Australian Mines Limited - Flemington Scoping Study advances project to Pre-Feasibility Study phase
Australian Mines (ASX: AUZ) will advance its Flemington Scandium-Cobalt Project to the Pre-Feasibility Study phase and is finalising its Mining Lease over the ore body near Fifield in NSW. A Scoping Study confirmed Flemington's potential to generate an after-tax cash flow to Australian Mines of A$677 million over the first 18 years of production. The Study confirmed the project was capable of producing cobalt and nickel sulphate in addition to scandium.
HIGHLIGHTS
- Generates after-tax cash flow to Australian Mines of A$677 million over the first 18 years of the project’s life
- Long operating life estimated at up to 45 years of production
- Requires modest capital cost of A$74 million to build processing plant
- Demonstrated NPV of up to A$255 million (8% discount rate) and IRR of 37.3%, classifying Flemington as a ‘world class’ asset
- Confirms project capable of producing cobalt sulphate and nickel sulphate in addition to high quality scandium oxide
- Benefits from conventional processing flowsheet using proven technology; no novel or proprietary systems required
- Provides full-time employment for 66 people, to be sourced primarily from the local community
- Review finds no environmental or social considerations likely to significantly compromise permitting and implementation
In addition, Australian Mines is;
- Finalising its Mining Lease application over the Flemington ore body submission this month
- Securing a water licence from appropriate authority
- Finalising the planning of a resource extension drill program targeting the expected continuation of the high grade cobalt and scandium ore body
Managing Director, Benjamin Bell commented, “The results of scoping study represent another step forward in our strategy to establish a dominant position in the global supply of scandium and in doing so meet growing demand, particularly the expected surge in demand from the electric vehicle market.”
“This scoping study also highlighted that there is enormous potential for the Company to increase both the overall tonnage as well as the head grade of its cobalt mineralisation at Flemington. This can only further cement Australian Mines’ status as a superior cobalt company – our Sconi deposit has already been ranked second only to Clean TeQ’s Syerston deposit according to Macquarie Bank(1) ”.
“Modelling of the scandium and cobalt resource clearly showed that the Flemington ore body is the continuation of the neighboring Syerston mineralisation, with SRK’s pit shell being cut abruptly by Australian Mines’ and Clean TeQ’s common tenement boundary. It’s not surprising therefore that the mining and processing costs determined by SRK for the Flemington scandium – cobalt deposit is almost identical to that at Syerston(2) ”.
“Our next priority is to proceed with a pre-feasibility study and completion of a significant drill program at Flemington to better define the cobalt resource and upgrade and extend the existing scandium resource, as well as begin working through the follow-up recommendations made in the Scoping Study.
“Australian Mines is currently on a three-week road show in Europe, where it will advance its promising initial discussions with off-take partners for its scandium and cobalt products, to provide greater certainty in regard to end-customer demand.”
“The company has also opened dialogue with potential project financiers on the back of the strength of both the Flemington Scoping Study and Sconi Pre-Feasibility Study”.
Australian Mines Limited (“Australian Mines” or “the Company”) is pleased to announce that the results of a scoping study completed for the Flemington scandium-cobalt project in New South Wales confirmed its status as a ‘world class’ deposit(3), which has the potential to generate an after-tax undiscounted cash flow to Australian Mines of A$677 million over the first 18 years of the project’s mine life(4).
With an expected total mine life of up to 45 years based on the current Mineral Resource alone, the Flemington project therefore has the potential to deliver dividends to shareholders well into the middle part of this century should the demand for scandium and cobalt continue to grow in line with market analysist’s projections.
This growth is anticipated to come primarily from the automotive and aerospace sectors where leading investment houses like Goldman Sachs(5) have noted that the push for increased fuel efficiency in conventional vehicles and greater range in electric vehicles is leading to a significant demand for aluminum alloys, including aluminum scandium alloy(6).
Underpinning the projected strong financial position of the Flemington project are SRK’s calculations that the average cash operating cost of mining and producing a high-quality scandium oxide product for this project is only A$500 per kilogram (current spot contract price for scandium oxide is A$3,500 per kilogram(7) ) and an estimated capital cost for the processing plant of A$74 million.
Anticipating these very favorable project economics, a range of international financiers have already opened dialogue with Australian Mines regarding potentially funding the Flemington project into production. Whilst the company emphasises that these discussions are at a very early stage and there is no guarantee that they will result in a funding agreement being finalized, it does serve to illustrate the growing global interest in high-quality scandium and cobalt assets located in safe, low-risk mining jurisdictions like Australia.
