Minbos Resources (ASX: MNB) is focused on the Cabinda phosphate project which covers an extensive 400,000 hectare across Angola and the DRC.
An Exploration target (confirmed by Coffey Mining Pty Ltd) of 333 million tonnes to 538 million tonnes with grades reported historically of around 10% to 20% of phosphate bearing material located within the Angolan licence area.
Phosphate is an essential commodity with future demand linked to the agriculture / food complex. Global phosphate consumption is forecast to grow by 45% between 2005 and 2030
Minbos Resources (ASX: MNB) is a junior Australian explorer and developer that holds a significant land position of 400,000 hectares in the Cabinda Province of Angola, and in the western half of the Democratic Republic of Congo.
The Cabinda Project covers 200,000 hectares that are located within an elongated depression between geological faults that run parallel to the Angolan coast, and include identified phosphate resources at Mongo Tando, Cacata, Chibuete, Chivovo and Ueca.
The Kanzi Deposit, located within the Democratic Republic of the Congo, is found on the same mineralised trend that hosts the various deposits that make up the Cabinda Project, and is part of a 200,000 hectare land package that is contiguous with the high grade Cacata deposit.
These licenses cover a number of high grade rock phosphate deposits that were partially defined by historical exploration and outlined a conceptual potential of up to half a billion tonnes of phosphate ore.
This potential has now been drill tested with some extremely positive results. At time of publication Minbos has announced resource estimates for three of the six deposits that have been drilled.
Diamonds and oil make up 60% of Angola's economy, almost all of the country's revenue, and are its dominant exports.
Oil accounts for 45% to 50% of GDP in Angola.
In December 2006, Angola was admitted as a member of OPEC, being the fastest growing economy in Africa and one of the fastest in the world, with an average GDP growth of 20% between 2005 and 2007. In 2011, GDP growth is likely to be in excess of 8%.
Angola’s revenue from oil exports increased 44% in the eight months through August.
Minerals Exploration and Mining have been named as a focus by the President of Angola with the intention of diversifying the economy away from its dependence on oil – a new mining code has been approved by Parliament to provide the basis for this.
Democratic Republic of the Congo
The political situation in the DRC has improved significantly in recent years, and in 2006 the country held its first free elections in more than 40 years.
The economy of the DRC has historically been dominated by its resource sector. The country is renowned as one of the richest mineral regions of the world.
While adverse political events have reduced national output, diamonds, copper, cobalt, gold and other minerals remain the principal foreign exchange-earning exports for the country.
The economic conditions of the DRC are improving as a result of improved political stability in the country. Leading this economic growth is the mining sector. Presidential elections are scheduled for 28 November 2011.
Cabinda is held in a 50/50 joint venture with Petril Projects Ltd, an associate company of the The LR Group, which is a private multinational company that has a long track record in Angola, and is heavily involved with rural settlement and agricultural development projects that target job creation and economic prosperity.
Historic exploration work completed at Cabinda included exploration by Companhia de Fosfatos from 1969 to 1973, and Energo during the 1980’s, when 45,000 metres of drilling outlined phosphate resources at Mongo Tando and Cacata and additional exploration targets.
Coffey Mining confirmed that these prospects reported historical phosphate grades of 10% to 20%, over a number of mineralised beds that average 14 metres in thickness and carry grades of 10% to 34% phosphate, hosting potential to contain 333 to 538 million tonnes of phosphate material. Historical metallurgical test work produced a concentrate of 34% to 36% phosphate, with recoveries exceeding 75%.
The projects within the Cabinda Project area all lie within 50 kilometres of the coast and are connected to the Town of Cacongo by newly constructed four lane tar roads, where a facility that will use barges to trans-ship is planned. The area is well served by local roads, electric power, services, and a local workforce.
The convergence of very favorable local infrastructure provides the Cabinda Project with major capital and operating cost savings that are not available to similar Australian phosphate projects.
This includes Legend International (USOTCBB: LGDI), with resources located in the Georgina Basin of Queensland, and Minemakers (ASX: MAK) at Wonarah, in the Northern Territory, which are both located 1,100 to 1,200 kilometres from port facilities, and lack the same intensity of local infrastructure.
