Coburn HMS Project

1. General Background

Heavy minerals, such as zircon, titanium dioxide minerals, garnet, sillimanite, kyanite, and staurolite, are eroded from their parent igneous or metamorphic rocks and are transported by water and/or wind action over long periods of geological time, often ending up in the same locations as placer deposits. When such deposits contain sufficient concentrations of valuable heavy minerals, principally zircon and titanium dioxide minerals, they are referred to as heavy mineral sand deposits.

Most of the commercially attractive mineral sand deposits occur along old coastlines, particularly where high energy wave action and strong winds have prevailed over long periods of time. Beach, offshore and sand dune deposits comprise the main varieties of mineral sand ore environments, the Coburn deposit being hosted in a fossil near-coastal sand dune system.

Figure 1 Coburn Project Location Map
Figure 2  Coburn Project Mine Pit and Tenement Outline

2. Project Details, History and Current Status

The Project is located 240 kilometres north of the regional centre and port of Geraldton, immediately south of Shark Bay and just outside the eastern boundary of the Shark Bay World Heritage Property.   It covers 1200 square km of a fossil coastline which hosts a world class heavy mineral sand field (Figure 1).  The Project straddles the eastern boundary of the Shark Bay World Heritage Property but all exploration to date has been to the east of the Shark Bay Property.

Drilling since 2000 has outlined a major heavy mineral sand deposit known as the Amy Zone (Figure 2) which is over 35 kilometres long, up to 3 kilometres wide and between 10 and 50 metres thick.

Strandline is advancing towards a development decision for its 100%-owned Coburn mineral sands project in Western Australia. Mineral Sands is a mature global industrial mineral market with increasing demand driven by urbanisation, rising living standards, global growth and extensive array of applications. New development projects are required to satisfy the emerging supply deficit.

The independent expert reports have reaffirmed the technical robustness of the Coburn mineral sands project in WA.

The reports form part of the due-diligence and approvals process of potential lenders, including the Northern Australian Infrastructure Facility (NAIF), and are expected to pave the way for Strandline to complete debt and equity funding arrangements for the project.

The reports include an independent review by SRK Consulting (Australasia) Pty Ltd (SRK) of engineering designs and planning associated with geology, hydrology, mining, processing, infrastructure, logistics, implementation strategies, cost estimates and environmental, social and permitting aspects of the project.

Importantly, no fatal flaws or residual high risks have been identified for the development of the Coburn project. In parallel, an independent report on product quality and marketing, undertaken by TZ Minerals International (TZMI), highlighted the high-quality specifications and saleability of Coburn’s zircon and titanium products.

This report follows the signing of three pivotal sales contracts covering 66% of Coburn’s forecast revenue for the first five years of production (see ASX announcement 20 Apr-2020). The take-or-pay agreements deliver revenue certainty and are with some of the world’s leading consumers across Europe, America and China.  The agreements cover 100% of ilmenite, 100% of zircon concentrate and the substantial portion of the premium finished zircon product to be produced at Coburn. 

The agreements have a forecast combined value of circa US$400m (A$615m at USD: AUD 0.65) over five years, based on the pricing structures contained in the agreements and TZMI’s commodity price forecast assumptions contained in the Coburn DFS. Offtake negotiations for Coburn’s remaining revenue streams are advancing well, including 24,000 tonnes per year of rutile and the rest of the premium finished zircon.

An independent economic cost-benefit analysis has also been completed as required by NAIF, confirming Coburn will provide a host of important socio-economic benefits over its forecast mine life of up to 38 years.

This report, prepared by Deloitte Access Economics, highlights that as well as providing economic benefits, Coburn aligns strongly with Commonwealth and WA Government policies and strategic objectives including, Australia’s critical minerals strategy, Australia’s infrastructure plan, the Shark Bay Shire’s economic prospectus and strategic community plan and WA’s state planning strategy 2050.

Completion of the reports keep Coburn firmly on the path to funding and development. These independent reports validate Coburn’s very strong fundamentals, its development readiness and support finalising debt and equity financing for the project.  With the key development approvals in place and binding offtake contracts signed with major customers, Coburn is moving rapidly towards development.

