Metalicity (ASX: MCT, Share Price: $0.05, Market Cap: $22m) offers exposure to zinc, lithium and cobalt. It maintains the large and advanced Admiral Bay zinc project in Western Australia, along with its more recent acquisition of prospective lithium-tantalum tenements in Western Australia’s Pilbara region, host to some of the world’s largest hard-rock lithium and tantalum projects.
Metalicity has advised that newly-designed directional drilling will slash overall PFS drilling time and costs by more than two-thirds. Utilising this technique, the new PFS budget is set at circa $10M (instead of +$30M previously) and a timeframe of less than 6 months (less than one third of the previous estimate).
Market Significance
Metalicity’s share price has for the most part traded solidly since our initial coverage @ $0.025 back in October 2015, as the 2-year chart above reflects. All eyes are currently on the company’s flagship Admiral Bay zinc project as the market has anticipated the latest steps with respect to refinement of the preferred project PFS pathway and potential joint venture involvement. The review has indicated directional drilling has the potential to slash both the budget and timing to completion of the PFS and all going well, subsequent DFS and decision to mine. The benefits to shareholders are therefore obvious and significant.
Announcements Detail – Admiral Bay PFS Update
Metalicity has provided an update on the Pre-Feasibility (PFS) for its Admiral Bay Zinc Project, located in the northwest of Australia.
The initial phase of PFS work at Admiral Bay has involved the refinement of the preferred PFS pathway – including the design and budgeting of drilling options, the compilation of a new MRE for the high-grade zone and various critical success factors regarding mining optionality.
As part of the PFS work underway, a detailed assessment of the latest directional drilling techniques used in resource drilling ore bodies at depth in Australia and globally, was undertaken with leading drilling contractors. The review has indicated directional drilling has the potential to reduce the budget and timing to completion of the PFS – and pending success – a Definitive Feasibility Study (DFS) and decision to mine.
DDH1 was appointed to assist with the design and budgeting of drilling options. Previous drilling and exploration costs associated with the PFS budget had been designed around multiple new drill-holes from surface, with a minimum estimated budget of $30M and a timeframe of 18 months.
The new PFS budget has been designed utilising directional drilling by drilling 1 ‘parent’ hole to a depth of approximately 1,000 metres before exiting this parent hole and core drilling ‘daughter’ and potentially ‘granddaughter’ holes for multiple intersections into the high-grade zone.
Utilising this technique, the new PFS budget is set at circa $10M – or less than one third of the previous estimate and a timeframe of less than 6 months – or less than one third of the previous estimate. A definitive PFS drilling budget estimate is expected shortly.
Even more significantly, is the potential to progress a Definitive Feasibility Study (DFS) by applying the same directional drilling techniques to convert a relevant portion of the ore body to the Measured Resource category. This will eliminate the requirement to sink an exploration shaft to define Ore Reserves as part of the DFS, which had an estimated cost of circa $230M in the Scoping Study. The DFS budget utilisation directional drilling to achieve the required outcome is budgeted at circa $35M. A definitive DFS drilling budget estimate is expected post the PFS.
Technical Significance
The new drilling techniques and budget reduces the cost to decision to mine from what was a minimum of $300M to now approximately $50M – representing a game-changing development strategy to advance Admiral Bay.
PFS Strategy
In order to de-risk Admiral Bay through to decision to mine, the PFS will be undertaken in two stages – PFS stage 1 and PFS stage 2. The PFS will be project managed by SRK Consulting and Metalicity.
The PFS Stage 1 is underway, working on metallurgical, geotechnical, hydrogeological and geothermal studies. The PFS Stage 2 will involve directional drilling of approximately 16 holes into the high-grade zone with the aim of converting a relevant portion of the high-grade zone into the indicated resource category. The quantum of this relevant portion is anticipated to equate to payback on pre-production capital for the project. These forecasts will be confirmed during the PFS.
Metalicity has updated potential joint venture parties including China Nonferrous Metals (NFC) with the new PFS and DFS strategy and has received positive feedback on the very significant reduction in capital to decision to mine.
Funding Strategy
The PFS Stage 1 is underway and fully funded. The company is evaluating a range of additional funding options for Stage 2 of the PFS and beyond – including but not limited to, the sale of non-core assets, a formal joint venture with parties the company is currently in discussions with, the sale of a Net Smelter Royalty (NSR), a Commodity Streaming Deal (CSD), pre-payment on off-take and/or a capital raising including a share purchase plan so that existing shareholders may participate in the progress of the asset.
Summary
We initiated coverage of Metalicity at a price around $0.025 during October 2015 – representing a current gain of 100%.
From a zinc perspective, Metalicity is essentially in the right place at the right time with respect to its Admiral Bay project. The project is world-class in terms of scale and Resource upside remains vast, given the current estimate encompasses just 2.1km of the currently-defined 18km mineralised corridor.
Utilising directional drilling, the new PFS budget is set at circa $10M – or less than one third of the previous estimate and a timeframe of less than 6 months – or less than one third of the previous estimate. A definitive PFS drilling budget estimate is expected shortly.
