Baobab Resources Plc (
HIGHLIGHTS
- PFS confirms the Tete Project as a strategic asset of global significance based on:
- Long-term mine life: 1Mtpa pig iron production for 37 years exploits just 15% of the current global resource (as tabled in Annexure 2).
- Production of high-demand, low-impurity commodities at lowest quartile operating costs, maximising the Project's unique access to low-cost raw materials.
- Modular ability to ramp up production beyond 1Mtpa mitigates financial exposure and allows project scaling.
- Base case scenario of 1Mtpa pig iron production estimates a capital expenditure of US$1.14bn and delivers strong project economics, with a pre-tax NPV10 of US$1.3bn, pre-tax IRR of 22% and a payback period of 4-5 years.
- The Study, completed by independent consultants, assessed low risk, tried and tested beneficiation, reduction and smelting technologies used in similar, commercial operations worldwide.
- Very competitive operating cost of US$225/t (FOB) pig iron firmly establishes the project as one of the lowest cost producers globally.
- Co-production of c.3,000tpa ferro-vanadium alloy will deliver by-product revenues in the order of US$75m (gross) per annum, which corresponds to 14% of total revenue and is equivalent to a by-product credit of c.US$65/t pig iron.
- The Government of Mozambique offers various investment incentives for major industrial projects, with more favourable taxation terms for projects that add a significant amount of value in-country, create local employment and are export orientated. The completion of the PFS now enables the Company to enter into negotiations as to the structure of the tax treatment for the Tete Project with reference to established precedent agreements. It is for these reasons that the Company has not presented 'after-tax' figures.
Commenting today, Ben James, Baobab's Managing Director, said: 'with the results of this PFS we now have independent confirmation of the Tete Project's viability, and more importantly, its compelling economics. This marks another significant milestone on the Company's way to becoming not only the first iron producer in Mozambique, but also one of the lowest cost producers of pig iron globally. In addition, to be able to do this using tried and tested technology and modular plant equipment allows us to keep the Project as straight-forward as possible whilst limiting initial financial exposure. In short, this PFS confirms our objectives at Tete of adding value on-site, maximising margin and minimising risk.
'While waiting for these results to be finalised and with funding in place the Board elected to maintain forward momentum and work has already commenced on the Project's Definitive Feasibility Study. We look forward to keeping shareholders updated with progress.'
PRE-FEASIBILITY STUDY: EXECUTIVE SUMMARY
The Pre-Feasibility Study was completed by a leading group of internationally respected consulting firms and individuals including Coffey Mining Limited, John Clout and Associates, ProMet Engineers, SNC Lavalin, Coffey Environment and Ferrum Consultants. Equipment suppliers were also involved in the design and costing of the pyro-metallurgical flow sheets. Analysis was largely completed at the Amdel, ALS Chemex and CSIRO laboratories in Australia. The Study has been completed to a PFS-level of accuracy and is based on a number of process engineering initiatives including raw materials analysis, bench scale test work and the process comparison with similar, existing pig iron production plants.
The project is located in the Tete province of Mozambique, a country richly endowed with both mineral and gas resources. The province hosts some of the largest undeveloped coal reserves remaining on Earth and, with estimates pointing towards the area having the potential to produce up to 20% of the world's seaborne coking coal within the next decade, is fast-tracking to become a mining and industrial hub of global significance.
Since commencing exploration in 2008, the Company has defined a 725Mt global resource inventory (573Mt inferred and 152Mt indicated, estimated and classified under the guidelines of the JORC (2004) Code), 550Mt of which underlies the very compact 2.5km2 footprint of the Tenge/Ruoni prospect (refer to Annexure 2 and RNS dated 21 February 2013 for details).
Immediately south of, and sharing the Company's licence boundaries, are c.15Bt of coking and thermal coal resources being brought into production by two of the world's largest mining companies, Rio Tinto and Vale, along with tier one steel producers, Tata Steel, Nippon Steel, Jindal Steel and POSCO. Other operators in the area include AIM listed companies Beacon Hill Resources plc, Ncondezi Coal Company plc and Eurasian Natural Resources Corporation plc (ENRC).
The Tete province is also home to southern Africa's largest source of hydro-electric power, the 2,075 megawatt Cahora Bassa dam. Additional hydro-power schemes, currently in the advanced planning stages, will see power production more than double once implemented. Thermal power production is also likely in the near future.
The Project stands to benefit from the significant infrastructure investments already being made in the region. The Rail corridors linking the Tete province with the coast are rapidly being refurbished and expanded, as are the ports of Beira and Nacala. The Company is confident that it will be able to secure allocation well in advance of estimated production time lines.
It is the project's strategic access to the requisite iron and steel making commodities of iron ore, coal, power and water that differentiates Baobab's project from any other in Africa, if not globally, and presents an unique opportunity to add substantial value on site through the mine-mouth smelting of a high value pig iron product.
Pig iron is classified as a raw material derived from the intermediate smelting of iron ore. It is used alongside scrap iron in electric arc furnaces (EAFs) to generate crude and finished steel products. The global consumption of pig iron is estimated at c.70Mtpa (including the domestic Chinese market), complementing a c.350Mt annual consumption of scrap iron.
Due to its consistent chemical composition and density, pig iron is considered a superior product and typically trades at a premium to scrap iron. Pig iron prices vary between markets with North America typically reporting the lowest prices and Asia, in particular China, the highest. Current pricing ranges from $425/t to $500/t.
