Celamin Holdings (ASX: CNL) has an immediate focus is the Bir El Afou Phosphate project held in partnership with local company Tunisian Mining Services. The company has currently targeted first mine production by the end of 2013.
The Celamin portfolio is led by phosphate and supported by base and precious metals. Projects are located where the mining law is clear and the development path well defined, with mining operations having been successfully undertaken in Tunisia and Algeria for many years by local and foreign entities.
Celamin Holdings emerging phosphate producer under the radar for some investors, but not all
With Commonwealth Bank of Australia lifting its stake in Celamin further in June, and African resources investor Lion Selection Group holding 14.5%, the future looks bright for this phosphate explorer planning for phosphate production.
Celamin Holdings NL (ASX: CNL), formerly known as Victorian Gold Mines, has been busy on a number of fronts of late in Tunisia and Algeria.
The company is in the midst of acquiring Celamin Ltd, which has interests in a number of exploration permits that include two large phosphate projects in Tunisia called Bir El Alfou, and Chaketma, with conceptual potential to host from 230 to 320 million tonnes of P2O5 at grades of 17 to 22% P2O5.
The Bir El Alfou Phosphate Project, located in Western Tunisia, is a joint venture between Celamin Ltd and Tunisian Mining Services, with an 80%/20% split.
Celamin will be responsible for an earn-in that will fund and complete a Bankable Feasibility Study, at which time each partner will hold an equal 50% interest.
Celamin expects to complete due diligence and Pre-Feasibility Studies by September of 2011.
The conceptual target size at Bir Alfou is 80 to 120 million tonnes at 17-22% P2O5.
This potential resource is distributed amongst a number of targets including the Salsala Prospect, which is located at the north-eastern end of the exploration permit, and hosts a strike line of exposed phosphate mineralization extending for 2,500 metres.
Drill holes, trenches and pits have identified additional phosphate mineralization along a total strike line of at least 3,500 metres, within a plus 500 metre wide corridor.
The main Bir El Alfou Project is located along strike to the south-west and is made up of the Zebouli, BEA, and Boukechrid Prospects that all carry phosphate mineralization over a multi kilometre area.
The company is currently operating two drilling rigs that will be able to define a maiden JORC Resource within the next four months.
The local infrastructure includes a drilling base managed by Tunisian Mining Services, along with accommodation and other services at the nearby town of Tajerouine.
Potable and process water is supplied from a local aquifer located on the exploration permit.
Celamin has already commenced transportation and engineering studies on the project that include discussions with the local rail line, and coastal port operators.
The first production stage is currently estimated to produce 1.5 million tonnes per year of +32% P2O5, from a resource target measuring 23 to 27 million tonnes of 17 to 22% P2O5.
The major use of phosphorus compounds is in fertilizers, mainly as a mixture called superphosphate (calcium hydrogen phosphate), obtained from phosphate minerals by sulfuric acid treatment, and in nitrophosphates.
The company has budgeted $1.5 million to complete the current Pre-Feasibility Study (PFS), and then expects to follow with a Bankable Feasibility study extending over a period of 12 to 15 months, at a cost of US$4.5 million.
Project development is expected to absorb US$45 million, plus working capital, over a timeline of 12 to 15 months.
Phosphate production is expected to commence at the end of calendar 2013, with projected EBITDA of +US$50 million per year, making the project extremely profitable.
A Memorandum of Understanding with a major un-named international fertilizer company has been executed, who will contract to take all of the production from Stage One, and future capacity upgrades from the project at market price.
The agreement is progressing to full agreement.
The fertilizer company has also agreed to make financial contributions to cover past expenses and ongoing studies, and to take an equity stake of 12.5% in Celamin Holdings NL.
Field activities for the PFS in the Bir El Afou permit led by Tunisian Mining Services personnel and equipment were curtailed by the events that occurred in January 2011 in Tunisia.
Chaketma Phosphate Project
Celamin Ltd has a second Tunisian phosphate joint venture with Tunisian Mining Services called Chaketma that is contained within 56 square kilometre area, and carries conceptual targets with potential to host 150 to 200 million tonnes of P2O5 at grades of 17 to 22%.
Celamin holds an 80% interest in the 3 year exploration permit, and has already identified multiple exploration targets with an initial focus at the Gasaa El Kebira Prospect.
A budget of $1.5 million has been allocated to complete resource definition by 2013, with further development subject to securing an off-take agreement for phosphates.
Mapping and sampling programs will get underway in the current quarter and will focus on the definition of drilling and trenching targets.
Celamin has a 50/50 joint venture over a number of Tunisian base metals tailings Projects with Tunisian Mining services.
Celamin will contribute US$500,000 to complete due diligence studies at four mine tailings and dump sites with potential to host 2.5 to 3.0 million tonnes at 2.4% to 2.8% lead, and 2.6% to 3.0% zinc.
A $300,000 Scoping Study is planned to be completed during 2011.
A positive outcome will trigger Feasibility Studies at a cost of US$2.0 million, with completion set down for mid 2013. Development costs have been estimated at US$7.5 million, with a production start planned in 2014.