3. Project Snapshot

Strandline is advancing towards a development decision for its 100%-owned Coburn mineral sands project in Western Australia. Mineral Sands is a mature industry with increasing global demand driven by urbanisation, rising living standards, global growth and extensive array of applications. New development projects are required to satisfy the emerging supply deficit.

The Coburn Definitive Feasibility Study (DFS) (released Apr-2019) and subsequent technical and commercial optimisation work demonstrates a compelling project development option. High margins and strong, long-term cash flows are the result of low operating costs and an exceptional, high-value zircon and titanium product suite.

The DFS financial evaluation shows Coburn generates A$1.9 billion of earnings (EBITDA) over the first 22.5 years (of the potential 38-year mine life), with a rapid payback of 2.2 years from the start of production.

Figure 3 Project Summary

Other Salient Points:

  • Coburn to provide significant socio-economic benefits, indigenous and local content opportunities
  • Construction-ready with key development approvals in place, incl mining lease, environmental approval, native title agreement and pastoral lease ownership
  • Annual production of 34kt premium zircon, 54kt of zircon concentrate, 110kt chloride ilmenite and 24kt rutile; to supply ~5% of global zircon market and a strong foothold in the chloride feedstock market
  • Binding offtakes signed with major global consumers for 66% of revenue for the first 5-7 years
  • Capital-efficient development compared with industry peers; A$257m Capex for Final Products Case which includes MSP infrastructure (excludes financing costs)
  • Large homogenous JORC-compliant Reserve of 523Mt @ 1.11% THM underpins an initial 22.5-year LOM
  • Conventional open pit dry mining in free-dig sand with progressive backfill and full rehabilitation
  • Low strip ratio averaging 0.7; extremely low slimes and oversize; coarse mineral particle size
  • Proven processing technology capable of high mineral recoveries
  • First production of HMC within 18 months from project commencement
  • Construction contracts being awarded; final development decision as soon as possible during 2020

For more information on the Coburn mineral sands project, refer to the ASX Announcement dated 16 April 2019 on details of the material assumptions underpinning the production target and financial results for the Coburn Project DFS, Ore Reserve and Mine Life Extension Case Scoping Study.

The Company confirms that all the material assumptions underpinning the production target and financial results continue to apply and have not materially changed.

 

Figure 4 Coburn Project's Basic WCP-MSP Block Diagram

The Company confirms that all the material assumptions underpinning the production target and financial results continue to apply and have not materially changed.

Figure 5  Various Images for the Coburn Project

4. Outstanding Test Results Further Strengthen Financial Outlook released on 14 January 2020

  • Confirmatory metallurgical tests of Coburn’s proposed mineral separation process result in increased pit-to-product recovery rates
  • The results highlight the strong scope to increase project revenues from the recently announced Definitive Feasibility Study
  • The latest tests, undertaken to optimise process settings, provide four key benefits:
    • Extra technical validation of the robustness of Coburn’s mineral separation plant process flowsheet;
    • Increased production of higher-value premium zircon and rutile final products;
    • Further enhanced product quality specification, resulting in greater offtake appeal; and
    • Additional product samples for marketing and offtake negotiations.

5.  Summary of DFS Financial Evaluation

The Coburn DFS represents a significant milestone in Strandline’s strategy to become a low-cost, high-margin mineral sands producer of relevance to key customers around the world.

The DFS metrics are summarised below:

