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Australian Mines secures funding and affirms Sconi cobalt-nickel production commitment

SK Innovation is likely to take all the battery-grade cobalt sulphate and nickel sulphate produced from Sconi.
Sconi project map showing proximity to Townsville port
OVERVIEW: AUZ The Big Picture
Sconi project is expected to create more than 300 fulltime jobs over 20 years
  • The Sconi project cobalt-nickel-scandium resource was upgraded to more than 75 million tonnes in February 2019
  • The project was already valued at $697 million in a November 2018 BFS
  • A long-form offtake contract with SK Innovation for battery-grade cobalt sulphate and nickel sulphate is being negotiated
  • SK Innovation's related 2018 term sheet will see it buy up all battery-grade cobalt sulphate and nickel sulphate produced from Sconi for seven years and keep a six-year option
  • Australian Mines grabbed the Flemington project last year, giving it a second feed for Sconi production
  • Last week the company pulled in $5 million to back Sconi and Flemington development and resource expansion

What does Australian Mines do?

Australian Mines Limited (ASX:AUZ) (FRA:MJH) (OTCMKTS:AMSLF) specialises in exploration and development of mining projects in Australia. It is run by Benjamin Bell, a geologist and geophysicist who has 20 years of experience in the minerals industry.

What does Australian Mines own?

The key asset is the Sconi Cobalt-Nickel-Scandium Project in North Queensland, which has been given prescribed project status by the Queensland Government and is expected to generate hundreds of jobs.

This project is at Greenvale where 15,000 tonnes of cobalt and 327,000 tonnes of nickel were mined historically at Greenvale nickel mine and Brolga mine.

Australian Mines captured attention last month with Sconi after upgrading the project resource to more than 75 million tonnes.

The resource upgrade took into account results from an expansion drilling program that delineated consistent high-grade nickel and cobalt zones, with some assays improving on the tenor of past results.

Greenvale nickel deposit is now 24.4 million tonnes in situ, up 63.2% from 14.95 million tonnes, while the adjacent Lucknow deposit is now 14.62 million tonnes, up 94.6% from 7.51 million tonnes.

The improved resource estimate is expected to have a positive effect on the economics of the development.

Sconi has already been dubbed one of the most competitive cobalt-producing nickel operations in the world by commodity research specialist CRU International in an independent nickel and cobalt sulphate market study commissioned by Australian Mines.

The study’s findings were published in February 2019 and forecast the 2025 value-adjusted business costs of Sconi would place it in the first quartile compared to other existing and proposed analogous operations globally, based on the outcomes of the base-case financial modelling in Australian Mines’ November bankable feasibility study (BFS).

The November BFS valued the project at $697 million using a net present value (NPV8) calculated at an 8% discount rate.

The after-tax internal rate of return (IRR) for the 18-year project was 15%, as a 5.2-year payback period was named for a US$974 million total capital expenditure (capex).

Sconi mine construction capex was put at US$31 million, with US$110 million of contingencies.

Its processing plant capex was US$730 million, with US$103 million of non-process capital costs.

South Korean global battery manufacturer SK Innovation Co Ltd (KRX:096770) has a production offtake agreement for all of the expected cobalt and nickel production from the project.

Negotiations are underway for a long-form production offtake contract with the manufacturer set to take all the battery-grade cobalt sulphate and nickel sulphate from Sconi.

SK Innovation can take 100% of the battery-grade for seven years and hold onto a more than six-year option.

The parties expect to finalise and execute their offtake agreement this quarter.

SK Innovation did not opt to subscribe to 669 million shares with an exercise price of 12 cents a share within the three-month window it had after the publication of the BFS.

An option exercise would have brought in $80 million this quarter.

Looking at other sources of funding, Australian Mines raised $5 million for Sconi and grabbed the whole Flemington project last year, giving it a possible second feed for Sconi production

Last week the company pulled in $5 million to back development and resource expansion at its Sconi and Flemington projects.

Perth-based Australian Mines also picked up 5.3 hectares of land 10 kilometres from Sconi project in January 2019.

The company is committed to having a predominantly residential workforce at the project, with minimal use of fly-in fly-out workers.

More than 300 ongoing fulltime jobs are expected to be created from its efforts, over a 20-year period.

Australian Mines had a strategy re-set more than two years ago, acquiring Sconi in Queensland and picking up the Flemington Cobalt-Nickel-Scandium Project in New South Wales.

The company took its stake in Flemington to 100% last year on receiving NSW State Government approval in December to acquire the whole Flemington project.

Australian Mines’ subsidiary Norwest Minerals Ltd (ASX:NWM) completed a listing on the Australian Securities Exchange last November.

The spin-out enabled its parent company to focus efforts on Sconi and Flemington while seeing gold and base metals exploration assets at Norwest’s 19 tenements in WA reach their potential.

Australian Mines used $3.7 million cash in the December quarter, including $1 million for exploration and evaluation and $1.4 million for development.

The company had $3 million as it rounded out 2018, soon boosting its coffers with a $1.9 million research and development rebate from the Australian Government.

Australia Mines then raised $5 million through a share placement to sophisticated and institutional investors last month.

The company expects $1.9 million of expected cash outflows for the March quarter and will direct its raised funds to optimising the Sconi BFS and expansion drilling at the Flemington project.

Inflection points

  • Formalisation of SK Innovation binding term sheet as a production offtake agreement

  • Economic improvements from Sconi BFS optimisation work and future JORC upgrades

  • Milestone hits and resource upgrades at Flemington and subsidiary Norwest’s projects

  • Major investor support through Australian Mines registry

Managing director Benjamin Bell confident of project economics

“This mineral resource update for the Sconi project is a major boost for the company’s development plans, as we head towards our target of first construction activities at Sconi later this year, pending a final investment decision on the project,” managing director Benjamin Bell said last month.

“With an updated mineral resource, Australian Mines is positioned to become a significant cobalt, nickel and scandium supplier through the Sconi project — a project that has already shown to be commercially viable via the November 2018 bankable feasibility study.

“This updated mineral resource is likely to further enhance the economics of the project, and in turn provide additional long-term benefits for our investors and offtake partner.”

 

 

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