Plymouth Minerals: Morille Tungsten offers low cost development pathway
By Proactive Investors August 07 2014, 9:05am
proactiveinvestors.co.uk
Plymouth Minerals ( ASX:PLH) has reported bullish assay data from multiple prospect areas within its brownfield Morille Tungsten Project in Spain. Early work programmes are indicating potential for annualised output of 100,000 MTU’s of ATP valued at US$38.8 million.
A first pass drilling programme seeking very shallow tungsten values across 6 of 16 historic mines contained within the Morille Project area may exceed earlier conceptual resource targets of 4 – 11 million tonnes grading 0.25% - 0.5% WO3. Historic tin production (poorly recorded) on site as well, but main economic value is tungsten.
The Morille Project area was historically mined by small groups of undercapitalised miners who typically operated within small tenements of typically less than 10 hectares and at very shallow depths. Production data show that that Morille produced high grade tungsten concentrate that was well received by global markets.
First pass drilling is indicating that historic mining boundaries were constrained by small tenement holdings as well as limited access to capital and that mineralisation extends well beyond mined areas.
Peer group tungsten miners and developers that are proximate to Morille are reporting cash operating costs that are as low as US$120 –US$130 per Metric Tonne Unit “MTU” of Tungsten Paratungstate (APT) or WO3, which currently sells for US$388 per MTU. This has resulted in current operating margins that are as high as 70% and feasibility studies for new projects with Internal Rates of Return as high as 52% (see Analysis and Valuation).
High margins that are targeted are being driven by the strategic nature of tungsten and growing demand that is currently controlled by China with 85% of the market.
High margins at Morille will also be driven by the shallow nature of the resources and the simple and low cost gravity methods that are needed to produce high quality tungsten concentrate.
Peer group valuations for established Spanish and Portuguese mid-tier tungsten miners and developers of significant resources fall into a range of $29.3 - $38.4 million, and for exploration assets of ~$6.5 million. Proactive Investors notes that Plymouth currently carries an Enterprise Valuation of $1.4 million for its Morille Project and forecasts a 12 month price target of $0.25 per share (see Analysis and Valuation).
ASX Code: PLH
Recommendation: Speculative Buy
Sector: Materials
Share Price: $0.08
52 Week -: High: $.17/Low: $.04
Issued Ordinary Shares: 32.2M
Options: 14.4M
Cash: $1.2M
Market Cap: A$2.6M
Enterprise Value: $1.4M
BACKGROUND - BROWNFIELDS DEVELOPMENT OF HISTORIC TUNGSTEN MINES
Plymouth Minerals ( ASX:PLH) is an ASX listed exploration and development company that is focused on developing brownfield tungsten and tin resources that are located in Spain. Plymouth is currently evaluating the Morille Tungsten Project that has near term production potential, and may allow the Company to evolve into a mid-tier tungsten producer. Cash flow from Morille will serve as a springboard for the acquisition and development of additional tungsten resources that are located in Spain and Portugal.
MAP ONE: THE MORILLE TUNGSTEN PROJECT IS LOCATED IN AN AREA THAT HOSTS SIGNIFICANT TUNGSTEN RESOURCES AND MINES
MORILLE TUNGSTEN AND TIN PROJECT
Plymouth has acquired an 80% interest in the Morille Tungsten and Tin Project via its subsidiary Morille Mining SL from Aurum Mining PLC ( AIM: AUR) which retains a 20% interest. Morille was acquired in October of 2013 for a total consideration of €300,000 / A$434,800 of which €250,000 has been paid, and the balance of €50,000 / A$72,300 will be paid in Plymouth shares in October of 2014.Aurum will be “free carried” until a Decision to Mine is announced, and will then contribute on a pro-rata basis towards the cost of developing a mine and mining operations for a 20% share of equity and profits. Aurum can elect not to fund its share of development costs and dilute to a 0.5% Net Smelter Royalty. An additional 1.5% Net Smelter Royalty is also payable to the original vendor once production of tungsten and tin are underway. Plymouth has the right to purchase Aurums residual stake at anytime until Decision to Mine for £2.5 million. Plymouth also has a first right of refusal over any sale of the interest held by Aurum.
