MZI Resources (ASX:MZI) has signed a sales agreement for its Keysbrook Mineral Sands Project in Western Australia, with DuPont Titanium Technologies, a DuPont business.
DuPont is the world’s largest titanium dioxide pigment producer.
MZI has executed a sales agreement with DuPont for 25,000 tonnes per annum of leucoxene 88% titanium dioxide (L88) from Keysbrook.
The agreement is for an initial term of five years with options to extend the term.
Trevor Matthews, chief executive officer for MZI commented: “The sales agreement with DuPont marks an important milestone for the development of the company’s Keysbrook Project.
“Having DuPont, the world’s largest titanium dioxide pigment producer, enter into a sales agreement for a large portion of Keysbrook’s annual L88 production, combined with the existing sales agreement for all L70 production is a clear indication of the strategic value of the Keysbrook Project and its products."
The agreement is the third to be signed for the Keysbrook Project, and now around 85% of the project's annual production by volume has now been sold under long term contracts.
This significantly de-risks the project and highlights its quality mineral sands products.
MZI Resources said that during construction the company plans to continue discussions with other potential customers regarding the balance of the project’s planned L88 production.
Production and first shipments are forecast for late 2015/early 2016.
Keysbrook production
The Keysbrook Project will produce, on average, 96,000 tonnes per annum of mineral sands products comprising:
- 28,800 tpa (dry) of L70;
- 38,400 tpa (dry) of L88; and
- 29,000 tpa (dry) of zircon concentrate.
Mineral sands market outlook
Demand for TiO2 feedstock is recovering due to the reduction in downstream pigment inventory, with the overall market moving back into balance.
Margin erosion from lower prices and rising costs is causing production closure at inefficient high cost operations.
The zircon price has stabilized over the year with premium grades currently selling for ~ $1,100 pmt, with supply/demand moving back into balance with major producers (Iluka, RTIT and Tronox) restricting supply.
Buying confidence has been restored now that market balance has been achieved.
Global consumption is currently assumed to be ~ 1.0 million tonnes per year (down from peak of ~1.4 million tonnes in 2011).
TZMI estimates that global demand is now growing at 4% per year.
Construction contract with GR Engineering Services
Earlier in the month MZI Resources executed a construction contract with GR Engineering Services (ASX:GNG).
The contract is for engineering, procurement and construction services under a lump sum, turn key arrangement of $54.6 million for delivery of the Keysbrook mine site.
This includes upgrades to the existing mineral sands separation plant owned by Doral Mineral Sands Pty Ltd.
Recently MZI Resources executed finance agreements totalling US$110 million for the project.
Keysbrook Mineral Sands Project
The Keysbrook Project could produce an average 91,000 tonnes per annum of mineral sands products from 110,000 tonnes of dry heavy mineral concentrate.
This would be trucked about 120 kilometres to Doral’s mineral separation plant, which is just 10 kilometres from the Bunbury Port, for toll treatment.
Keysbrook exhibits major financial advantage
Keysbrook has a high value JORC ore reserve of 26.0 million tonnes with in-situ THM of 670,000 tonnes grading 27.8% L70 (70% titanium dioxide), 46.6% L88 (88% titanium dioxide), 14.6% Zircon, and 11% other minerals.
The project hosts a high margin, long life reserve that will employ a very low CAPEX and draw upon a very well developed local infrastructure that is very conversant with processing mineral sands and use of simple and low risk processing technology.
Ore mining rate is set at 4.5 million tonnes per year to an average depth of 2.2 metres and no strip ratio for very low cost open pit mining.
Annual EBITDA has a base case of $44 million per year that is derived from a low OPEX of $331 per product tonne. The project is funded with a development cost of $69.6 million and pre-operations cost of $6.2 million.
Analysis
Today's sales agreement with DuPont is a significant milestone for MZI Resources, as it de-risks the Keysbrook project as well as provide further revenue upon commencement of the agreement.
DuPont is the world’s largest titanium dioxide pigment producer, and this deal provides a major vote of confidence in the quality of the project and its operations.
The agreement is the third to be signed for the Keysbrook Project, and now around 85% of the project's annual production by volume has now been sold under long term contracts.
Production and first shipments are forecast for late 2015/early 2016.
Key catalysts:
- An announcement on the development decision for Keysbrook, which MZI Resources expects to make in the near future.
- Securing a long term contract for the remaining 15% of forecast production.
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