Australian Mines expects to finalise Sconi cobalt-nickel offtake this quarter

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12:45 18 Feb 2019

If offtaker SK Innovation exercises an option it could bring in $80 million to the company this quarter.

OVERVIEW: AUZTHE BIGPICTURE

Sconi project is expected to create more than 300 fulltime jobs over 20 years

• The Sconi project cobalt-nickel-scandium resource has been upgraded to more than 75 million tonnes
• The project was already valued at $697 million in a November BFS
• Formalisation of the SK Innovation offtake agreement is expected this quarter
• SK Innovation could take up an option for 669 million shares, triggering an $80 million cash injection this quarter
• Australian Mines has grabbed the whole Flemington project so it will have a second feed for Sconi production
• Nineteen WA exploration projects were spun out to now-listed subsidiary Norwest Minerals

What does Australian Mines do?

Australian Mines Limited (ASX:AUZ) (FRA:MJH) (OTCMKTS:AMSLF) specialises in exploration and development of mining projects in Australia. It is run by Benjamin Bell, a geologist and geophysicist who has 20 years experience in the minerals industry.

What does Australian Mines own?

The key asset is the Sconi Cobalt-Nickel-Scandium Project in North Queensland where Sconi has been given prescribed project status by the Queensland Government and is expected to generate hundreds of jobs.

The Queensland project is at Greenvale where 15,000 tonnes cobalt and 327,000 tonnes nickel were mined historically at Greenvale nickel mine and Brolga mine.

Australian Mines captured attention last week with Sconi last week after upgrading the project resource to more than 75 million tonnes.

The Sconi resource upgrade took into account results from an expansion drilling program that delineated consistent high-grade nickel and cobalt zones, with some assays improving upon the tenor of past results.

Greenvale nickel deposit is now 24.4 million tonnes in situ, up 63.2% from 14.95 million tonnes, while the adjacent Lucknow deposit is now 14.62 million tonnes, up 94.6% from 7.51 million tonnes.

The improved resource estimate is expected to have a positive effect on economics of the Sconi development.

Sconi has already been dubbed one of the most competitive cobalt-producing nickel operations in the world by commodity research specialist CRU International in an independent nickel and cobalt sulphate market study commissioned by Australian Mines.

The study’s findings were published last week and forecast the 2025 value-adjusted business costs of Sconi project would place it in the first quartile compared to other existing and proposed analogous operations globally, based on the outcomes of the base-case financial modelling in Australian Mines’ November bankable feasibility study (BFS).

The November BFS valued the project at $697 million using a net present value (NPV8) calculated at an 8% discount rate.

The after-tax internal rate of return for the 18-year project was 15%, as a 5.2-year payback period was named for a US$974 million total capital expenditure (capex).

Sconi mine construction capex was put at US$31 million, with US$110 million of contingencies.

Its processing plant capex was US$730 million, with US$103 million of non-process capital costs.

South Korean global battery manufacturer SK Innovation Co Ltd (KRX:096770) has an offtake agreement for all of the expected cobalt and nickel production from the project.

The parties expect to finalise and execute their offtake agreement this quarter.

Australian Mines and SK Innovation’s agreement includes an option, subject to shareholder approval, for the issue of up to 669 million shares with an exercise price of 12 cents a share.

If SK Innovation exercises the option, it could give Australian Mines a cash injection of up to $80 million this quarter.

Australian Mines picked up 5.3 hectares of land 10 kilometres from Sconi project last month.

The company is committed to having a predominantly residential workforce at the project, with minimal use of fly-in fly-out workers.

More than 300 ongoing fulltime jobs are expected to be created from its efforts, over a 20-year period.

Perth-based Australian Mines had a strategy re-set more than two years ago, acquiring Sconi in Queensland and picking up the Flemington Cobalt-Nickel-Scandium Project in New South Wales.

The company received NSW State Government approval in December to acquire the entire Flemington project, validating an August option exercise.

Australian Mines plans to use Flemington as a second source of cobalt, nickel and scandium for production at Sconi.

Australian Mines’ subsidiary Norwest Minerals Ltd (ASX:NWM) completed a listing on the Australian Securities Exchange last November.

The spin-out enabled its parent company to focus efforts on Sconi and Flemington while seeing gold and base metals exploration assets at Norwest’s 19 tenements in WA reach their potential.

Australian Mines used $3.7 million cash in the December quarter, including $1 million for exploration and evaluation and $1.4 million for development.

It used $3.4 million from investing activities and $105,070 from financing activities to end the period with $586,557 cash, a cash balance soon boosted with a $1.9 million research and development rebate from the Australian Government.

The company had $3 million last month, tipping $1.9 million of cash outflows for the March quarter.

Inflection points

• Formalisation of SK Innovation binding term sheet as an offtake agreement this quarter

• An SK Innovation exercise of its option to take up 669 million shares could trigger an $80 million cash injection this quarter if shareholders agree

• Continued upgrades to Sconi resource and economic modelling for Sconi project

• Milestones and resource definition work at Flemington and subsidiary Norwest’s projects

• Major investor support through Australian Mines registry

Managing director Benjamin Bell confident of project economics

“This mineral resource update for the Sconi project is a major boost for the company’s development plans, as we head towards our target of first construction activities at Sconi later this year, pending a final investment decision on the project,” managing director Benjamin Bell said last Thursday.

“With an updated mineral resource, Australian Mines is positioned to become a significant cobalt, nickel and scandium supplier through the Sconi project — a project that has already shown to be commercially viable via the November 2018 bankable feasibility study.

“This updated mineral resource is likely to further enhance the economics of the project, and in turn provide additional long-term benefits for our investors and offtake partner.”

Australian Mines managing director Benjamin Bell will deliver a presentation at 4.30pm tomorrow on day one of the February 19-21 RIUExplorers Conference 2019 at Esplanade Hotel Fremantle. You can find the company at stand 18, near the barista.