ASX-listed budding manganese producer, Element 25, has come out with even more "compelling" financial metrics for its developing Butcherbird manganese open-cut mine 130km south of Newman in WA’s southern Pilbara region after the company completed a fine-tuning of the project’s pre-feasibility study, or “PFS”.
Perth-based Element 25 adjusted various economic inputs and design parameters in relation to the planned Butcherbird open-pit mining and beneficiation operation culminating in higher free cash flows, a higher net present value and a higher internal rate of return for the project. The revised NPV and IRR figures now stand at an impressive $583 million before tax and 387 per cent, respectively, up from $283 million and 223 per cent in the company’s May 2020 PFS.
In addition, the base-case operating cash flows have swelled to almost $40 million per annum before tax for the first five years of projected manganese production at Butcherbird.
In the latest iteration of the Butcherbird PFS released today, Element 25 tweaked the forecast base-case plant throughput to 1.3 million tonnes per annum of ore from the previous 1.2 million tonnes per annum.
The company also assumed a free on board, or “FOB” Port Hedland manganese price of US$4.37 per dry metric tonne – sourced from research and consulting group Roskill – and a life of mine of 40 years.
Significantly, Element 25 has included other-mineral and silica credits to the project’s financial mix.
According to the company, low values of certain elements that occur in Butcherbird manganese ores compared with generally available manganese ores on world markets mean Butcherbird ores may offer a distinct pricing advantage, especially against similar medium-grade manganese ores.
Element 25 has factored the potential price premium into its PFS financial modelling using a formula that is supported by commercial discussions with offtake partner OM.
The credits it has applied to 85 per cent of the project’s forecast annual manganese production equate to approximately US$0.65 per dry metric tonne – not a drop in the ocean.
As a result, the company has lifted anticipated base-case operating cash flows before tax in the first five years of Butcherbird production to $39.6 million in the December PFS, up from $32.1 million per annum as calculated in the PFS six months ago.
Annual manganese lump concentrate estimated to be produced has also been increased, to 365,000 tonnes from 357,000 tonnes at the same predicted average concentrate grade of 33 per cent manganese.
Pre-production CAPEX has edged up to $17 million from a gobsmacking low of $14.5 million courtesy of a mining camp being included in the new base case, although the expected working capital requirement has fallen to $3.2 million from $9.3 million.
Capital payback period remains at a staggering six months, and production start-up at the planned Butcherbird mining and beneficiation operation continues to be scheduled for the first quarter of calendar 2021.
All-in sustaining operating costs for the first five years of manganese production at Butcherbird have been estimated to average a slightly improved US$2.91 per dry metric tonne FOB Port Hedland, predicated on costs derived from Element 25’s comprehensive mining and ore haulage contracts tender processes.
The company says the new numbers point to a low-cost operation that will hold its own throughout the manganese price cycles.
It recently struck a take-or-pay offtake agreement to supply all the manganese lump concentrate produced at Butcherbird – for an initial five years or covering “stage one” operations – to OM Materials, a subsidiary of ASX-listed and Singapore-based integrated manganese and silicon company OM Holdings.
Element 25 has also incorporated a couple of production expansion scenarios – for between year two and year five of proposed operations – into PFS mark II. To that end, it says the start-up mine site layout and infrastructure have been designed to allow expansion options.
The expansion cases assume a doubling and tripling of annual plant throughput rates over the base case, with the projected mine lives reducing accordingly and the corresponding project economics increasing appreciably.
Under the expansion option of 2.6 million tonnes per annum of ore throughput and production of 590,000 tonnes per annum of manganese concentrate over a 20-year mine life, the Butcherbird before-tax operating cash flows jump to $60.2 million a year and the NPV to an eye-catching $926 million, while the IRR eases slightly to 342 per cent.
The company also evaluated an expansion option comprising 3.9 million tonnes per annum of ore throughput and production of a whopping 852,000 tonnes per annum of manganese concentrate over a 15-year mine life. On the basis of that permutation, the Butcherbird operating cash flows before tax climb to $78.8 million a year, the NPV to $1.13 billion and the IRR to 359 per cent.
Element 25 says the updated PFS confirms Butcherbird’s proved and probable ore reserves position of 50.55 million tonnes grading 10.3 per cent manganese containing 4.27 million tonnes of recoverable manganese.
Most manganese ores are used to produce manganese alloys, which are predominantly used by the steel industry to strengthen steel. A smaller proportion of manganese ore goes towards producing high-value electrolytic manganese metal, while silicomanganese alloys have experienced the most significant market growth, according to the company.
Element 25 has indicated the possible development of an electrolytic manganese metal and high purity manganese sulphate plant at Butcherbird, designed to produce battery-grade manganese, will be the subject of separate studies down the track.
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