Table 1: DFS Key Financial Metrics and Assumptions

Description DFS Final Products Case3 DFS HMC Case3
NPV (8% WACC, Real, Pre Tax, no debt) 1 $551M $481M
IRR 32.3% 36.4%
Capital Expenditure (Pre-production) A$257M A$207M
Payback Period of Initial Capital from start of production4 2.3 years 2.2 years
LOM Revenue A$3,906M A3,417M
LOM OPEX C1 Costs inc transport A$1,778M A$1,622M
LOM All-in Sustaining Costs (AISC) A$1,973M A$1,793M
Revenue to C1 Cost Ratio 2.2 2.1
Annual Average Operating Margin A$364/t A$305/t
LOM Free Cash Flow (FCF) pre-tax A$1,610M A$1,357M
Key Assumptions    
Annual Production Rate (Steady State) 23.4Mt 23.4Mt
LOM Production (Ore Mined) 523.4Mt 523.4Mt
Mine Life 22.5 Years 22.5 Years
Annual Avg HMC Produced (from WCP) 229 kt/year 229 kt/year
Annual Avg Premium Zircon Production (updated Jan 2020) 34 kt/year -
Annual Avg Zircon Concentrate Production (updated Jan 2020) 54 kt/year -
Annual Avg HiTi90 Production (updated Jan 2020) 24 kt/year -
Annual Avg Ilmenite Production (updated Jan 2020) 110 kt/year -
Exchange Rate (A$/US$) 0.72 0.72
Product Price2    
LOM Avg HMC Price (FOB) - US$479/t
LOM Avg Premium Zircon (FOB) US$1,480/t -
LOM Avg Zircon Concentrate (FOB) US$495/t -
LOM Avg HiTi90 (FOB) US$1,014/t -
LOM Avg Ilmenite (FOB) US$267/t -
NOTE:
(1) The NPV has been calculated using project related costs only and does not consider Strandline’s corporate costs. DFS capital and operating costs have been developed in accordance with a ±10% accuracy
(2) Pricing assumptions for ilmenite, rutile and zircon were obtained from TZ Mineral International Pty Ltd’s (TZMI) mineral sands marketing report, titled Titanium Feedstock Price Forecast February 2019. TZMI pricing was then adjusted where appropriate to account for quality characteristics of the Coburn product. In the case of concentrate product (zircon concentrate), pricing was adjusted further to consider downstream handling costs
(3) DFS contemplates two viable development options: (1) HMC Case producing a high-grade +95% heavy mineral concentrate (HMC) product (which can be sold to the downstream global processing market); (2) Final Products Case building an additional mineral separation plant to separate the valuable zircon and titanium minerals into final product form.
(4) Pre-taxed and ungeared.

 

 

Figure 6 Coburn Project Location Map

 

Figure 7 Life of Mine Project product and revenue

DFS Synopsis

The main conclusions of the Coburn DFS are as follows:

