Mineral sands focused MZI Resources (ASX: MZI) has successfully completed due diligence for project finance for its flagship Keysbrook mineral sands project in Western Australia, paving the way for the company to finalise finance in March.
Keysbrook will be entering production at a time of forecast recovery with increased pricing already being seen by major global pigment producers. The project is set to begin shipments and sales in the first half of 2014.
The due diligence investigations have confirmed that there are no substantive issues affecting the development or financing of the Keysbrook project.
Importantly, all approvals are in place for project development.
Credit approvals offers are targeted for next month followed by the start of construction, which is also scheduled for March.
Late last year MZI mandated two leading banks, one Australian and the other South African, to provide the debt finance for the development of Keysbrook.
The debt facilities being arranged are typical of mining project developments and include a construction facility, a cost overrun facility, working capital facility and bank guarantee facility.
MZI has advanced draft offtake agreements with prospective customers for its L70 and zircon concentrate products and is actively negotiating with a number of companies with respect to its premium L88 product.
Major titanium dioxide pigment producers, industrial product manufacturers and mineral sands processors have all shown a keen interest in the suite of products available, with some key contracts expected to be announced shortly well in advance of project financing being completed.
MZI remains highly positive on the pricing outlook for its product suite, with market intelligence suggesting sector recovery ahead of the Keysbrook Project coming into production.
Prices have also begun to stabilise, with forecasts of price recovery in the second half of 2013.
Major global pigment producers have recently announced increased prices for titanium dioxide products.
These global producers are also indicating that demand for pigment products is expected to increase during the same time frame.
The forecast timing of the market recovery is ideal for Keysbrook.
Doral toll treatment agreement
MZI and strategic partner Doral Mineral Sands are continuing to advance the toll treating arrangement and capital works program towards a comprehensive full form agreement.
Completion is on schedule for the March quarter of 2013.
MZI has all approvals necessary to begin project development and operations.
The Office of the Environmental Protection Authority has recently granted an amendment to its approval relating to the location of the Keysbrook processing plant, access road and native vegetation preservation.
MZI has been issued a Groundwater Licence (NYSEARCA:GWL) for 1.8GL p.a. of water from the Leederville Aquifer by the Department of Water.
The company is now awaiting issuance of a second GWL for the application to extract the balance of a further 0.2GL p.a. from the surficial aquifer.
This application is currently being assessed by the Department of Water and is expected to be issued shortly.
Construction planning advanced
MSP Engineering is nearing the completion of the FEED component of the Keysbrook site and planned upgrades for the Doral MSP ahead of a final investment decision for project development by MZI.
As part of this work, MSP Engineering has now received formal tenders on a number of major equipment and fabrication packages which are currently being evaluated.
Based on the quoted lead times for key equipment, MZI has revised its target dates for first production to the March quarter of 2014, with first product shipments and sales in the June quarter of 2014.
MZI continues to progress land access arrangements, having now either completed or substantially advanced agreements across the initial life of the Keysbrook Project, with only a small number of agreements remaining outstanding.
The company is confident it will finalise these agreements ahead of commencing the project.
The successful completion of due diligence for project finance for the development of Keysbrook ticks another box, moving MZI closer to production.
Significantly, the due diligence investigations have confirmed that there are no substantive issues affecting the development or financing of the Keysbrook project.
This sets MZI on a course to locking in project finance next month and moving to begin construction.
Major titanium dioxide pigment producers, industrial product manufacturers and mineral sands processors have all shown a keen interest in Keysbrook's suite of products.
Some key contracts are even expected to be announced shortly, well in advance of project financing being completed.
Keysbrook has ready access to a deep and established labour pool, supply chain and existing infrastructure which will considerably de-risk the project.
The project will be entering production at a time of forecast recovery with increased pricing already being seen by major global pigment producers, and demand expected to grow.
We believe that investors may have lost sight of the key metrics and advantages of Keysbook:
- Project NPV estimated at $133 million (post tax)
- Keysbrook has an estimated 7.2 year mine life with potential to extend up to 11 years based on mineral resource
- Internal Rate of Return of 71%
- Development costs payback period of less than 15 months
With these in mind, the project is set to be an extremely profitable exercise for MZI. The current share price is set to track higher as the company moves closer to production and milestones are reached. Based on this, Proactive Investors can see catalysts for a re-rating from the current share price of $0.023. We also believe the retracement in market valuation has been overdone.
On our calculations, we estimate a worth of $0.035-$0.04 for MZI. On this basis the stock remains undervalued.
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