THE INSIDE STORY: Sheffield Resources’ (ASX: SFX) 100 per cent-owned Thunderbird mineral sands project possesses a number of very prominent attributes.
Located on the Dampier Peninsula, about 60 kilometres west of Derby, and 25km north of the sealed Great Northern Highway joining Derby and Broome, Thunderbird is the first major mineral sands discovery in the Canning Basin region of Western Australia.
Since its discovery, Sheffield has worked up the project to become one of the largest mineral sands deposits to be discovered in the last 30 years.
Thunderbird boasts a total Mineral Resource of 3.2 billion tonnes at 6.9 per cent heavy minerals (HM) across all three Measured, Indicated and Inferred categories at 3 per cent HM cut-off.
The Resource contains 18.5 million tonnes of zircon, 61.8 million tonnes of ilmenite, 6.9 million tonnes of leucoxene, and 5.9 million tonnes of HiTi leucoxene.
A recently-completed Prefeasibility Study (PFS) update concluded the project’s current Mineral Resource can support an initial 40 year mine life with substantial room opportunity to increase this in the future.
The project will eventually ramp-up to an 18 million tonnes per annum throughput, at which time it will become one of the world’s largest dry mining mineral sands operations.
Zircon is the key value driver of the project making up 59 per cent of forecast revenue, with the remainder generated from substantial amounts of high grade sulphate ilmenite and HiTi leucoxene.
Over 50 per cent of the world’s zircon supply is used in the production of ceramics, including tiles, sanitary ware and tableware.
Zircon is also used in refractories and foundry applications.
Globally, zircon demand reached an estimated 1.1 million tonnes in 2014.
Zircon prices trebled during 2011 to peak around US$2,400 to $2,600 per tonne, but since then they have come back to around the US$1,050 per tonne mark, however industry boffins do anticipate the longer-term outlook for zircon prices to be positive, due to increasing demand and a limited pool of new projects in development.
Key outcomes to emerge from the recent PFS update include a 26 per cent reduction ($96.6M) in pre-production capital expenditure to $271 million, a 13 per cent increase in annual EBITDA to $135 million, improvement of capital payback to 3.4 years and a 25 per cent increase in mine life to the initial 40 years mentioned above.
The PFS update was based on a conventional dozer trap mineral sand mining operation involving an initial 12 million tonnes per annum throughput, increasing to the much-anticipated 18 million tonnes per annum in year eight, and a low risk, conventional processing flow sheet with all infrastructure located on site.
The results of the PFS update attracted a lot of attention for the company and also the attention of highly credentialed mining executive Bruce McFadzean, who joined the company as Managing Director in November.
McFadzean brings to the company more than 35 years’ experience in the global resources industry, having led the financing, development and operation of several new mines around the world.
Across his journey, he has spent 15 years with BHP Billiton and Rio Tinto in a variety of positions and four years as managing director of Western Australia gold miner Catalpa Resources.
It was during his time at Catalpa, McFadzean oversaw the construction and operation of the Edna May gold mine, the acquisition of 30 per cent of the Cracow gold mine and the company’s eventual merger into Evolution Mining (ASX:EVN), after which Catalpa’s market capitalisation grew from $10 million to $1.2 billion.
“Accepting the appointment was an easy decision as I believe the Thunderbird project presents such a wonderful opportunity,” McFadzean told The Resources Roadhouse.
“The results from the PFS update were very hard to ignore as they confirmed what I considered the Thunderbird project to be – a strategic, high margin, zircon-rich asset located in one of the world’s most stable mining jurisdictions.”
The PFS update demonstrated Thunderbird to be a project requiring a modest capital expenditure that will eventually generate strong EBITDA margins over a very long mine life.
Sheffield took meticulous care in running the study using proven, cost-effective conventional mining and processing techniques, which determined Thunderbird will generate a highly marketable suite of products.
The primary zircon is of premium quality whilst the upgraded ilmenite demonstrates characteristics that are superior to other sulphate ilmenites in the market, meaning it should become a preferred feedstock.
The quality of the zircon found a cheer squad in leading global mineral sands consulting group TZMI, which confirmed Thunderbird’s primary zircon and LTR ilmenite to be high quality products that will very likely receive strong market support.
Collectively, these products represent 81 per cent of the project’s total projected revenue and the company has already had some interest registered in these products by leading marketing specialists and industry groups.
“Although we have received some strong interest in relation to Thunderbird’s products, we have, at this stage, chosen not to commit to offtake agreements until after completion of the Bankable Feasibility Study (BFS),” McFadzean said.
Just after the release of the PFS update, Sheffield announced an Access Agreement with the Shire of Derby-West Kimberley over the bulk handling facility at the Derby Wharf, confirming Sheffield as the preferred proponent and providing exclusive access to the bulk handling facility.
The agreement allows Sheffield exclusive access during the BFS to complete all work required to submit a development application and to complete terms of a sublease agreement by June 2017.
The company considers securing port capacity to be a major step towards development of the Thunderbird project as efficient and unconstrained access to export infrastructure is essential to establishing a cost effective mine-to-port logistics chain for its products.
The Derby wharf is well suited to the export of mineral sands products.
The PFS established that final products will be transported in bulk form by quad road trains from the mine site to the Derby wharf for storage and export.
Bulk ilmenite, zircon and HiTi88 products will be off-loaded at the port export facility to then be conveyed to a ship loader for transhipment via barge.
As a company that likes to keep things moving at a steady pace, Sheffield recently announced its intentions to raise up to $5 million through a placement of up to 11.4 million shares at an issue price of 44 cents per share to domestic and international institutional, sophisticated and professional investors.
This was supported by an offer to eligible shareholders to participate in a Share Purchase Plan (SPP) to raise up to $2 million.
Sheffield has earmarked the funds raised for the BFS at Thunderbird, to accelerate offtake and financing negotiations, to undertake regional exploration at the Dampier Mineral Sands project and the company’s Red Bull nickel project in the Fraser Range and for general working capital purposes.
“This capital raising will strengthen our balance sheet, which will ensure we can deliver on some very significant upcoming milestones we will have to achieve on the way to finalising the Bankable Feasibility Study in late 2016,” McFadzean explained.
“We are already well-advanced into this exciting phase, which is to include a number of catalysts including permitting, grant of the mining lease, a maiden reserve for the Thunderbird deposit and key offtake and financing negotiations.”
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 McFadzean, Bruce McQuitty, David Archer