Cabinda reports preliminary estimates for operating costs of US$45 per tonne of phosphate production, while Legend and Minemakers report US$100 to US$109 per tonne, reflecting the tyranny of distance.
Mongo Tando Project
In March of 2011, Minbos announced an upgraded Inferred JORC Resource for Mongo Tando of 117 million tonnes of phosphate at 13.6%, with a cut off of 5%, estimated from 134 holes for 6,700 metres of aircore drilling, and 1,010 rock assays. This was a 61% increase in tonnage, and 9% increase in grade over an earlier resource estimate released in February of 2011.
An additional 3,500 metres of drilling has subsequently been completed on Mongo Tando and a further resource upgrade is expected early in December 2012.
Preliminary bench scale testing on an ore sample from Mongo Tando indicated that it is readily upgradable to 34% phosphate, at a recovery of 62%.
The company also released a maiden resource estimate for Cacata at the end of August 2011, for an Indicated JORC Resource of 22.5 million tonnes of phosphate at 21.4%, and cut off of 8%. This included a high grade zone of 6.8 million tonnes at 32.3% phosphate at a cut off of 28%.
A scoping study completed on Cacata by CRU Mineral Strategies produced the following findings:
- Cacata able to support a large scale phosphate rock complex producing approx 1.25 million tonnes per annum over 10 years
- Open pit mining operation with a conventional beneficiated process to produce a concentrate grade of 35% phosphate
- 35% phosphate premium product expected, could trade at as much as 9% premium to benchmark 72% BPL Moroccan product (33% phosphate)
- This would equate to $220 per tonne based on October 2011 prices
- OPEX costs in the order of US$46 per tonne (range of US$35 - US$58 per tonne) expected
- OPEX considered to be at the mid to low end of the industry cost curve possibly place the operation in the first quartile of OPEX
- Expected CAPEX of US$102 million (with a range of US$72 to US$132 million) considered to be at the low end of the industry range
Minbos has captured these findings into an initial financial model, the results of which confirm the robustness of the project – with an NPV discounted at 10% of US$348 million for Minbos’s 50% of the project.
Chivovo, Chibuete, Ueca Projects and Exploration
Minbos has completed drilling on the remaining three targets in the Cabinda project area and expects to announce a total resource estimate in the fourth quarter of 2011. The company says that it is on track to confirm a JORC Resource that falls within the 333 - 535 million tonne range, grading 10% to 20% phosphate, estimated by Coffey Mining. It is believed the resource is likely to be in the middle of this range.
At Chivovo an initial 500 metre aircore drilling program was planned to test for potential high grade mineralisation, which was confirmed by field results. The program was expanded to 1,800 metres so that a resource estimate could be calculated and additional high grade direct shipping ore that may be mined along with the Cacata resource.
Chivovo is located 40 kilometres along strike from Cacata and Minbos believe that this area shows potential for the discovery of additional high grade deposits similar to Cacata and Chivovo.
The Chibuete and Ueca projects will add significant tonnage to the overall resource estimate and are expected to have similar grades to Mongo Tando.
A diamond drilling contractor has also been mobilised to upgrade Mongo Tando from Inferred to Indicated Resource status, and will also provide metallurgical samples from both the high grade Cacata and Mongo Tando deposits.
Kanzi was first explored during the 1970’s, with around 3,500 metres drilled and limited metallurgical testwork carried out.
Minbos completed an initial round of 52 drill holes Kanzi to confirm historic data. Results were largely in line with historic data with phosphate mineralisation at 8.6 metres in thickness at 15.4% phosphate, and cut off grade of 5%, and averages overburden of 32.5 metres.
Very excitingly, an initial resource estimate of 46 million tonnes at 17.2% phosphate, including 31 million tonnes at 21.4% phosphate has been delivered. Based on the robust numbers presented by CRU, Minbos expects Kanzi to develop as a very robust project – with the benefit of 100% ownership and the support of a larger operation than Cacata due to higher tonnage.
Minbos intends to immediately commence a Scoping Study and follow this with a second round of step out drilling and Bankable Feasibility Study early in 2012.
Acquisition of potash licenses
On October 11, the company announced it had entered into a conditional agreement to acquire a large-scale potash licence located in the Cabinda Province of the Republic of Angola.