The Morille Project covers 57 square kilometres of low value farmland that include a number of historic tungsten and tin mines and is proximate to the Barruecopardo tungsten project and Los Santos tungsten mine and other tungsten prospects. Morille is 20 kilometres from Salamanca (population 100,000) with excellent mining, administrative services and trained low cost labour. The project also has the full support of the local community and is located in a jurisdiction that is conversant with the fast tracking of mining approvals.
MAP TWO: MORILLE TENURE, HISTORIC MINE LOCATIONS AND PRIORITY EXPLORATION AREAS
HISTORIC ACTIVITY WITHIN THE PROJECT AREA
The project geology consists of Pre-Cambrian Age sediments that have been deformed and metamorphosed. These include calc-silicate horizons that host tungsten and tin mineralisation that vary in thickness from one to tens of metres.
Later stage, vein hosted cross cutting has been overprinted that also carries tungsten and tin and occurs predominantly in the western part of the project area.
Historical mining occurred on areas where tungsten and tin mineralisation outcropped at surface, and include 33 documented mineral occurrences within the project area. Underground mining was carried out by small groups of undercapitalised miners that operated on areas of typically less than 10 hectares and at shallow depths of usually less than 20m and rarely up to 70 metres in some underground shafts. Open pit mining occurred from 1980 to 1986 and focussed on the Algeria Mine area. Operations ceased due to low tungsten prices and multiple resources remain in place.
Mineralisation was mostly coarse scheelite (tungsten) with smaller amounts of casserite (tin). The Alegria Mine production was treated using a coarse crush and jig tables to produce a high grade concentrate. This concentrate typically exceeded 70% contained WO3 at high recoveries and low impurities. Additional process facilities were located within the project adjacent to Mundaca and narbellas mines. Historic records and off-take agreements with international entities confirm that Morille produced a very high grade, and low impurity concentrate with the use of very low cost and simple gravity separation technology.
RECENT DUE DILIGENCE COMPLETED BY PLYMOUTH IDENTIFIES OPEN PIT TARGETS
Plymouth has completed early stage geophysics work along with 61 drill holes for 3,982 metres that tested 6 of 16 known historic significant mines within the Morille Project area. First pass drilling is aimed at identifying shallow mineralisation that is within 50 metres of surface and is amenable to open pit mining.
PHOTO ONE: DRILLING AT MINAS ALEGRIA WITH RUINS OF HISTORIC PROCESS PLANT IN THE BACKGROUND
MAP THREE: DRILL COLLAR LOCATIONS FOR FIRST PASS DRILLING PROGRAMME WITHIN THE ACMA PROSPECT AREA
First pass drilling at Minas Alegria covered an extensive area that is measured at approximately 575 metres by 250 metres. Minas Mundaca covered 300 metres by 50 metres and Claudina covered 100 metres by 75 metres. All three of these prospects are contained within the ACMA prospect.
Evaluation of historic data noted that tungsten mineralisation is in sub horizontal stratiform layers with localised high grades that may reach 1.0% WO3. Typical tungsten mineralisation is found in horizons that are several metres thick and carry a WO3 grade of 0.2 – 0.4%.
This drilling has already identified tungsten (scheelite) mineralisation that is typically white in colour and occurs in deposited carbonate rich layers. Some of these layers have been folded and require that drill holes targeted into folds be inclined to better evaluate the width of the mineralised formation.
A shallow first pass drill programme was also completed at the Westside prospect which evaluated the Anarbellas Mine and the lode system at the Toro de Nueva Banco Mine.
