believes this is the most important aspect of the project, and the reason why it will be successful. As well as the fact development will be completed – if everything goes according to plan – at the right time for the market, when global zircon supply is dwindling.
“The important thing for us is our resource, the size of it – it’s probably the best undeveloped zircon deposit in the world,” he enthused. “We’ll be mining it over 10 years, there’s 100 Mt there, and probably another 200 Mt in the region still to be found or actually sitting in the ground.”
“The biggest zircon consumer is China - they take about 60% of the world’s production, which is about 1.2 Mt annually. Although they’ve been stockpiling from producers like Rio Tinto (RIO), Iluka Resources (ILU) and Tronox for quite some time, those stockpiles are being eaten.”
Australia, in turn, is the biggest supplier of zircon in the world. Most of it comes from WA, in the Eucla Basin, but those deposits are being used up too.
“Easy deposits which used to be along the west coast and the east coast are not available anymore; they’re gone or been locked up in national parks. So people are starting to mine deposits internally, but even they are getting mined at a higher rate.
“Diatreme will probably slot into an area where a lot of mine production is gone and people will be looking for other sources.”
A subsequent review of the ore reserve will be released during 2014 once optimisation of the pre-feasibility study mine plan has been finalised. The reserve currently suggests over 2.4 Mt of HMS exist within the project, including 770,000t of zircon, with additional potential as yet unconfirmed.
Purity of product
The company also has an application over land in the Cape York Peninsula prospective for silica sands, but the permit submissions comes in under the newly drafted Cape York regional plan, which has proposed blocking that area to development.
Fawdon isn’t worried about the Government’s draft submission, however, as the locking up of land in the region goes against the Traditional Owners’ wishes.
“Last week I met up with the chairman of the Cape York Aboriginal Council to finish negotiations to get this granted,” he explained.
“I told him about what the conservative Government was doing in just about locking up the whole of the Cape, and he said to me: ‘I know you’re worried, but don’t be. This will never fly; I’ve got 15,000 Aboriginal shareholders up there, and believe you me they don’t want to see this go through, and it won’t.’
“This is a draft plan so we’ll be putting in a submission and actively trying to get this granted.”
The resource at the Cape Bedford permit application is within a large sand dune system with known silica mineralisation over 50km by 15km at up to 50-100m high.
The Cape Flattery mine is nearby; the biggest silica sand operation in the world with highest quality sands in the world.
Previous exploration for silica sand indicates heavy minerals are also present in a number of horizons, with high grade silica above the HMS at 99.8% grades.
“We do know there was some mineralisation drilled out as typical in dune systems with 100 Mt (pre-JORC) in a very small area drilled out - and there are hundreds and hundreds of these dunes - so there is a lot of potential there,” Fawdon commented.
“Underneath the dunes there’s heavy mineral sands – its just leaking out everywhere, you can see the black titanium and rutile and its just accumulating.”
The coarser material is worth about $48 per tonne; the very fine material goes for around $80-100/t and the high-quality, fine fractic sand is worth $400/t, according to Fawdon.
“There are a lot of companies like Samsung & Sibelco chasing these kinds of deposits, but they don’t like getting involved in the exploration phase so we’ll drill it out ourselves," he said.
"But I have no doubt in my mind that we’ll be able to fast-track this with our Aboriginal mates. All the workers on the Cape Flattery mine are Aboriginals, so they want to see two more mines they can work at and also get the royalties, because they’re entitled to it - it’s their lands.
“Governments are frightened of two things – they’re frightened of really bad publicity, and they’re frightened of Aboriginal movements," he added. "They don’t care much about mining companies or explorers but bad media they care about, so I can see them backing down quite quickly.”
Chinese potential
The next steps at Cyclone are getting the mining lease granted and the road designed and build prior to a decision to mine, which could involve the construction of a plant either in WA or China. Fawdon says the options are available for both scenarios, or for a decision to just sell concentrate into the existing underperforming plants in China.
The company is also planning drilling at its Clermont project in QLD and at newly granted Glenthompson in VIC, both prospective for copper with strong targets to be explored.
It is currently completing a renounceable rights issue, offering four shares for each share held and an attaching free option to raise up to $3 million. The company is confident they can get the subscriptions with the support of its Chinese shareholders.
“I’m about to go to China to talk to all our Chinese shareholders but they’ve already told us: ‘We’ll get our money ready,’ so we’ve know we can get two thirds of the thing done,” Fawdon said.
He confirmed that the Hong Kong shareholders have told Diatreme in the past they have the capacity to develop the project if the construction route goes ahead.
Diatreme believes there is a “massive imbalance between the company’s share price and the value of Cyclone,” representing a unique investment opportunity at the low share price.
The company is continuing negotiations over potential joint ventures at its Tick Hill and Clermont projects.
http://www.goldminerals.com.au/Story/spotlight-wa-zircon-rising
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