WA Mineral Sands: Mineral Sands Dev. / Explorer

Transcription

1 WA Mineral Sands: Mineral Sands Dev. / Explorer Sheffield Resources Limited SHEFFIELD RESOURCES LIMITED Its big, its high grade, and it makes a premium product Sheffield Resources Ltd ( Sheffield, SFX, Company ) has announced initial metallurgy testwork for the Thunderbird mineral sands deposit 6.1% HM) near Dampier, WA. The tests show that conventional processing can produce a high quality zircon product potentially suitable for the premium zircon market. The six tonne bulk sample test simulated the processing required to produce saleable products (zircon, sulphate ilmenite and HiTi). Conventional separation techniques produced a premium zircon product containing 66.2% ZrO 2 with low Fe 2 O 3, TiO 2 and Al 2 O 3. The final titanium products are also clean and could provide a feedstock for pigment producers. The primary ilmenite product is low grade, assaying at 48.3% TiO 2, but can be easily upgraded to an ilmenite product of 57.7% TiO 2 with a conventional low temperature roasting process that reduces iron oxide coatings on the grains. Another significant result of the test work is that the deposit s slimes (very fine grained particles) have low clay content, which should reduce water use by allowing water recycling on site and hence reduce operating costs. The Company will now carry out broader sample tests. Today s sample was from an area that blends the high grade and low grade resource (sample had 7.7% HM with 8.6% zircon). Subsequent tests will be larger (15Mt) and be sourced from both a broader sample area and from within the high grade zone HM) to help the design of the processing circuit. All signs suggest Thunderbird can progress to development We expect the Company to move quickly into a scoping study/pfs. We believe first production in 2016 is realistic. The Level 2 surveys for environmental approvals are progressing well, and, to date, there appear minimal hurdles on that front. Our preliminary equity funded valuation for the high grade zone is ~$270m (NPV 14, $312m capex, 20Mtpa, Zircon $1436/t, Rutile $984/t) which is $1.50-$2.50/shr depending on assumed equity dilution. At spot prices, our valuation is $3.00-$3.50/shr. The long mine life means significant upside to our valuation after the project has been derisked by further study work. For example, at an NPV 8, our aforementioned valuations would approximately double. We believe we may also be too conservative on capex and recoveries and hence there is valuation upside on those fronts when study work refines our model inputs. World class asset that can be developed by an ASX junior Thunderbird is shaping up to be a significant new supply of global zircon. Our model assumes it will add 5-10% pa of global supply. For a world class asset the capex is relatively modest and the economics are compelling. The deposit s size, geometry, low strip and grade could deliver a mine capable of operating at competitive cash costs. Today s metallurgy test results have delivered the final big picture piece of the initial evaluation of the Thunderbird deposit, and although there is still significant work to be done to confirm the engineering, design and final economics, the potential obstacles to eventual production now appear modest, even for a junior miner. We continue to rate SFX as a Speculative Buy but we now have more confidence in our price target ($2.11). Share Price SFX.asx Speculative Buy Preliminary valuation $1.97 Price Target (12 month) $2.11 Brief Business Description: Mineral sands developer plus an exciting multicommodity exploration portfolio (Red Bull air core drilling April, follow up June). Hartleys Brief Investment Conclusion The Dampier project is large (could add 5-10% pa of global zircon supply) and our estimate of the economics to develop it appear compelling. Chairman & MD Will Burbury (Exec-Chairman) Bruce McQuitty (MD) Top Shareholders Will Burbury - The Burbury Family A/C 5.1% Bruce McQuitty 5.1% David Archer Family Super Fund Company Address 14 Prowse St West Perth, WA 6005 Hartleys Limited ABN (AFSL ) 141 Page St Georges 1 of 6 Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 5.1% Issued Capital 101.7m - fully diluted Market Cap - fully diluted Cash (31 Mar 13e) Debt (31 Mar 13e) EV Resources Total VHM A$6.0m A$0.0m ('000t) Inferred 78,068 M&I 13, Trent Barnett Head of Research Ph: E: trent_barnett@hartleys.com.au 25 Mar 2013 $ m A$70.2m A$87.5m A$64.2m A$ 0.40 M Apr-12 Sheffield Res Ltd Aug-12 Nov Mar-13 Hartleys has completed a capital raising in the past 12 months for Sheffield Resources Limited ("Sheffield") for which it has earned fees. Hartleys has provided corporate advice within the past 12 months and continues to provide corporate advice to Sheffield, for which it has earned fees and continues to earn fees Volume - RHS Source: IRESS SFX Shareprice - LHS Sector (S&P/ASX SMALL RESOURCES) - LHS

