Cauldron Energy Ltd (ASX:CXU) has entered into an agreement to acquire a 100% interest in a number of high-quality river sand leases at the mouths of the Gascoyne, Ashburton and Fitzroy rivers in Carnarvon, Onslow and Derby, Western Australia, covering a total area of around 286 square kilometres.
This sand is near transport infrastructure and key Asian markets, representing a strategic opportunity while it can also be mined using an environmentally sensitive low cost and low-impact extraction method.
The acquisition gives the company the potential to tap into the international sand market which is projected to be worth US$60 billion per annum by 2030.
Scarcity and demand to drive sand prices
Cauldron chief executive officer Jess Oram said: “Acquiring these high-quality river sand leases, which are highly prospective for sand capable of use in the construction industry and near to transport infrastructure is a significant opportunity for Cauldron.
“The scarcity of resource and increasing demand is expected to drive sand prices higher in the medium term; and the proximity of the leases to key Asian markets represents a significant strategic advantage.”
Targeting domestic and international markets
“The company intends to target offtake in both domestic and international sand markets.
“In line with this ambition, the company is in the process of securing port capacity for initial export operations on its approved mining licence with capacity of up to 500,000 tonnes per annum of sand.
Cauldron has held initial discussions with key Singaporean sand market groups to position the company to tender for substantial long term government supply contracts.”
Terms of the deal
Under the terms of the acquisition, the vendors - Quarry Park Pty Ltd, Onslow Resources Ltd, Anthony Warren Slater and Regent Point Pty Ltd - will transfer to Cauldron a 100% ownership interest in the leases, together with all of the technical information pertaining to the tenements and the benefit of any third-party agreements in exchange for:
- 20 million fully paid CXU ordinary shares as initial share consideration;
- Production payments of $250,000 for the Carnarvon tenements upon the entering into of commercial production at Carnarvon as defined in the agreement; $250,000 for the Derby tenements upon the entering into of commercial production and $500,000 for the Onslow tenements upon the entering into of commercial production, to be settled in cash or shares (based on an assumed share price of $0.035) by mutual agreement; and
- A royalty equal to $1.00 per tonne or 2% of sales revenue, based on freight on board prices, where Cauldron elects to undertake a mining operation as defined in the agreement.
The acquisition agreement is subject to a number of conditions precedent including shareholder approval.
Largest globally mined commodity
Sand is the largest globally mined commodity, outstripping the shipments of coal, iron ore and grain.
Although sand is not traded on any recognised exchange, the United Nations estimates 40 billion tonnes of sand is mined globally each year.
The next largest bulk commodity, in terms of tonnage moved, is coal at about 3.5 billion tonnes in 2018 (International Energy Agency, IEA).
Consumption of sand in the developing world is voracious, mainly used in land reclamation and island building (25-30 billion tonnes per annum), followed by use in the manufacture of concrete (12 billion tonnes).
There are increasingly valuable uses for sand or silica in glass manufacture or specialised glass-like phone screens for which the cost per tonne exceed US$1,000 per tonne.
The total usages for this third ‘minor’ tonnage is about 300 million tonnes or 0.3 billion tonnes per annum globally, which represents the target area for most silica sand miners as the high value, high margin products capable of absorbing high processing and transport costs.
Sustainably sourced sand
Further, the UN has identified sand mining as a critical global resource to be managed.
The burgeoning demand in Singapore, Hong Kong and other Asian growth centres has depleted nearby quality sources, creating an illegal mining industry in neighbouring countries and resulting in sand export bans in Vietnam, Malaysia, Indonesia and Cambodia.
Singapore requires its sand imports to be supported by the correct regulatory environmental approvals from the dispatch country and has the required Singaporean laboratory tests to ensure suitability for purpose.
For this, it has been accepted that this quality will involve a higher price, which has opened the market to legitimate and ethical suppliers adhering to local regulatory conditions imposed by their mining jurisdiction.
This positive change has created a sustainably sourced sea-borne sand market in Singapore and other Asian countries, which provides the lead for other importing countries to follow.
The extraction systems have been approved and adopted for use in Queensland, near the Great Barrier Reef, having significant environmental sensitivity.
Use of low impact excavator extraction on barges and barging to self-loading sea-going bulk transport allows these operations in northern Australia to compete on cost with closer-to-market sand sources.
The approval process for these planned operations will follow the world recognised mining licencing and environmental approval protocols established in Australia.
Prior to the utilisation of these techniques, Cauldron will utilise traditional truck and shovel methods on existing mining licences, which recently supplied the sand that was used in the construction of large local resource projects near Onslow.