  • The DFS has been compiled by a range of independent and experienced consultants, including GR Engineering Services, AMC Consultants, IHC Robbins, AECOM and TZMI’s Allied Mineral Laboratories
  • The DFS defines a realistic pathway to commercial production; confirming the ability to produce highly marketable zircon-titanium mineral products with first ore to processing plant in a nominal 18 month period
  • JORC compliant Mineral Resources of 1.6Bt @ 1.2% total heavy mineral (THM), classified 119Mt (or 7%) Measured, 607Mt (or 38%) Indicated, and 880Mt Inferred (or 55%) provides the geological foundation for the project - ASX announcement 14 November 2018
  • JORC compliant Ore Reserve of 523Mt grading 1.11% THM for ~5.8Mt of contained heavy mineral, underpins an initial mine life of 22.5 years at a mining rate of 23.4Mtpa - ASX announcement 16 April 2019
  • Immense potential to further increase project Reserves and mine life through evaluation and conversion of resources extending north and along strike of the current Ore Reserves (refer “Extension Case”)
  • Mining study confirms a conventional open pit dry mining operation where free-dig unconsolidated sand is mined using heavy mobile equipment reporting material to two (2) mobile Dozer Mining Units (DMU) and a mobile excavator mining unit (EMU). The DMU prepares the ore for processing and the ore is pumped in a slurry form to the processing plant. The EMU alternates between overburden removal and ore processing during periods of DMU movement
  • Bulk metallurgical testwork of representative samples, using full scale or scalable processing equipment, confirms conventional processing capable of producing high-quality products with exceptional pit-to-product recovery rates achieved within both concentrate and final product streams
  • Engineering trade-off studies were performed to optimise the processing route, product marketability and minimise project development risk
  • DFS confirms an efficient and modern process design capable of producing a high-grade saleable 95% Heavy Mineral Concentrate (HMC) product from the Wet Concentrator Plant (WCP) and final products through further processing by the Mineral Separation Plant (MSP)
  • Engagement with leading global mineral sands consumers during the DFS confirms the saleability and strong market demand for Coburn’s products in both concentrate and final product form. As such, the DFS contemplates development options for “HMC Case” (lower capital option) and “Final Products Case
    Figure 8 Block diagram of Coburn Process Units and Product Optionality
  • The WCP design utilises multiple stages of high-capacity gravity separation and classification to produce a high grade HMC
  • In the Final Product Case, the HMC will be processed in the MSP, using electrostatic separation, gravity and magnetic fractionation to produce a high-value product suite comprising a premium zircon product (66% ZrO2), zircon concentrate product (28% ZrO2 and 11% TiO2), HiTi90 product (which combines the rutile and leucoxene minerals to produce a 90% TiO2 blend) and a chloride-grade ilmenite product (62% TiO2)
  • Sand tails (including the coarse sands and slimes) from the WCP will be pumped to moveable tails stackers where the sand is separated from the lower density water and slime.  The sand is deposited in the pit and the water and slime are returned for thickening and subsequent co-disposal in the pit amongst the sand
  • The sand tails and slime material are then profiled and covered with stockpiled subsoils and topsoils to re-create the planned soil profile and final land form ready for full rehabilitation
  • Products produced will be temporarily stored on site before being trucked on a continuous basis from the mine site to a dedicated staging facility located close to port, at Geraldton
  • Product inventory will be shipped in bulk form to the existing port of Geraldton. Geraldton port is an established mineral sands export facility, with licences already in place to handle Coburn’s suite of minerals
  • Water for operations will be supplied by a combination of sources including in-pit water if present, recycled sand tailings and slimes return water and raw water top-up from a local bore field
  • Power for the operation will be supplied from a site power station operating on LNG (with diesel backup) with approximately 20% solar (renewable) penetration for the low voltage stable loads
  • Project personnel will reside in a permanent village on site, catering for a drive-in-drive-out workforce. Additional temporary accommodation will be added to account for the peak construction period
  • Other non-process infrastructure comprises product storage facilities, water treatment plant, waste management facilities, fuel storage and dispensary, water services, main 45km access road, site roads, laboratory, workshop, buildings, offices, mining compound and communications facilities
  • The project is a long life, multi decade operation and will generate a host of socio-economic benefits including capital inflows to regional Australia, significant job creation, indigenous engagement, training and job diversity as well local business opportunities and community partnership programs
  • Key project development approvals are in place (environmental, native title, heritage and mining) and the project is considered construction-ready pending finalisation of project financing
  • The project overlays two pastoral leases, Coburn and Hamelin. The Coburn Pastoral lease is 100% owned by Strandline, which covers the first 20 years of Ore Reserves. The Hamelin Pastoral Lease, to the immediate north, is managed by others
  • The project is co-located across two native title claims, the Nanda Native Title Claim and the Malgana Native Title Claim. The Company has entered into appropriate formal agreements with the Native title holders
  • The DFS Final Products Case confirms a pre-tax (real) NPV8 of A$551 million and an IRR% of 32.3%:
    - Project revenue for the initial 22.5 years is A$3.91b based on TZMI’s February-2019 commodity price forecast, with a LOM operating cost (C1) of A$1.78b and All-in-Sustaining-Cost (AISC) of A$1.97b
    - An attractive revenue-to-C1 operating cost ratio of 2.2
    - Total pre-production capital expenditure is estimated to be A$257 million with first ore delivered to process facilities nominally 78 weeks after project development commences
  • The HMC Case offers the flexibility of a lower capital option compared to the Final Products Case (A$207 million compared to $257 million) or a potential staged development strategy
  • The HMC Case shows a pre-tax (real) NPV8 of A$481 million and an IRR% of 36.4%
  • The Mine Life Extension Case (presented as Scoping Study findings) identifies the potential to further increase project Reserves and mine life through evaluation and conversion of resources extending north and along strike of the current Ore Reserves (refer “Extension Case” summary below)

Mine Life Extension Case – Scoping Study Findings

Potential exists to further increase project reserves, mine life and returns, through further economic evaluation of resources extending north and along strike of the DFS Ore Reserves. A Scoping Study assessment of Amy South Indicated and Inferred material, titled “Extension Case”, was undertaken concurrently with the DFS.

