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.

 

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.

3. Results of the DFS study released on 16 April 2019 are:

  • DFS shows Coburn will generate strong financial returns with a Pre-Tax NPV of A$551m (USD:AUD 0.72, 8% discount rate) and an Internal Rate of Return of 32%
  • Large Ore Reserve of 523Mt @ 1.11% Total Heavy Mineral (THM) underpins an initial mine life of 22.5 years at the planned mining rate of 23.4Mtpa
  • Life of Mine (LOM) revenue of A$3.9b and LOM EBITDA of A$1.9b, with a revenue-to-operating cost ratio of 2.2, based on TZMI’s Feburary-2019 commodity price forecast
  • Key project approvals already in place (environmental, native title, heritage and mining), making Coburn construction-ready pending finalisation of project financing
  • Nominal 18-month design and construct duration to achieve first ore to process facilities
  • Located in the Tier-1 mining jurisdiction of Western Australia, close to key infrastructure and the dominant mineral sands market of Asia
  • Engagement with global consumers confirms high demand for Coburn’s products in both concentrate and final product form, providing a wide range of offtake and investment options
  • DFS design shows Coburn can deliver both a high-value Heavy Mineral Concentrate product (HMC Case) or can be refined further to final products (Final Products Case)
  • Development capital of A$207m for HMC Case, with an additional A$50m required for Final Products Case which includes MSP infrastructure
  • Significant opportunities to grow project Reserves and mine life through evaluation of resources extending north and along strike of the current Reserves (Extension Case)

The DFS confirms the project to be a world class next generation project in the Mineral Sands sector that will deliver strong financial returns over an initial 22.5-year mine life, has a high value product suite, can be mined using conventional methods and will be capital-efficient.

With key development approvals in place and the DFS now completed, the project is set for near term commercialisation at a favourable time in the mineral sands market when new supply is in high demand.

The DFS capitalises on value enhancements over previous project studies across areas including improved product recoveries through application of current technology, optimised mine plan, and improved product transport and power generation efficiencies.

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:

 

Figure 1 Coburn Project Location Map
Figure 1 Yearly Project Production by Product

Figure 2 Yearly Project Free Cash Flows
Figure 2 Yearly Project Free Cash Flows

Figure 3 Life of Mine Project product and revenue
Figure 3 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 4 Block diagram of Coburn Process Units and Product OptionalityFigure 4 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:

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 5 Coburn Preliminary 3-D Model of MSP Infrastructure


Figure 6 Coburn Preliminary 3-D Model of WCP Infrastructure

4. Products

4.1 Zircon (60% of Revenue).  Forecast Annual Production 90,000 tonnes.

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 1 Zircon Consumption Industry

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

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 HiTi (16% of Revenue).  Forecast Annual Production 20,000 tonnes

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