Andromeda Metals Ltd (ASX:ADN) continues to make progress on a definitive feasibility study (DFS) for the Great White Kaolin Project in South Australia and has formulated a new timetable.
Significant optimisation work and scenario analysis is being conducted in an effort to unlock maximum shareholder value at Great White, including analysis of the optimal CRM™ and PRM™ product mix along with the potential incorporation of low start-up cost direct shipping ore (DSO) prior to construction of a wet processing plant.
The inclusion of the new higher value PRM™ product in addition to the CRM™ product has required material changes to the mine plan, processing plant and logistics but creates a diversified, de-risked project with more avenues to market.
The Mining Lease Application approval process is continuing with a response from the regulators anticipated later this year.
Enhanced development optionality
Also, the proposed Minotaur transaction and resultant consolidation of Great White ownership provide enhanced development optionality, which will be considered in the DFS, but will also impact the timing of the release.
Pleasing progress continues to be made across Andromeda’s other initiatives with studies underway on other higher-value products including HPA, concrete and cosmetics.
To optimise the multi-product DFS, further time is required to incorporate all of the advantages of 100% ownership and complete further scenario and optimisation analysis on product mix to ideally balance NPV, funding and risk.
As a result, the DFS release has been deferred to the first quarter of 2022.
DFS timetable
The DFS will incorporate the following:
- The bottom-up work required for a multi-product (CRM™ plus PRM™) development;
- Further analysis of the benefits of DSO incorporation;
- Further analysis on the optimal product mix;
- The value versus risk trade-off; and
- The optionality that comes with 100% ownership of Great White.
In deciding to delay the release of the DFS, Andromeda had to balance the drawbacks of a timetable delay with the benefits of ownership consolidation, further project value optimisation and the inclusion of other opportunities, all factors capable of unlocking significant value for Andromeda and Minotaur shareholders.
DFS update
Andromeda has undertaken significant work on the DFS and has made considerable progress since securing its major paints and coatings product (PRM™) offtake agreement in June 2021, as well as its previously announced premium ceramic product (CRM™) offtake agreement in March 2021.
An offtake agreement with Jiangsu Mineral Sources International Trading Co. Ltd (MSI) has provided the company with the opportunity to produce and sell a higher value PRM™ product in addition to CRM™.
This diversified product mix has required some fundamental changes to the single product pre-feasibility study (PFS) released in June 2020.
To facilitate the production of CRM™ and PRM™, significant changes have been made to the mine plan, processing plant and transport logistics.
As such, the DFS is not a simple update nor capable of simple comparatives to the PFS, but rather a new bottom-up study that has required and continues to require significant work and analysis to understand the optimal development pathway and product mix.
One key consequence of incorporating the flexibility to produce the higher value PRM™ product in addition to CRM™ product, is increased upfront capital expenditure to account for a multi-product processing plant.
Whilst this change increases the upfront expenditure requirement, the overall project economics may benefit from several factors including:
- Stronger early cash flow from the incorporation of a second and higher value refined product (PRM™);
- A multi-phased processing plant development approach, reducing the upfront capital expenditure burden and associated funding requirement. Second phase growth is expected to be supported by project cash flow;
- A processing plant optimised to produce a diversity of products for different applications, currently being studied by the company;
- Full control over product production quality to ensure consistent premium grades - The potential early inclusion of a lower capital expenditure DSO production component. Andromeda has made considerable progress with potential DSO offtake partners over the last three months and the inclusion of DSO would provide solid early cash flow, which could be deployed to fund the capital cost of the process plant; and
- Potentially more attractive finance terms (if debt finance is required) due to the existence of binding offtake agreements and lower project risk due to the diversified product base.
Andromeda is continuing to work through various development scenarios, the optimal product mix balance, the timing of any DSO inclusion, further offtake opportunities and the optimisation of costs to balance risk, funding, Investment Rate of Return (IRR) and Net Present Value (NPV).
Approvals
Following public consultation on the Mining Lease Application, the company provided a formal response to all comments raised on July 15, 2021 to the regulator, South Australia’s Department for Energy and Mining (DEM).
DEM is currently assessing the application.
The previously advised timeline was for a decision on the Mining Lease Application to be received from DEM in late 2021.
In the next stage following DEM providing the Mining Lease conditions, the company can complete the second stage of the approvals and submit the Program for Environmental Protection and Rehabilitation (PEPR).
Land access negotiations are at an advanced stage following several recent meetings between the company and landowners.
Metallurgical understanding
Significant work has been undertaken to concentrate and refine the Great White kaolin to produce the PRM™ product. Laboratory test-work confirming refining and recoveries of the Great White kaolin have been very successful.
Recommissioning and upgrading the pilot plant to replicate the proposed flow chart has occurred and batches of refined PRM™ have been supplied to offtake partners.
Geological update
Additional exploration work has supported Andromeda’s confidence in the high quality of the Great White Deposit.
The findings of the metallurgical investigations have been used to update the block model to include additional fields to target the PRM™ feed.
Mining
Using the updated geological model, the mine plan has been reviewed and is being rescheduled to accommodate the new product mix for PRM™, CRM™ and DSO options.
To target the PRM™ feed, the starter pit location has been moved to the north in an area called the Dorsal fin.
Infrastructure
To incorporate the PRM™ product, in addition to the CRM™ product, certain site facilities required a redesign, specifically the processing plant. The new flowsheet provides for the production of the PRM™ and CRM™ concurrently with a focus on quality and recovery.
Ancillary infrastructure, offices, sheds, water treatment and fuel storage designs are being finalised to DFS standard.
Processing
Several scenarios for mine production and processing have been considered to provide the best project balance.
Understanding the refining and recovery resulted in a larger phase 1 plant size of 300,000tpa which provides for the optimised production of products at the specification required to fulfil the current customer offtakes.
DSO
A parallel study is being undertaken to establish the economics of direct shipping ore (DSO) mining, logistics and timing.
DSO provides for an opportunity to bring cashflows forward into the project at an earlier stage, which could then be deployed to the capital cost of the processing plant.
Funding
Engagement with debt financiers is continuing, whilst recognising the project requirement for finance could be significantly diminished through the inclusion of DSO.