The purpose of the Scoping Study was to ascertain the financial benefits of a longer mine life by scheduling production targets from Indicated (7Mt @ 1.1% THM) and Inferred (702Mt @ 1.2% THM) Mineral Resources. The Mineral Resources lie north and directly adjacent to the current granted Mining and Retention Licences and are interpreted to represent the strike continuation of the same body of mineralisation currently defined by the DFS Ore Reserves.

Mining, processing costs, metallurgical recoveries, product pricing from the DFS Final Products Case have been applied to the Mineral Resources used as the basis for this Scoping Study. This is considered appropriate with the production targets forming an extension to the DFS Ore Reserves. Refer Annexure 2 JORC Table 1, Section 1 to 4 for further details about the Extension Case Scoping Study.

The production targets are scheduled from year 23 when the current DFS Ore Reserves are depleted and additional feed is required. The Extension Case adds 15 years of production to the mine life (total 37.5 LOM).

The Extension Case confirms the potential  to generate an additional A$3.08b of project revenue (total project revenue when added to the DFS Final Products Case of A$6.99b) and A$1.73b EBITDA (total project EBITDA of A$3.66b). Extension Case, when integrated with the DFS Final Products Case, shows a pre-tax NPV8 of A$710m.

No upfront capital expenditure will be required to access the production target relating to the Extension Case, however additional sustaining capital cost has been allowed relating to 1 additional WCP move during year 29, borefields, site roads and land access. Key financial outcomes of the Extension Case Scoping Study include:

Table 2 Coburn Extension Case Scoping Study Financial Evaluation

Description Extension Case Extension Case integrated with DFS Final Product Case1
Mine Life 15 years 37.5
Mine Plan (Year) 22.5 to 37.5 1 to 37.5
Production (Ore Mined) 353.4Mt 876.8Mt
Annual Production Rate (Steady State) 23.4Mt 23.4Mt
NPV (8% WACC, Real, Pre Tax, no debt) 1 - A$710m
IRR - 32.4%
LOM Revenue A$3,079M A6,985M
LOM OPEX C1 Costs inc transport A$1,200M A$2,978M
LOM All-in Sustaining Costs (AISC) A$1,354M A$3,327M
LOM EBITDA A$1,725M A$3,658M
     
NOTE:
(1) For financial sensitivity analysis of the Extension Case (integrated with the Final Products Case) refer to Annexure 1 (DFS Presentation)

 

The Extension Case Scoping Study has a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised. The stated Production Target is based on the Company’s current expectation of future results or events and should not be solely relied upon by Investors when making investment decisions. Further evaluation work and appropriate studies are required to establish sufficient confidence that this target will be met.

The Extension Case Scoping Study has been undertaken to evaluate the financial impacts of extending the mine life at the Coburn Mineral Sands Project. It is a preliminary technical and economic study based on low level technical and economic assessments that are insufficient to support the estimation of ore reserves. The Production Target and forecast financial information is based on JORC (2012) Mineral Resources which are reported and classified at approximately 1% Indicated and 99% Inferred. Further exploration, evaluation work and appropriate studies are required before Strandline can estimate ore reserves or provide certainty of a development case for the Mine Life extension case. Given the uncertainties Investors should not make investment decisions solely on the results of the scoping study. No significant capital expenditure will be required to access the Production Target relating to the Extension Case, however additional sustaining capital cost has been allowed and based on calculations in the DFS.