2 Fig. 1: Peer zircon specifications Source: Company Reports Fig. 2: Peer resource comparisons PEER ZIRCON SPECIFICATIONS Zircon Product ZrO2 + HfO2% Total iron as Fe2O3% TiO % Al2O3 % CaO% Cr2O3 % P2O5% MnO V2O5 U+Th ppm Iluka Eucla Basin Premium not reported Iluka Murray Basin Premium not reported CRL Cruzor Premium max 0.15max Diatreme Cyclone DuPont Florida Premium not reported Kenmare Moma <35ppm Doral Standard Gunson Coburn 66 not reported not reported not reported 340 WTR Toliara Iluka Eneabba Exxaro KZN Sands RBM Sheffield Thunderbird PEER RESOURCE COMPARISON Company Code Project Mkt Cap ($m) Tonnes (Mt) HM Grade (%) HM (t) In-situ Zr (%) Zr (%) Zr (Mt) Iluka ILU Perth Basin % % 10.0% Iluka ILU Eucla Basin % % 32.0% 5.81 Sheffield SFX Dampier Global % % 6.9% 5.78 Iluka ILU Murray Basin % % 10.0% 3.81 Sheffield SFX Dampier HG % % 6.9% 3.60 World Titanium WTR Ranobe % % 5.6% 3.28 Gunson GUN Coburn % % 23.0% 2.84 Mineral Deposits MDL Grande Cote % % 12.0% 1.88 Astron ATR Donald^ % % 19.2% 1.67 Diatreme DRX Cyclone % % 30.4% 0.95 Image IMA North Perth Basin % % 13.2% 0.59 Sheffield SFX Eneabba % % 11.0% 0.57 Base BSE Kw ale^^ % % 5.7% 0.55 ^ The Donald Project contains a total zircon resource of 26.4Mt however U/Th levels are high. Testwork by ATR has shown that it is possible to leach U/Th from the zircon and achieve saleable product quality. Consequently we only show Proved Reserves in our chart. ^^ Kwale is predominantly a rutile project. Source: Hartleys, Company Reports Page 2 of 6

3 RESOURCE SUMMARY Fig. 3: Thunderbird Resource Plan The Resource is robust with good continuity as demonstrated by the large high-grade tonnage at the high 7.5 % cut-off grade. Fig. 4: Thunderbird Resource Section Page 3 of 6

4 Fig. 5: Thunderbird prospect Mineral Resource (at 2% and 7.5% HM cut-off)1 Resource Category Fig. 6: Dampier Project contained Valuable HM (VHM) Resource inventory (at 2% and 7.5% HM cut-off). Mineral Resources Mineral Assemblage 2 Cut off Material Bulk HM Slimes Osize In-situ Zircon Rutile Leuc. Ilmenite (HM%) (Mt)* Density % % HM (Mt)* % % % % Indicated Inferred 2 1, Total 2 1, Indicated Inferred Total Resource Category Cut off (HM%) Zircon Rutile Leuc. Ilmenite (kt)* (kt)* (kt)* (kt)* Total VHM (kt)* Indicated 2 1, ,256 9,007 Inferred 2 4, ,661 18,007 25,927 Total 2 5,753 1,334 3,585 24,262 34,934 Indicated 7.5 1, ,592 6,611 Inferred 7.5 2, ,571 10,631 15,307 Total 7.5 3, ,249 15,223 21,918 *Tonnes have been rounded to reflect the relative uncertainty of the estimate. 1 This estimate is classified and reported in a manner compliant with the JORC code and guidelines (JORC, 2004). 2 The Mineral Assemblage is represented as the percentage of the Heavy Mineral (HM) component of the deposit, as determined by QEMSCAN. TiO2 minerals defined according to the following ranges: Rutile >95% TiO2; Leucoxene 70-95% TiO2; Ilmenite 40-70% TiO2. Page 4 of 6