PRIORITY EXPLORATION PROSPECTS AND CONCEPTUAL TARGET SIZES
Plymouth has identified a number of priority open pit targets with conceptualised mineral potential to a depth of 150 metres. Conceptual potential derived from evaluation of historic data:
Alegria with historic production of 0.25 million tonnes, hosts conceptual potential for 1.5 – 4.0 million tonnes of WO3 at a grade of 0.3 – 0.5% from stratiform formation.
Mundaca and Claudina with historic production of 0.3 – 0.6 million tonnes, hosts conceptual potential for 1.5 – 3.0 million tonnes of WO3 at a grade of 0.2 – 0.5% from stratiform formation.
Anarbellas with historic production of 0.2 – 0.3 million tonnes, hosts conceptual potential for 0.5 – 1.0 million tonnes of WO¬3 at a grade of 0.2 – 0.5% from stratiform formation.
Westside (excluding Anarbellas) with historic production of 0.2 – 0.3 million tonnes, hosts conceptual potential for 0.5 – 3.0 million tonnes of WO3 at a grade of 0.1 – 1.0% from lode system.
Historic production measured at close to1 million tonnes of ore grading 0.1-1.0% WO3 ¬from these four producers with remaining conceptual potential of 4 – 11 million tonnes at a grade of 0.25 – 0.5% WO3.
RECENT ASSAY RESULTS RE-INFORCE BULLISH UPSIDE TO CONCEPTUAL TARGET SIZES
MAP FOUR: WESTSIDE PROSPECT DRILLING REVEALS OPEN NATURE OF MINERALISATION
Drilling at the Anarbellas Mine and the Torre de Nueva Banca Mine may exceed conceptual potential.
DIAGRAM ONE: MINAS TORO DE NUEVA BANCA
Note the multiple and open shallow lodes that have been identified, and the larger and richer lode identified at drill hole WES RC 046 which intersected 4 metres at 1.29% WO3. This drillhole was located approximately 400m from other high grade intercepts such as 7m @ 1.28% WO3 in WES-RC-40, which intersected a different mineralised structure (Anarbellas Mine)
Drilling at and around the Alegria open pits (T1, T2, and T3) has confirmed and extended the presence of tungsten mineralisation, and has potential for development of a single and much larger open pit.
Plymouth advises that this drilling supports the size of conceptual resources estimated of 4-11 million tonnes, and that upside exists in additional identified additional areas.
METALLURGICAL TEST WORK UNDERWAY
Plymouth has extracted 11 tonnes of crushed and uncrushed “Run of Mine” ore from open pit areas at Minas Alegria and delivered the material to Independent Metallurgical Operations Pty Ltd of Perth for metallurgical test work. Initial work involves the identification of mineralogy, followed by Heavy Liquid Separation and size fraction test work.
CATALYSTS FOR NEAR VALUATION GROWTH
Preliminary JORC compliant resource estimates completed in 2nd half of calendar 2014.
Preliminary Economic Assessment completed in in 2nd half of calendar 2014.
Secure broker support, add to management team, and commence strategic partner discussions in 2nd half of calendar 2014.
Possible AIM listing and announcement in 2nd half of calendar 2014.
Possible strategic or industry partner in 1st half of calendar 2015.
Advance Morille to development stage and secure additional tungsten development opportunities in 2015.
DEVELOPMENT SCENARIOS FOR MORILLE
Plymouth is evaluating two development scenarios for Morille:
A stand-alone plant capable of processing 450,000 tonnes per year of ore grading 0.35% WO3 to produce 100,000 MTU. At current ATP pricing this equates to gross revenues of US$38.8 million. CAPEX for this plant is estimated at €18 million / US$24 million.
A satellite mine that produces a pre-concentrate or preliminary concentrate that is trucked to multiple plants that are located within a 75 kilometre radius, and are accessible via sealed roads.
Ore will be derived from shallow open pits of less than 60 metres depth, and utilise low level technology for simple crushing, coarse grinding, and gravity separation of scheelite. Significant scope is available to increase size of resources and production levels from exploration and consolidation of proximate resources that are fragmented and privately owned.