The Dinge potash license overlaps Minbos’ existing Cabinda Phosphate tenements and in many areas such as Chivovo, the potash mineralisation underlies the phosphate mineralisation drilled by Minbos. The location of the license in the Congo Basin is important as the Basin already hosts a number of potash discoveries including:
- Elemental Mineral’s (ASX:ELM) Sintoukola project which has an 804 million tonne JORC Resource including a high grade zone of 337 million tonnes at 39.9% potassium chloride;
- MagIndustries Corp Makolo project, with JORC Proven and Probable Reserves of 191.5 million tonnes at 17.4% potassium chloride; Inferred Resource of 9.2 billion tonnes of carnalite grading 12.1% potassium oxide.
Early cash flows possible
Assuming an annualised production rate of 1.25 million tonnes at Cacata, and applying the current spot price of phosphate rock concentrate bulk FOB Morocco for 31% to 33% phosphate quoted at US$205 per tonne, provides a “ballpark” estimate for potential annualised revenues of US$307.5 million.
Deducting cash costs of US$45 per tonne, produces an annualised free cash flow of US$240 million, before deduction of CAPEX and EBITDA, which is then split 50/50 by the joint venture partners, and is indicative of the extreme undervaluation that the market is applying to Minbos.
What happens when Minbos announces hundreds of millions of tonnes of phosphate resources at richer grades, and a PEA for Cacata at an annualised rate of 1-1.5 million tonnes?
Minbos’ phosphate projects are located within 50 kilometres of the ocean in area that is heavily populated by oil companies. Services and accommodation are excellent due to this oil and gas presence. All roads have undergone or are undergoing upgrade to highway standard.
The minimal distance to the ocean provides a major operating cost advantage over competitor deposits.
The acquisition of potash license areas where there is an occurrence of phosphate and potash mineralisation within the same license areas has been missed by some sections of the market as it provides synergies for shared infrastructure such as ports and roads, as well as dealing Minbos into the potash sector, where M&A activity and valuations are relatively higher.
- Overall JORC Resource for Cabinda due December quarter 2011
- Chivovo, Chibuete and Ueca resource estimates imminent
- Mongo Tando upgraded resource imminent
- Positive DSO results from exploration drilling confirm high grade potential at Cacata
- Positive results from exploration drilling confirm high grade potential at Kanzi
- Exploration results – ongoing
- Scoping Study for Kanzi DSO rock phosphate for export operation starts December quarter
- Bankable-Feasibility results for both Cacata and Kanzi by September 2012
- Project location and ore body result in excellent economics when compared to other proposed projects
Fertiliser inputs and products now core investments with the major mining houses. Merger and acquisition activity is also on the rise in the phosphate and potash spaces at the upper end including BHP Billiton (ASX: BHP) and Vale/Mitsui – Mosaic – a $US385 million acquisition of a rock phosphate development that will produce 3.9 million tonnes per annum of rock phosphate per annum.
Taking a line through its peers, if Minbos defines a JORC Resource around the 350 million tonne range; given projected low operating costs per tonne of around $45 per tonne and the closeness to port of 30 kilometres, Minbos is extremely undervalued at current valuation of $24.5 million given the comparison with its peers relative to Minemakers’ (ASX:MAK) valuation; Legend International's (US: OTC BB) $104 million valuation; Stonegate Agricom’s (TSE: ST) $143 million valuation and Aguia Resources’ (ASX:AGR) $53 million valuation.
Most of Minbos’ ASX and TSX listed peers carry much richer market valuations, which is well illustrated by MBAC Fertilizer (TSX: MBC) with a market capitalisation of $205 million for a resource of 82.8 million tonnes at 5.4% phosphate.
MBAC has completed a Preliminary Economic Assessment for production of 300,000 tonnes of phosphate as a feedstock for Single Superphosphate from its Santana Project in Brazil.
Minbos is also a very tightly held stock, providing ample leverage to news flow and upside to upcoming milestones.
The combination of the already defined high-grade and potential DSO phosphate resources and the potential of defining large, high grade potash resources within the same licence area sets Minbos apart from its peers.