The company is currently conducting mineralogical studies at Gam Halfaya and Trozza tailings dumps that indicate the presence of galena, cerrusite and hemimorphite as the main phases.
This should allow the re-treatment of these ores utilizing proven process technology, with plans underway to conduct floatation test-work to extract lead and zinc oxides.
The last Tunisian project is known as MGhila, and is contained within a 124 square kilometre exploration permit that hosts the El Abeied Quest, Ain Guemame, and Baten Gazel Prospects, where Celamin is currently conducting geological reconnaissance, within an exploration budget of $450,000.
Oued El Kebir Project – Algeria
A joint venture agreement has been completed on this project, with Celamin planning to sign this and commence due diligence activities.
In April, Celamin and its new wholly owned subsidiary Celamin Algeria WLL signed the earn-in agreement with Faïenceries Algériennes in Algiers.
Faïenceries Algériennes (FA) holds the rights to the Oued El Kebir Exploitation Permit near Jijel in North Eastern Algeria.
The agreement allows Celamin to earn up to 49% interest in the project. Under current Algerian law 49% is the maximum a foreign investor can invest in Algeria.
The agreement allows Celamin to earn 50% should this law change any time in the future. Initially a due diligence phase will be undertaken during which Celamin will complete a work program to confirm the intersections made in past diamond core drilling at the site.
Currently, Celamin plans to drill at least three drill holes in the latter part of 2011. Cores from these holes will be sampled using modern sampling protocols and analysed at recognised International laboratories.
Mineralogy and metallurgy will also be undertaken on these cores. All the past data will be analysed using modern computer based techniques.
This will allow a decision to be made as to whether Celamin will proceed to the next stage, a 2-staged Feasibility Study. The appropriate Algerian regulators have been informed of the agreement and the proposed program.
Kevin Nichol the chairman of Celamin commented on this agreement, saying “The completion of this agreement is particularly pleasing as it again demonstrates Celamin's continued ability to complete transactions in a timely manner.
"The OEK Project has excellent potential to develop a mining operation producing silver, copper, lead, zinc, gold and possibly baryte from an existing resource.
"This mineralisation has high silver values and the recent strong increase in silver prices has enhanced this mineralisation.”
This due diligence program comprises drilling a number of holes into the deposit to verify and complement the past drilling work. Samples from the holes will be assayed and metallurgical testwork will be undertaken.
Computer modelling of the deposit will also be undertaken. All of this work will enable Celamin to make a decision within one-year whether to commence staged Feasibility Study work.
The Oued El Kebir Project has a non compliant Inferred Resource of 11.5 million tonnes of 2.6% lead, 2.1% zinc, 0.7% copper, and 95g/t silver, where the old Soviets completed 160 diamond drill holes and underground sampling to infer the resource.
Celamin has completed a data review, and confirmed that the ore resource is easily accessed, has excellent exploration potential, and can be processed by conventional floatation technology.
The vendor has already completed road access into the property and has agreed to joint venture terms. The partners plan to complete a drilling program on the property, to confirm historical drilling data and generate a 3D computer model of the mineralization, prior to advancing the program to feasibility studies.
A budget of $600,000 has been allocated to complete due diligence by mid 2012.
A Pre-feasibility Study is planned for 2013 with a budget of US$4.5 million, to be followed by a Bankable Feasibility Study with a US$7.5 million budget which is set to complete in 2015.
Mine development is estimated at US$31 million, plus working capital, and could be completed by end of 2016.
The project is estimated to generate an EBITDA of +US$40 million per year. Celamin can earn up to a 49% interest, which is maximum permissible under Algerian law.
Analysis
Celamin Holdings NL has an issued capital of 46.6 million shares, and on completion of the acquisition of Celamin Ltd will increase to a fully diluted 162.6 million shares.
Current market valuation of Celamin is $27.0 million. Fully diluted, this would give a valuation of $94.3 million. At the end of the March 2011 quarter, the company had $2.4 million in cash, sufficient for current activities.
This is a tightly held stock, leveraged to news flow for investors.
Clearly, Celamin is a stock that deserves a place in an investors quiver. For some, given the acquisition of Celamin, the transformation to a phosphate company may not have appeared on the radar.
For other savvy investors, the upside potential has not been missed.
Lion Selection Group Ltd, Celamin’s largest shareholder has been making substantial on market purchases to increase its holding to 14.55%. Rand Merchant Bank owns 5% of Celamin.
Commonwealth Bank of Australia (ASX: CBA) has also built a stake in Celamin of 2.07 million shares or 6.02% of the company. CBA further increased its stake in Celamin in June.
Phosphate demand is driven by rising food prices and worldwide demand, with Dundee Securities of Canada recently predicting a long term bull market for phosphate with a target of C$700 to $750 per ton within 24 months.
Add in the milestones that Celamin should tick off this year at Bir El Afou Project - including the Pre-Feasibility Study completion, JORC Resource, full offtake partner agreement - and rapid valuation appreciation and upside potential becomes more apparent.
This is very bullish news for the continued development of Celamin’s phosphate assets and the future market value of the company.