SPAIN
Spain experienced a prolonged recession in the wake of the 2008 global financial crisis that continued into 2013 when unemployment reached 26% and GDP contracted by -1.3%. Per capita GDP is estimated at US$30,100. The Government continues to introduce market reforms to stimulate the economy that saw the Markit PMI hit 54.6 in July of 2014. This was at a 7 year high and shows expansion within the manufacturing sector is now underway.
The Fraser Institute “Mining Policy Potential Index” for 2012 / 2013 which surveyed global mining entities ranked Spain at 48 out of 96 countries (and states) and placed the nation ahead of Tasmania but behind New South Wales in potential competitiveness.
The Spanish Government is very supportive of mining development and has developed a clear statutory and procedural process for instigation of mining projects and ongoing production. The tax rate on mining companies is at 25% and no state royalties are collected on mineral production. High unemployment and low labour costs also provide additional incentives for miners to develop projects.
GLOBAL MARKET FOR TUNGSTEN
The current global market for tungsten metal is measured at around 80,000 tonnes per year (over 100,000t of WO3) and generates approximately US$3.1 billion in revenues.
Tungsten is a critical strategic material that is utilised to create alloys for specialty steels and cemented carbide which are hardmetals that consist of very hard tungsten monocarbide grains in a binder matrix of cobalt or nickel alloys. There are currently no substitutes in these applications that absorb approximately 75% of all tungsten production.
Alloys include stellites of cobalt, chromium and tungsten that are used in bearings, valve seats, pistons, mill liners, and saws.
The mixing of tungsten with up to 16 elements to create super alloys that are used to manufacture turbine blades in jet engines, marine vehicles, and electric power generator plant.
Tungsten heavy metal alloys that include nickel and iron or nickel and copper that are utilised as counterweights in aeroplanes, helicopter blades, x-ray and gamma ray radiation shielding, counterweights in sporting equipment, as well as in ordinance for fragmentation effect.
Wear protection that is applied by plasma arc welding to create coatings on bearings, dies, rolls and gauges.
Diamond tools that cut stone, diamond drills to penetrate and extract core from geologic formations and for oil and gas drilling.
China has (since 1985) produced approximately 85% of the global supply of tungsten, and is now imposing export quotas as well as becoming a net importer of tungsten in concentrate form. Long term supplies into the European Union, United Kingdom, Japan and the United States are now considered to be at risk, and tungsten is now classified as a strategic metal.
DIAGRAM TWO: PROJECTED PRICE RANGE FOR ATP PRICING UP TO 2023
Demand is forecast to outstrip supply and expected to push ATP prices above US$480 per MTU in 2016. The most liquid market for tungsten is as Tungsten Paratungstate “ATP” which is traded in “Metric Tonne Units” or MTU’s. A Metric Tonne Unit weighs 10 kilograms and contains 7.93 kilograms of tungsten in the form of Tungsten Trioxide or WO3.
ANALYSIS & VALUATION
Plymouth Mining Ltd has a market cap. of $2.6 million, of which $1.2 million is cash and places an Enterprise Value “EV” of $1.4 million on its Morille tin and tungsten project in Spain.
A relevant peer group comparison can be made with other tungsten resource developers and producers that are proximate to the Morille project in Spain and Portugal.
PEER COMPARISON
Almonty Industries (TSXV: ALL) has a market capitalisation of A$29.3M and owns the Los Santos Tungsten Mine that is located 30 kilometres from Morille. Los Santos has a Canadian NI43-101 Compliant Reserve and Resource of 8.1 million tonnes at a grade of 0.27% WO3 for 21,989 tonnes of WO3.
The Company is currently mining at a rate of approximately 110,000 tonnes per quarter / 440,000 tonnes per year at a grade of 0.32% WO3 and recovery of 61.7%, and is aiming at an operating cost of US$120 to US$130 per MTU over the life of the mine. Almonty reported an ATP sales price average of US$370 per MTU over the last March quarter and an operating margin of 70.4% on gross revenues of C$5.86 million / A$5.8 million.
