Reading about this stock, I must say how impressed by the mineral wealth of Australia. The Eucla Basin is one of those Australian basins which has hardly been explored for minerals. It has been scantly explored for oil & gas. Low & behold, it is rich in mineral sands, and Diatreme Resources (DRX.ASX) has a commanding position in the region along with Image Resources. Better still:
1. It has a JV with a Chinese partner, so we can expect an offtake agreement to push the feasibility study along and to assist with project finance. I assume, but this needs to be checked, that BaoTi is a subsidiary of the Chinese steel group BaoSteel, which is probably as big as BHP now, give or take a takeover. Need to check because Chinese companies love to grab the names of counterparts.
2. It has high grade product (50Mt at 2.7%Heavy Metals) compared to many other deposits, so it ought to rank highly in terms of cost competitiveness for mine-gate product. The project is remote (240km) though just to a railway heading, though this will involve extra product handling. It would be trucked in 250t road trains. The distance does not bother me, but who is building the railway. The good news is that it gives the company an advantage handling others ore. Clearly there is scope for multiple developments in the region using a shared rail link.
3. They have a high ratio of zircon as compared to titanium products. I must admit though that the long term outlook for titanium might even be more appealing given the eventual development of high-strength steels. This is particularly the case with so much iron ore in South Australia.
4. Shallow overburden of 10-16 metres is satisfactory....based on section, however given the distribution of the ore grades, the average modal depth of the ore, if I can call it that, is around 25 metres, i.e. The higher grade ore is at the base, so its not great exactly shallow, but typical.
I do have some questions about this development:
1. For mineral sands, 'low radiation', does that simply entail higher thorium rather than uranium, or its low in thorium? What are the absolute concentrations? The reason I ask is, I think the half-life for thorium is lower. The response from the company:
- Zircon product is significantly less than 500ppm U + Th (300-350 ppm likely)
- Titanium minerals all display low U + Th levels relative to industry benchmarks.
2. What is the anticipated 20-year overburden ratio? It seems around 25m, no better than Victorian producers...yet a railway link is required.
Ten (10) year mine plan has an overburden to ore ratio equal to 0.9, with a low of 0.6 in the first years of mining.
3. Does it have a high chrome concentration, which I understand was problem for East Coast producers years ago.
Chrome levels in ilmenite/leucoxene ore are very low (less than 0.1% Cr2O3) but the Cyclone Deposit is a zircon rich resource.
4. Will the ore require blasting? Crushing is a big cost. I suspect its amenable to backhoe, but these rocks are a few million years old, and I don't know the extent of burial.
The ore is unconsolidated free-flowing sand. There is some induration in the overburden but expected to be dozer rippable. Slimes are low at 4%.
My concern is the capital cost and long development lead time for a rail link. The Chinese partner will be looking long term. They can truck in the short term, but its a capital cost I don't think they need in Victoria's Murray Basin, and I think this ore is not sufficiently advantageous given the number of Ti/Zr projects floating around. They are in a pretty competitive market I think, and a long way from the coast.
You can see the presentation here. You can follow this stock at Google Finance, and their latest news releases at the ASX website.
I am not so impressed by this story, and particularly not during a recession.
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