The market fundamentals for pig iron are robust and supported to a large extent by the on-going development of the BRIC (Brazil, Russia, India and China) economies as well as sub-Saharan Africa where regional demand for construction steel continues to grow on the back of rapid urbanisation and the commissioning of large scale infrastructure projects such Mozambique's emerging offshore gas industry. Other key drivers to the continued growth of the pig iron sector include the maturing of China's scrap iron market and a general decline in the quality of scrap iron elsewhere in the world.
The Pre-Feasibility Study indicates that there is the potential to establish an economically viable operation at the Tete Project. The production of pig iron was evaluated using tried and tested beneficiation, reduction and smelting technologies, which are well established in similar commercial operations worldwide, including South Africa and New Zealand. The base case scenario of 1 million tonnes per annum ('Mtpa') pig iron production estimates a capital expenditure of US$1.14bn and delivers strong project economics, with pre-tax NPV10 of USD1.3bn, a pre-tax IRR of 22% and a payback period of 4-5 years. A summary of the base case model is presented in Table 1.
The Government of Mozambique offers various investment incentives for major industrial projects, with more favourable taxation terms for projects that add a significant amount of value in-country, create local employment and are export orientated. For instance, BHP Billiton's Mozal aluminium smelter and Kenmare's Moma mineral sands project have both been granted Industrial Free Zone (IFZ) status which makes them exempt from corporation tax, import duties, export duties and Value Added Tax while requiring payment of a 1% turnover tax. The completion of the PFS now enables the Company to enter into discussions with the Government of Mozambique as to the structure of the tax regime for the Tete Project. It is for these reasons that the Company has not presented 'after tax' figures.
----------------------------------------------------------- Table 1 ----------------------------------------------------------- Summary - Base Case Model - 1Mtpa ----------------------------------------------------------- NPV @ 10% (Pre - Tax) US$M 1,261 EBITDA (LOM) US$M 10,376 EBITDA (Avg. p.a, steady state) US$M p.a 280 ----------------------------------------------------------- 1Mtpa with 37 years LOM Unit Value ----------------------------------------------------------- Key Parameters Resource Base Mt 117 Life Of Mine Years 37 Pig Iron production (LOM) Mt 37 FerroVanadium Production (LOM) Kt 119 Royalty (1) % 3% ----------------------------------------------------------- Commodity Prices Pig Iron US$/t 450 Ferro-vanadium US$/t 25,000 ----------------------------------------------------------- Unit Operating Costs (FOB) Pig Iron (Pre Credit) US$/t pig iron 225 Ferro-vanadium US$/t pig iron 4,652 Pig Iron (Post Credit) US$/t pig iron 159 ----------------------------------------------------------- Capital Expenditure Upfront: Capex - Pig Iron Plant US$M 1,010 Capex - FerroVanadium Plant US$M 133 Total Upfront Capex US$M 1,143 Sustaining Capital First 5 years(2) % 2.5% Sustaining Capital > 5Years(2) % 5.0% ------------------------------------------------------------ (1) Model assumes 5 year grace period from start of production (2) Calculated on mechanical plant and equipment cost (c. 40% of upfront Capex)The pyro-metallurgical test work completed during the PFS not only provided physical and empirical evidence that a high-quality, low-impurity pig iron could be generated through the direct reduction and smelting of concentrates derived from the Project's iron ore, but also demonstrated the viability of the locally produced middling by-product coal as an agent in the reduction process. Please review RNS dated 4 March 2013 for further details.
As this middling coal is essentially a waste by-product, the Company will be able to negotiate a very competitive mine-gate rate which is one of the key drivers, along with the ability to co-generate a significant power credit and a very low stripping ratio averaging just 0.4 over the first c.10 years of mining, that establishes the Tete project as potentially one of the lowest cost pig iron producers globally. The PFS estimate of a pre-credits free on board ('FOB') cost of production of US$225/t pig iron and post by-product credit cost of production of US$159/t is considered to be very competitive, particularly when compared to the estimated FOB operating cost of $385/t of Brazilian operations. Operations in Russia and the Ukraine are thought to have similar production costs to Brazil, while domestic Chinese operating costs are thought to be substantially higher.
The mineralisation at Tete includes significant amounts of vanadium which will be extracted as a vanadium slag during the smelting process. Further refining of the vanadium slag results in the production of ferro-vanadium alloy, currently sold at price levels of around US$25,000/t. The operating cost to upgrading the vanadium slag to ferro-vanadium alloy is US$4,650/t, less than a third of the operating cost of a dedicated ferro-vanadium production plant. At 1Mtpa pig iron production, the operation would co-produce c.3,000tpa ferro-vanadium alloy, delivering by-product revenues in the order of US$75m (gross) per annum, which corresponds to 14% of total revenue and is equivalent to a by-product credit of c.US$65/t pig iron.
Titanium is successfully separated from the iron during the smelting process and recovered as a titanium slag by-product grading approximately 30% TiO2. The slag is likely to be of commercial use only as a low cost material for road construction or as an extender in the cement industry and has limited impact on the financial model.
The Pre-Feasibility Study modelled 1Mtpa pig iron production over a 37-year mine life which resulted in the development of 110Mt, just 15% of the total 725Mt resource, clearly highlighting the opportunity for expanded production scenarios. The modular character of the plant equipment supports a staged development model, thereby limiting initial financial exposure. Scoping-level assessments of 2Mtpa and 4Mtpa operations are on going.
To view full tables and figures, please visit:
http://media.abnnewswire.net/media/en/docs/74901-lon-bao-20130328.pdf
About Baobab Resources plc
Baobab Resources plc (LON:BAO) is a Mozambican-focused explorer with a large landholding in the central north of the country. The company's flagship project is the Tete iron ore deposit.
Contact
Baobab Resources plcBen James
T: +258-21-415-200
WWW: www.baobabresources.com
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