Ormonde Mining plc ( AIM:ORM) has a market capitalisation of A$32.2 million and owns the Barruecopardo project that is located 75 kilometres from Morille. Barruecopardo has Reserves and Resources of 36.1 million tonnes at 0.30% and 0.26% WO3 for 97,234 tonnes of WO3. ¬
Ormonde has completed a Bankable Feasibility Study that projects a cash cost of US$129 per MTU of ATP for an annualised output of 227,000 MTU, and produces an Internal Rate of Return of 52% at current ATP prices. Capex is estimated at €48.5 million / A$70.3 million with payback in 24 months.
W Resources Plc ( AIM:WRES) has a market cap. of A$38.4 million. W Resources has set up a tailings retreatment plant at La Parrilla which is located 200 kilometres from Morille. La Parrilla contains 2.5 million tonnes of tailings that include Reserves of 1 million at 0.12% WO3 for 12,000 tonnes of WO3. La Parrilla also includes a hard rock Resource of 47 million tonnes grading 0.09% WO3 for 39,882 tonnes of WO3 and 4,270 tonnes of Sn (tin) that will be developed after the tailings are reprocessed.
Capex was established at €1.8 million for a tailings process plant capable of outputting 28,000 MTU per year that will be sold into the spot market or by off-take agreement. Production is already underway with a ramp up to full capacity expected in the final calendar quarter of 2014.
Other developers in the area include Colt Resources (TSXV:GTP) with a market cap. of A$32.0 million, which is developing the Tabuaco Tungsten Project in Portugal with 2.7 million tonnes of WO3 grading 0.55% and 0.59% WO3 containing 13,350 tonnes of WO3 or 1,535,000 MTU of ATP. Technical studies indicate a cash production cost of US$201.20 per MTU and an Internal Rate of Return of 30.7%.
Peer group leader within the tungsten space must go to Wolf Minerals ( ASX:WLF, AIM:WLFE) with a market cap. of $246.4 million and is developing the massive Hemerdon Tungsten Mine in the United Kingdom with JORC compliant Reserves and Resources of 428.0 million tonnes of WO3 at a grade of 0.13% - 0.19% for 572,550 tonnes of tungsten. The current Enterprise Valuation on this fully funded mine is $430.36 per tonne of Reserves and Resources.
Wolf Minerals management point out that Hemerdon will produce 3,450 tonnes of WO3 per year, and that projected global demand for tungsten will require the addition of one Hemerdon Mine each year. Blackheath Resources (TSXV:BHR) capitalised at A$7.4 million is an early stage explorer that owns five historic tungsten brownfield sites all located in Portugal. The most advanced prospect is at Covas where Union Carbide identified non-compliant resources in the 1980’s of 922,900 tonnes of WO3 grading 0.78% WO3.
At the current market cap. of $2.6 million, Plymouth Minerals is the most undervalued tungsten developer within its peer group. In addition, a significant portion of that is cash, valuing the project and progress to date at minimal value.
Plymouth is reporting bullish drilling data from 6 of 16 historic mining sites and is evaluating conceptual tonnage ore targets that may exceed the 4 -11 million tonne range and carries an Enterprise Valuation of $1.4 million for its tungsten assets.
Blackheath carries an Enterprise Valuation of $6.5 million for early stage brownfield tungsten assets and Proactive investors believe that Plymouth should carry a similar valuation. On this basis we assign a near term valuation of $8.2 million (EV of $6.5 million and cash of $1.7 million) for $0.25 per share.
A continuing flow of positive news from exploration work, technical work and a firm ATP price will underpin the share price and should drive it toward our near term price target. Additional valuation upside will be driven by the definition of higher grades and growth of tungsten resources.
A further upward revaluation should occur within 12 months as Plymouth firms up resources and commences feasibility studies for up to 100,000 MTU per year. Funding for production at this level should push the Enterprise Valuation towards A$30 million. |
