Capital Metals PLC (AIM:CMET), a company developing the Eastern Minerals Project in Sri Lanka, has announced the results of an independent study of the project.
The development study, undertaken by IHC Mining, demonstrates "exceptional economics" resulting in a high-margin operation, enabling a short payback period, Capital Metals said in a stock market announcement.
Capital Metals said the study “provides a highly compelling investment” and noted that the long-term price assumptions used are below current prices, suggesting even more attractive economics are feasible. Moreover, the study does not take into account any potential resource extensions, which would enable the expansion of mine life and throughput, providing even further upside, the company added.
IHC Mining’s base case scenario indicated an ungeared internal rate of return (IRR) of 56% and a net present value using an 8% discount rate (NPV8) of US$155mln. The upside price scenario gives an IRR of 73% and an NPV8 of US$235mln.
The base case projects total revenues of US$645mln, operating cash flows of US$391mln and net profit of US$262mln over a 10-year life of the project period.
The staged development approach that Capital Markets intends to adopt means that the funding requirement is US$37.3mln until the project is self-funding compared to the total development capital expenditure of US$81mln.
The study assessed three development options and modelled 18 different scenarios. Given the project will be the first fully integrated mineral sands mining operation in Sri Lanka, the company has elected to take the most conservative development option.
The study is based only on an initial JORC (industry body) compliant resource of 17.2mln tonnes with an average grade of 17.6% total heavy minerals (THM). Capital Metals observed that less than 10% of the project area has been drilled to date and the current JORC Resource is from surface to a depth of three metres.
Exploration work has shown mineralisation continues beyond a depth of three metres and has identified potential new high-grade resource areas with numerous results in excess of 25% THM. The company expects to be able to upgrade the size, and potentially grade, of the resource following a drill programme scheduled for the second half of this year, which would be expected to further enhance the project’s economics, expanding both mine life and potential throughput.
The modular nature of the development would mean the company should be able to expand beyond the 1.65mln tonnes per annum envisaged for the final phase of the four-phase development programme in the event that the resource is significantly expanded.
"This study now paves the way for the company to begin engineering and procurement work for a conservative, low-risk, staged development plan which targets low capex and an early revenue model,” said Michael Frayne, the chief executive officer of Capital Metals.
"With the low capex requirement for Stage 1, which targets production and sale of a mineral sands concentrate, we have a range of financing options available to the company, for example, off-take finance with upfront payments and/or project debt.
"Given the products we will produce are facing supply constraints, we believe the base-case assumptions are conservative. With a market capitalisation today of just around 10% of the project's base case discounted NPV, the CMET [Capital Metals] equity proposition has become compelling," Frayne added.
Shares in Capital Metals were up 0.7% at 7.2p in early deals, giving the company a market capitalisation of £12.33mln.