Element 25 has delivered an outstanding pre-feasibility study for its Butcherbird manganese project in the Pilbara, revealing that the operation will produce a pre-tax NPV in real terms AUD$283M at an incredible IRR of 223 per cent on project capital costs totaling AUD$14.5M. The project shows an initial mine life of 42 years and annual free cash flows of AUD$24M.
ASX-listed Element 25 has delivered an outstanding pre-feasibility study for its Butcherbird manganese project in the Pilbara, revealing the operation will produce a pre-tax NPV in real terms of AUD$283M for the Perth based company that currently has just 97M shares on issue.
The project is showing an incredible IRR of 223 per cent on a ridiculously low capital outlay of just AUD$24M - which even includes AUD$9.2M in working capital - a total investment number that should not have a dramatic impact on the company’s capital structure – particularly given that its stock doubled on the market yesterday from 20c to 40c on news of the PFS.
Element 25 says it has modelled up an initial 42 year mine life for the project that should spit out an average of AUD$24.4M a year in free cash for every one of those years.
Importantly, those cash flows look like being front ended too with the company estimating the first five years of operations will yield annual free cash flows of AUD$32.1M a year.
With a skyline dominated by the likes of Rio Tinto, BHP and FMG, Perth is undisputedly an iron ore town, however few people realise that steel is rarely made using iron ore unless you strengthen it first with manganese.
Manganese is used in the process to convert iron ore into iron as it removes oxygen and sulphur. It is also a critical alloy that aids the chemical process to convert iron into steel - its properties impart strength and decrease the brittleness of the construction material.
Whilst the investment community and public markets are ultra-focussed on the massive profits generated by the big iron ore players, there is no reason why Western Australia could not develop a lucrative manganese industry in its own right that is capable of snapping at the heels of its larger brothers in the iron ore industry.
Indeed, the manganese content in steel has increased significantly in the last 20 years with global manganese ore production also increasing 3 fold in the last two decades to meet the increased demand from steel makers.
Element 25’s Butcherbird project sits just south of Newman in WA and magically straddles the main highway and the Goldfields gas pipeline. It now boasts a maiden proved and probable ore reserve of 50.55Mt grading 10.3 per cent for 5.22Mt of manganese.
Unlike many West Australian gold deposits that are often vertically orientated, the ore body at Butcherbird looks like it was exquisitely designed to be gently cradled by an open pit. The outcome of which is a crazy low stripping ratio of 0.35 to 1 waste to ore, leading to an all in sustaining operational cost of just AUD$4.43 per dry metric tonne.
Element 25’s PFS is quite savvy in many ways – principally because it seeks to focus on a “staged” CAPEX approach that just takes the ore to a simple concentrate rather than the building of a grandiose project that takes the ore all the way downstream to show huge annual profits from a massive capex investment that can never be funded.
At about AUD$24M, Element 25 will be able to fund its initial investment and working capital requirements at a canter and if it decides to go further downstream with its processing flow sheet in time, the AUD$24M in free cash a year that it will spit out - and AUD$32M a year in the first 5 years - will help fund that move, further protecting the company’s capital structure.
With just 97M shares on issue, clearly Element 25 management is - and has been - uber-focussed on keeping its capital structure tight.
As a mining proposition, Butcherbird ticks a lot of boxes, it doesn't even require typical blasting with the ore presenting as soft enough for free digging.
The company has also looked to ore sorting technology to upgrade its manganese concentrate and says it is able to produce a repeatable and commercially desirable grade of 30 to 35 per cent manganese.
Interestingly, manganese is also an important component in the manufacturing of lithium battery cathodes, which offers Element 25 the opportunity to ride the burgeoning electric vehicle wave whilst being underwritten by the steady and stable steel making industry.
Currently, manganese ore production is cornered by the Chinese and African markets, but with buyers in the EU, US, Korea and Japan now concerned about the risks associated with relying on a single supply source, Element 25 is potentially sitting on a critical supply of metal at Butcherbird.
Element 25 Managing Director, Justin Brown said: “The opportunity for a low capital and operating cost rapid start- up will transform Element 25 into producer status much earlier than previously anticipated. The robust cash flows will be transformational in growing the company and generating long term shareholder value.”
With only one other operating manganese mine in WA, which is one of just three in Australia, Element 25 has a chance to join an elite pack that has managed to swing off the coat tails of its big brothers in the iron ore industry.
Whilst the other three deposits are rapidly depleting, it is safe to say that Element 25 should be around for a while with a mine life of some 42 years – and that’s just the “initial” mine life.
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