THE INSIDE STORY: Minerals sands developer Sheffield Resources (ASX: SFX) recently reached a major milestone for a junior mining play, as the company’s market cap hurdled over the $100 million mark.
The rise in Sheffield’s share price flowed on the back of results from a Scoping Study conducted on the company’s 100 per cent-owned Thunderbird deposit, located near Derby in northwest Western Australia.
“It seems we released the results at just the right time and we are hoping that run continues to enable us to catch the forecast upswing in mineral sands commodity prices,” Sheffield Resources managing director Bruce McQuitty told The Resources Roadhouse.
“There was a boom in mineral sands prices in 2011, which has come off to what appears to be a floor level, with many analysts now forecasting improved demand and subsequently improved prices.”
The Scoping Study has determined Thunderbird to be a world-class, long life mineral sands project, which is anticipated to provide exceptional financial returns with modest capital requirements.
The Study results and subsequent share price movement are important milestones for Sheffield as it demonstrates the market’s recognition and appreciation of the significance of the Thunderbird project to the Australian minerals sands industry.
“We consider Thunderbird to be a company making project,” McQuitty said.
“It has shown itself to be so since the early days, and everything we have achieved there so far has done little to change our thinking.”
What Sheffield has achieved so far at Thunderbird has shown just because such a project is being developed by a junior mining company doesn’t mean it can’t be of significance on a global scale.
The company acquired Thunderbird as part of the Dampier project in late 2010 after Rio Tinto (ASX: RIO) had let ownership of the title slip due to difficulties associated with the GFC.
“At the time our technical director David Archer recognised the project’s potential and put an exploration target on it based on the Rio drilling, which consisted of just eight holes,” McQuitty said.
“He estimated an exploration target of between 450 to 850 million tonnes at five to ten per cent Heavy Minerals.”
Sheffield raised $10 million on the back of that target, which it has since put to good work.
The release of the Scoping Study followed a Resource upgrade completed earlier this year, when Sheffield doubled the Resource at Thunderbird, placing a lot more in the Indicated category.
The Resource at Thunderbird now sits at 2.62 billion tonnes at 6.5 per cent heavy minerals (HM) (Measured, Indicated and Inferred) for 170Mt of contained HM, including a high-grade component of 740Mt at 12.1 per cent HM.
The Scoping Study concluded projected and estimated production and financial parameters for the Thunderbird deposit to include:
An initial mine life of 32 years, targeting first production in 2017;
Life of mine (LOM) revenue of $10 billion;
LOM operating cash flow of $5 billion ($204 million per annum for first 10 years of production);
Average LOM annual EBITDA of $140 million ($187 million per annum for first 10 years of production);
Pre-production capital expenditure of $257 million plus $37 million of contingency, with identified opportunities that may reduce capital expenditure with capital payback in two years; and
Average annual production of 118,200 tonnes zircon, 545,000 tonnes ilmenite, and 21,700 tonnes of HiTi80 leucoxene.
Notably the Study has only incorporated Thunderbird’s Indicated and Measured Mineral Resources.
The high-grade Inferred segment of the Resources remains open in several directions and provides Thunderbird with a healthy amount of upside potential.
Sheffield has commenced pre-feasibility studies with completion anticipated Q1 2015, which according to a research note from Hartleys has potential to improve on the strong economics outlined by the Scoping Study.
The potential improvements identified by Hartleys include: A reduction in the start-up capital expenditure; reducing operating expenses; and increasing the current 32 year mine life.
“There is a lot of work associated with the pre-feasibility and feasibility stages such as groundwater, geotechnical, and infrastructure studies along with further metallurgical work to enhance our recovery rates and the associated process design,” McQuitty explained.
“We also anticipate undertaking a lot more drilling during the upcoming field season as we work towards moving more of the current Resource into the Measured category in the up-dip region where we plan to commence mining.
“There is more exploration to be done, simply because we have yet to fully close off the deposit, so there is a lot more drilling to do and a lot more news to come.
“The Scoping Study was quite thorough and some aspects are already at a pre-feasibility level, such as the process design and the metallurgical work.
“Other aspects of the Scoping Study, of course, were more educated assumptions, based on analogies with other projects – so we need to balance those up for the pre-feasibility study to ensure we have – not definitive data – but, more refined data.”
The Scoping Study has demonstrated Thunderbird is a global-scale deposit with potential to generate consistently strong cash margins from globally significant levels of production of ilmentie and zircon over a 32 year mine life.
The real excitement, however, is generated from the project’s current modelled production rates, from which Thunderbird is expected to supply approximately eight per cent and four per cent of the global zircon and ilmenite markets respectively.
Zircon is a high-value commodity. With the current zircon price around US$1200 per tonne.
Ilmenite is a staple feedstock of smelters, which enjoys a particularly higher demand from Chinese sulphate plants.
One major positive aspect of ilmenite is that even when markets tighten, demand for it doesn’t dissipate, whereas the market for the higher value, high-titanium feedstocks such as rutile, or synthetic rutile, does dry up.
Most of the major deposits around the world, in Africa and Sri Lanka, tend to be high in titanium minerals but not so high in zircon while others may be high in zircon, but not in titanium minerals.
The contained zircon in the total Resource at Thunderbird is more than any other deposit around the world at the present time.
The key to the project is its ‘high-grade zone’.
Modelling of the Thunderbird deposit resembles a layered sponge cake with the high-grade zircon and ilmenite zone being the jam and cream sitting in the middle as a coherent high-grade layer just below surface.
“This high-grade zone we are focussing on at Thunderbird has one of the highest grades, both in terms of zircon and titanium minerals of any deposit globally,” McQuitty said.
“We have a good balance at Thunderbird in terms of the mineral commodities represented.
“The bulk of the value within the Thunderbird deposit is tied up in the levels of zircon present, which account for some fifty per cent of the revenues defined in the Scoping Study, with around forty per cent coming from the ilmenite.
“Mineral sands is a bit of a blank box for many people and as such are something of an unknown quantity for many market watchers.
“We are very happy to finalise the Scoping Study and get the results out as we feel they fully explain the value of the high grades encompassed in the deposit in both dollar and production terms.”
Sheffield Resources Limited (ASX: SFX)
…The Short Story
Level 1, 57 Havelock Street
West Perth WA 6005
Ph: + 61 8 6424 8440
Fax: +61 8 9321 1710
DIRECTORS and MANAGEMENT
Will Burbury, Bruce McQuitty, David Archer
Will Burbury 6.4%
Bruce McQuitty 6.4%
David Archer 6.4%
SHARES ON ISSUE
approx. 119.6 million
$117.79 million (at 24/4/14)