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Stellar Resources' Heemskirk Tin Project could become second largest tin mine, competitive cash costs

Robust mining parameters forecast in the Scoping Study for the Heemskirk Tin Project in Tasmania, including cash costs of US$12,780/t versus assumed tin price of US$25,000/t, would provide strong profit margins for Stellar Resources.
Stellar Resources' Heemskirk Tin Project could become second largest tin mine, competitive cash costs

Stellar Resources (ASX: SRZ) has given the green light for the Heemskirk Tin Project in Tasmania after a Scoping Study indicated strong profit margins based on cash costs of US$12,780 per tonne.

A projected 21% internal rate of return and 3.5 year payback at a long-term tin price of US$25,000/tonne (US$22,500/t net of treatment charges) will see Stellar immediately move to the Pre-Feasibility study to develop Heemskirk.

An annual tin production of 3,900 tonnes would rank the project second only to Metals X's (ASX: MLX) Renison Bell mine in Australia.

Independent mining consultancy Mining One conducted the study and identified a A/US$12,780/t cash cost of tin in concentrate production positions the project competitively on the industry cost curve, and a cash operating margin of US$9,720/t or 43% on revenue net of smelting and refining charges has been forecast.

Life of mine revenue has been estimated at $673 million (100% basis) net of smelting and refining charges and a 600,000 tonnes per annum (tpa) throughput for 7.6 years will provide economies of scale.

Heemskirk is on track for production in 2014 subject to the timing of government approvals and financing.

Peter Blight, Stellar's CEO, said “the scoping study highlights the importance of Heemskirk’s high grade in providing a competitive cost structure for an underground tin mine. This also underpins a positive economic outcome on a standalone operation."

The resource base at Heemskirk is likely to increase significantly. As well the company will investigate the potential for by-product lead and silver production.

The project benefits in terms of reduced capital costs from excellent infrastructure with close access to a power transmission line, water and a sealed road from site to the port of Burnie 130 kilometres away.

Over the next six months, the Pre-Feasibility Study (PFS) will focus on continued drilling to upgrade and expand the resource estimate, exploration for a fourth deposit on the retention licence and assessment of the lead/silver potential.

The company said scoping of project environmental parameters is now underway and should benefit from the fact that all planned operations are within a zone of historical mining. There will also be continued metallurgical assessment of all three deposits.

Development concept

The development concept envisages a small open cut to recover near surface mineralisation from the Queen Hill deposit with contemporaneous underground development of Queen Hill, Montana and Severn.

A single portal to the north of the Queen Hill pit would serve all three declines.

The open cut would also provide access to potential remnant and new positions of high grade silver and lead mineralisation from historical mining and stope fill material.

In the 1890s, Zeehan was a major silver and lead mining district ranking second in production to Broken Hill.

Geotechnical studies support cut and fill underground mining. Mine planning assumes that mine design and dilution will reduce the available tin by about 15%.

There would appear to be considerable potential to increase the mine life through ongoing drilling.

The scoping study includes a processing plant designed to produce 3,900 tonnes of tin in concentrate annually. The first stage of the plant includes crushing, pre-concentration using heavy media and grinding.

This circuit should reject up to 20% of the feed with minimal tin losses and should significantly reduce costs in the concentrator.

Subsequent processing stages include sulphide flotation, gravity separation of coarse tin, desliming, tin flotation and acid treatment of concentrate to produce a saleable 50% tin concentrate at target recovery of 70%.

In March a JORC Indicated and Inferred Resource of 4.4 million tonnes at 1.1% tin with 49,000 tonnes of contained tin was reported for the Queen Hill, Montana and Severn deposits within the Heemskirk project.

Stellar holds a 60% interest in Heemskirk with Gippsland (ASX: GIP) (FRA: GIX) holding the remaining stake, where Stellar can increase its holding to 70% by completing the Feasibility Study.

Comment

The life of mine gross revenue of $673 million (100% basis) net of smelting and refining charges, or $88.5 million per annum, is significantly higher than Stellar Resource's market valuation of circa $15.2 million, and indicates there is significant long term upside in Stellar's market value and rating.  It is also significantly undervalued in terms of its peers.

The resource grade of 1.1% tin is the highest grade of any Australian listed tin company other than Metals X's Renison Bell mine, under-pinning the project's competitive cost structure.  The estimated cash cost places the project at the low end of the range for hard‐rock underground operations.

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