Figure 9 Coburn Preliminary 3-D Model of MSP Infrastructure

 

Figure 10 Coburn Preliminary 3-D Model of WCP Infrastructure

 

4. Products

4.1 Zircon (60% of Revenue).  Forecast Annual Production 88,000 tonnes.

Final Products produced from January 2020 Coburn testwork include:

Premium Zircon Product:

  • High grade premium ZrO2 + HfO2 of 66.4%;
  • Low U + Th (nominally 348 ppm);
  • Suitable for ceramics, foundry and chemical applications;
  • Relatively coarse grain size in comparison with many competing products (with D50 125µm).

Zircon Concentrate Product:

  • Contained zircon is relatively high and suitable for a range of applications, including ceramics, chemical and foundry uses;
  • Zircon contained within the concentrate has relatively low U + Th, which may provide blending flexibility for the downstream purchaser to blend with other products that contain less favourable characteristics;
  • Zircon concentrate also contains payable titanium minerals and monazite containing rare earths.

Zircon is a zirconium silicate, ZrSiO4, which originates in nature as an early forming accessory mineral in igneous rocks, particularly sodium-rich granites. Its hardness, high diamond-like lustre and reflectivity, corrosion resistance, high melting point and ability to absorb radiation are properties utilised in the manufacture of a variety of products in the ceramic, chemical, refractory and foundry industries. The proportion of zircon consumed in each of these industries is shown in Figure 1.

The Coburn zircon product is suitable for use in all of the above industries, although its iron oxide and titanium dioxide levels are slightly higher than the premium grade zircon cut-off levels of 0.1% and 0.12% respectively. Nevertheless, ceramic industry customers in Europe and Asia have advised that Coburn zircon can be blended with premium grade material for glazing of tiles, the principal ceramic use.

The radiation hazard level of Coburn’s zircon, expressed by its uranium and thorium (U+Th) content of between 320-450 parts per million, is quite low and compares favourably with the accepted international limit of 500 parts per million. Radiation levels in the zircon chemicals industry are particularly critical, as uranium and thorium are concentrated in the tailings during the manufacturing process, making it difficult and expensive to achieve safety requirements.

Figure 11  Zircon Consumption by Industry

4.2 Ilmenite (24% of Revenue) Forecast Annual Production 110,000 tonnes

Final Product produced from January 2020 Coburn testwork include:

Ilmenite Product:

  • Chloride-grade ilmenite with 62% TiO2 content, suitable for direct chloride pigment application or upgrading via Synthetic Rutile (SR) or slag routes into high grade chloride route pigment feedstock;
  • Low U + Th (nominally 152 ppm);
  • Minor elements of Cr2O3, CaO, MgO and MnO relatively low or in line with competing products;
  • Relatively coarse grain size in comparison with many competing products (with D50 148µm).

Ilmenite is a naturally occurring mineral, with the chemical formula FeTiO3. It has a titanium dioxide (TiO2) content between 45% and 65% and generally pigment manufacturers pay feedstock suppliers on the basis of TiO2 content. Global mineral sands consultant TZMI classifies ilmenite feedstock with a TiO2 content between 58% and 65% as chloride ilmenite and ilmenite with a TiO2 content of 45% to 58% as sulphate ilmenite.

4.3 Rutile (16% of Revenue).  Forecast Annual Production 24,000 tonnes

Final Product produced from January 2020 Coburn testwork include:

Rutile Product (previously named HiTi90):

  • High 93% TiO2 content attractive for direct chloride pigment application or blending up of lower grade feedstocks for similar applications. Competes strongly with lower grade Leucoxene 88%;
  • Low U + Th (nominally 75 ppm);
  • Relatively coarse grain size in comparison with many competing products (with D50 121µm).

HiTi is an approximately equal mixture of Rutile (95% TiO2) and Leucoxene (86% TiO2). Leucoxene is an altered form of ilmenite, in which the iron (Fe) has been preferentially leached out by acid groundwater, increasing the TiO2 content. The leucoxene from the Coburn Project is unusually altered and high in TiO2and, for this reason, can command a higher price and is sold in a blend with rutile. It can be used as feedstock for pigment manufacture or in welding rods.

Table 3 Coburn Average Annual Production Per Final Product Stream

  

 

 

 

 

 

Table 4 Product Recoveries based on Latest Confirmatory Testwork