Sheffield Resources (ASX: SFX, Share Price: $0.62, Market Cap: $91m) is one of our few bulk commodity exposures. The company’s most important and advanced project at present is its world-class Thunderbird mineral sands project in Western Australia, which hosts a large, high-grade zircon-rich resource and where Sheffield is targeting first mineral sands production during 2017.
The company has just released a very positive June Quarterly Report, with strong progress on its Thunderbird BFS (with work progressing on schedule for 2016 completion), along with a doubling of the Measured Resource component at Thunderbird, comprising an overall Resource of 3.23 billion tonnes.
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Market Significance
Thunderbird represents one of the largest and highest-quality undeveloped zircon-rich mineral sands projects in the world – and it is one of the few Western Australian mining projects that enjoy ‘Lead Agency’ status with the Department of Mines and Petroleum. The company’s share price has firmed from a low around $0.28 during February to a 12-month high of $0.65 this month, coinciding with the release of a BFS progress report and resource enhancement. The BFS remains on schedule for completion by the end of 2016, with marketing and financing options being pursued in parallel with the approvals processes.
Announcement Detail – June Quarter Report
During the quarter, Sheffield maintained its operational focus on its Thunderbird Heavy Mineral Sands Project in Western Australia’s Canning Basin.
The Thunderbird deposit is one of the largest and highest-grade zircon-rich mineral sands discoveries in the past 30 years. Following completion of the Thunderbird PFS during October 2015, work commenced on a BFS with the appointment of lead engineering group Hatch during March 2016. The BFS remains on schedule for completion by the end of 2016, with a large volume of work is currently in progress.
During the June Quarter a significant amount of work was completed – including metallurgical test-work and flow-sheets for the mining unit plants, wet concentrator plant, concentrate upgrade plant, ilmenite processing plant and the primary high tension portion of the mineral separation plant. Pilot-scale test-work commenced on the Low Temperature Roast (LTR) ilmenite at Hazen Laboratories in Colorado, USA.
Native Title negotiations and the environmental approvals process continue to progress to schedule.
An updated Thunderbird Mineral Resource was completed, comprising 1.05 billion tonnes @ 12.2% heavy minerals (HM) at a 7.5%HM cut-off (Measured, Indicated and Inferred).
Significantly, the Measured category of the Mineral Resource has been doubled to 220Mt @ 14.5% HM (at a 7.5% HM cut-off), with minimal change in the high in-situ zircon and ilmenite grades of 1.07% and 3.9% respectively. This Measured component of the Mineral Resource alone places Thunderbird in the top tier of mineral sands deposits globally, including those currently in production.
An updated Mineral Resource for the McCalls project, located 110km north of Perth, was also completed subsequent to Quarter’s end. The update is part of an ongoing process to review Mineral Resources on Sheffield’s other projects that were first reported under JORC (2004). The updated Mineral Resource comprises 3.65 billion tonnes @ 1.4% HM at a 1.1% HM cut-off (Indicated and Inferred), with over 60% of the Mineral Resource now in the Indicated category.
Exploration and evaluation expenditure including BFS activities totalled $1.6m for the quarter, with cash reserves of $5m as at 30 June 2016.
Thunderbird Project
Sheffield’s updated Thunderbird Mineral Resource comprises 3.23 billion tonnes @ 6.9% heavy minerals (HM). The new Mineral Resource was updated to include 110 infill holes drilled in the “up-dip” region of the deposit, including a coherent high-grade zone of 1.05Bt @12.2% HM at a 7.5%HM cut-off (Measured, Indicated and Inferred). This high-grade zone contains 9.7Mt of zircon, 3.0Mt of high-titanium leucoxene and 35Mt of ilmenite.
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Technical Significance
What’s most significant is that the Measured category of the Thunderbird Mineral Resource has been doubled to 220Mt @ 14.5% HM (at a 7.5% HM cut-off), with only minimal change in the high in-situ zircon and ilmenite grades of 1.07% and 3.9% respectively. As we commented earlier, the Measured component of the Mineral Resource alone places Thunderbird in the top tier of mineral sands deposits globally, including those currently in production.
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Project Background
The Thunderbird deposit is located on the Dampier Peninsula about 60km west of Derby. The May 2015 Pre-feasibility Study (PFS) confirmed Thunderbird as a long-life, zircon-rich project that has the potential to deliver strong margins over an initial 40-year mine life. The PFS outlined average annual production comprising 114,000 tonnes zircon, 439,000 tonnes ilmenite and 30,000 tonnes of HiTi84 leucoxene – representing approximately 8% of global zircon and 4% of global TiO2 feedstock markets.
Industry experts TZMI completed an assessment of the marketability of final products and concluded:
- Primary zircon product (66.4% ZrO2) is suitable for the ceramics market
- Primary ilmenite product (49.1% TiO2) is suitable feedstock for sulphate-route TiO2 pigment processing
- HiTi84 product (87.7% TiO2) has specifications suited to the welding electrode market
The Thunderbird primary ilmenite has many favourable characteristics – including low levels of key contaminants such as chromium and alkalis. An upgraded LTR ilmenite would deliver significant upside potential through increased product pricing and greater market diversity.
The Thunderbird mineralisation will be processed through a conventional heavy mineral sands processing circuit to deliver a suite of zircon, ilmenite, and HiTi88 products. The process includes an ilmenite upgrade step using a low temperature roast (LTR) to upgrade the primary ilmenite by 22% to produce a high-grade sulphate ilmenite (56.1%).
Financial modeling shows that Thunderbird will deliver average annual EBITDA of $135 million over LOM. The project is expected to produce an average annual operating cash flow of $149 million. Revenue is based on an AUD:USD exchange rate of 0.74.
The total pre-production capital required to build the Thunderbird Project has been estimated at $296M. The estimate covers the design and construction of the Project’s mining and processing, supporting site infrastructure and off-site infrastructure such as an access road and port facilities at Derby. The capital cost of expansion from 12Mtpa to 18Mtpa throughput in year eight is $63.9M and will be met from operating cash flow.
Summary
We initiated coverage of Sheffield Resources at a price around $0.50 during September 2015 – representing a current gain of 24%.
Thunderbird represents one of the world’s best emerging mineral sands deposits, with a projected mine life of over 40 years. The project is forecast to generate strong EBITDA margins over a lengthy project life. We keenly await the release of the finalized BFS before year’s end. Sheffield Resources will remain firmly held within our Theoretical Portfolio.