As noted by SRK throughout their scoping study report, the Flemington project is a lateritic scandium + cobalt + nickel deposit not dissimilar to Clean TeQ’s adjoining Syerston project or Australian Mines’ Sconi project in Queensland.
A future mining operation at Flemington may therefore produce a nickel sulphate and cobalt sulphate product in addition to the high-grade scandium oxide product complemented in SRK’s study. The current weighting of the scoping study towards the scandium resources, and to a lesser extent the cobalt ore body is purely an artifact of the incomplete nature of the project’s database, which the company acquired at the time of the option and sales agreement in October 2016 and is not representative of the Flemington longer term potential.
Since October 2016, Australian Mines has sourced the validated cobalt assay database, which enabled SRK to develop a corresponding cobalt pit shell for Flemington (see Figure 3).
The company is presently bringing the nickel and platinum resources into JORC 2012 compliance to enable a complete multi-commodity resource to be considered in the project’s subsequent Pre-Feasibility Study (PFS).
SRK’s scoping study also revealed that the high-grade cobalt mineralisation continues further north beyond the current Mineral Resource.
Historic drilling intersection zones including 4 metres @ 0.56% cobalt from 5 metres below the surface (drill hole SY66)(8), which ended in a cobalt grade of 0.40% remaining open both at depth and along strike.
Australian Mines has therefore designed a resource extension drill program specifically targeting the high-grade cobalt zone to the north of the present resource (see Figure 3), following which the company will release an updated Mineral Resource for the Flemington project.
With SRK stating that it did not identify any environmental or social considerations likely to significantly compromise project permitting and implementation, nor any technical or processing issues that may adversely affect a mining and processing operation at Flemington, Australian Mines is proposing to commence the Pre-Feasibility Study of this multi-commodity ore body in the coming quarter.
Moreover, in light of the very strong business case to develop a mining operation at Flemington based on the preliminary results from SRK’s scoping study, Australian Mines is presently preparing a Mining Lease over the Flemington ore body, which it intends to submit to the New South Wales Government in April 2017. As part of this process, the company is also presently securing a water allocation and associated water licences for the Flemington Project from the relevant New South Wales Government Authority.
The Flemington Scandium-Cobalt Project, like the company’s complementary Sconi Scandium-Cobalt-Nickel Project, is expected to successfully position Australian Mines as a key future supplier of these technology metals to the bourgeoning electric vehicle and aerospace sectors.
The company therefore reminds those shareholders who wish to increase their exposure to the emerging scandium and cobalt market that, to participate in the fully underwritten nonrenounceable entitlement offer, completed applications need to be received by Advanced Share Registry by 5:00pm Melbourne Time on Friday 31 March 2017.
Australian Mines would also encourage shareholders to attend its General Meeting which is being held at 10.30am on Tuesday 11 April at the Royal South Yarra Lawn Tennis Club in Toorak, Victoria.
(1) In March 2017, Macquarie Research, the equity arm of Macquarie Bank, initiated coverage on Clean TeQ Holdings with an Outperform rating (meaning they expect the share price to move 60 -100% over the coming 12 months). Key to their ‘buy’ recommendation was the low nickel to cobalt ratio of the Syerston deposit. In this same report, Macquarie Research ranked Australian Mines’ Sconi cobalt project as the second most favourable nickel to cobalt ratio in Australia. The Sconi project is a joint venture between Australian Mines and Metallica Minerals, with the terms of this joint venture announced by Australian Mines on 10 October 2016.
(2) Clean TeQ Holding, Completion of Syerston Scandium Project Feasibility Study, release 30 August 2016
(3) BHP Billiton define a ‘world-class’ deposit as one which has an NPV of at least $250 million. (www.bhpbilliton.com/-/media/bhp/documents/investors/reports/2006/amecconference.pdf). The scoping study of Australian Mines’ Flemington project indicates that this project satisfies this requirement and thus qualifies as a ‘world class’ asset.
(4) See Appendix 1
(5) http://www.goldmansachs.com/our-thinking/technology-driving-innovation/cars-2025/
(6) Clean TeQ Holding, Completion of Syerston Scandium Project Feasibility Study, release 30 August 2016
(7) Contract price offered by Chinese-based Prichem Technology Limited to Australian Mines on 15 December 2016 (US$2,650 at the exchange rate A$ / US$ 0.75)
(8) Jerviois Mining Limited, EL7805 scandium project – May 2015 drill results, released 17 June 2015