5 PRICE TARGET Fig. 7: SFX price target Source: Hartleys Estimates RISKS Mineral sands demand is highly leveraged to the Chinese market and whilst we have seen a softening in prices recently we do not foresee a collapse, if anything we believe that pricing should improve in the medium term. At a project level there are technical, regulatory and funding challenges to be overcome. Fig. 8: Key assumptions and risks for valuation Assumption Recovery of 82% zircon and 70% for other minerals is achievable Price Target Methodology Weighting Spot 12 mth out NPV14 consensus prices 58% $1.97 $2.22 NPV14 at spot commodity and fx prices 25% $2.91 $3.29 NPV8 consensus prices 14% $3.50 $3.78 NPV8 at spot commodity and fx prices 3% $4.99 $5.40 Risk weighted composite $ Months Price Target $2.11 Shareprice - Last $ mth total return 206% Risk of not realising assumption Downside risk to valuation if assumption is incorrect Comment Moderate Moderate / upside Our assumptions on recovery are conservative if better recovery can be achieved then risk is to the upside. Mineral sands prices in line with the declines expected by consensus Moderate Upside The consensus is for softening prices 20 year mine life Moderate Moderate Our model assumes only the high grade resource is mined and none of the low grade resource. Capex for Dampier is 50:50 debt/equity Moderate Moderate Capital requirements are large for a company of this size and there is risk that SFX will not be able to raise sufficient funds. Operating costs Moderate Upside We would expect that as the Project develops and more clarity is gained on mining scenarios and cost that these estimates will be revised down, improving the project s economics. First production in mid CY16 for Dampier Conclusion Source: Hartleys Research High Moderate The construction period for any future mine is expected to be long with significant approval and construction timeframes. While the assumptions we have used are reasonable, we consider some assumptions as moderate to high risk and the consequential reduction to our valuation would be significant if they were not achieved. Page 5 of 6

6 HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research Mike Millikan Resources Analyst Paul Cartwright Oil & Gas Analyst Peter Gray Research Analyst Janine Bell Research Assistant Corporate Finance Grey Egerton- Head of Corp Fin Warburton Richard Simpson Director Corp. Fin Paul Fryer Director Corp. Fin Dale Bryan Director Corp. Fin Ben Wale Snr Mgr Corp. Fin Ben Crossing Snr Mgr Corp. Fin Stephen Kite Snr Mgr - Corp. Fin Scott Weir Mgr - Corp Fin Registered Office Level 6, 141 St Georges Tce Postal Address: Perth WA 6000 GPO Box 2777 Australia Perth WA 6001 PH: FX: info@hartleys.com.au Note: personal addresses of company employees are structured in the following manner: firstname_lastname@hartleys.com.au Hartleys Recommendation Categories Buy Accumulate Neutral Reduce / Take profits Sell No Rating Speculative Buy Share price appreciation anticipated. Share price appreciation anticipated but the risk/reward is not as attractive as a Buy. Alternatively, for the share price to rise it may be contingent on the outcome of an uncertain or distant event. Analyst will often indicate a price level at which it may become a Buy. Take no action. Upside & downside risk/reward is evenly balanced. It is anticipated to be unlikely that there will be gains over the investment time horizon but there is a possibility of some price weakness over that period. Significant price depreciation anticipated. No recommendation. Share price could be volatile. While it is anticipated that, on a risk/reward basis, an investment is attractive, there is at least one identifiable risk that has a meaningful possibility of occurring, which, if it did occur, could lead to significant share price reduction. Consequently, the investment is considered high risk. Institutional Sales Carrick Ryan Justin Stewart Simon van den Berg Chris Chong Simon Andrew Veronika Tkacova Wealth Management Nicola Bond Bradley Booth Adrian Brant Nathan Bray Sven Burrell Simon Casey Tony Chien Travis Clark Tim Cottee David Cross Nicholas Draper John Featherby Ben Fleay James Gatti John Georgiades John Goodlad Andrew Gribble David Hainsworth Neil Inglis Murray Jacob Bradley Knight Gavin Lehmann Shane Lehmann Steven Loxley Andrew Macnaughtan Scott Metcalf David Michael Damir Mikulic Jamie Moullin Chris Munro Michael Munro Ian Parker Charlie Ransom (CEO) Brenton Reynolds Conlie Salvemini David Smyth Greg Soudure Sonya Soudure Dirk Vanderstruyf Jayme Walsh Samuel Williams Disclaimer/Disclosure The author of this publication, Hartleys Limited ABN ( Hartleys ), its Directors and their Associates from time to time may hold shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice mentioned in publications to clients. Hartleys has provided corporate advice within the past 12 months and continues to provide corporate advice to Sheffield, for which it has earned fees and continues to earn fees. Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. Page 6 of 6