MZI Resources (ASX: MZI) has reached yet another key milestone, executing a sales agreement with DuPont Titanium Technologies, a subsidiary of DuPont (NYSE: DD), that covers all of the leucoxene 70% titanium dioxide production from its Keysbrook mineral sands project in Western Australia.
"Having DuPont, the world's largest titanium dioxide pigment producer and a blue-chip company, enter into a sales agreement of this nature is a clear indication of the value of the Keysbrook Project and its products," chief executive officer Trevor Matthews said.
"This agreement, the first to be signed for the Keysbrook Project, represents almost 30 per cent of our planned annual production by volume and considerably de-risks the project."
The agreement with DuPont Titanium Technologies is for an initial term of five years with options to extend the contract and follows on MZI signing a processing agreement to treat heavy mineral concentrate from Keysbrook at Doral Mineral Sands' mineral separation plant near Bunbury.
MZI is in advanced discussions with other potential customers with respect to the Project's planned leucoxene 88% and zircon concentrate products.
Keysbrook Minerals Sands Project
The Keysbrook Project will produce an average 91,000 tonnes per annum of mineral sands products, comprising:
- 26,000 tonnes per annum (dry) of leucoxene 70% titanium dioxide;
- 36,200 tpa (dry) of leucoxene 88% titanium dioxide (L88); and
- 28,700 tpa (dry) of zircon concentrate.
Heavy mineral concentrate will be trucked about 120 kilometres to the mineral separation plant.
Doral will process the concentrate through its plant on a campaign basis, with Keysbrook heavy mineral concentrate being processed on a month-on, month-off basis.
Toll treatment charges are expected to average around $65 per tonne of heavy mineral concentrate processed, comprising a fixed charge component and variable charge to cover consumables and maintenance.
Given the high leucoxene content of the Keysbrook heavy mineral concentrate, MZI will fund and manage additions and modifications to Doral's mineral separation plant as part of the project development.
MZI and its engineers have worked closely with Doral since the strategic alliance was formed in May 2012 to engineer these upgrades.
The Keysbrook Feasibility Study found the project would have a very high rate of return of 71% and payback period of less than 15 months.
Construction is expected to start in the current quarter with first production set for the March quarter of 2014.
Leucoxene is the major constituent of MZI's Keysbrook deposit. The material from Keysbrook will be split into two discrete products; a 88% TiO2 leucoxene and a 70% TiO2 leucoxene.
Once in operation, the Keysbrook mine will be the single biggest producer of leucoxene in the world. There are no consistent prices for leucoxene due to its variable TiO2 content, however a high grade leucoxene product is generally valued at about 75% of the prevailing rutile price.
The majority of the leucoxene produced at MZI's Keysbrook project is expected to be sold as a feed for pigment production. Leucoxene is very attractive to titanium dioxide producers as it represents an effective substitute for rutile in chloride pigment production at a very competitive price relative to its content of TiO2 content.
The sales agreement with a subsidiary of DuPont, an international chemical company with a market capitalisation of US$48.9 billion, adds to the rapidly growing list of milestones that MZI has achieved for Keysbrook.
DuPont Titanium Technologies is in fact the world leader in titanium dioxide production, and it is also one of the pioneers in introducing and promoting this material in the market.
Adding to today's sales agreement, which further de-risks the project as well as add a value accretive sales metric, MZI is already engaged in advanced discussions for sales agreements on its other products and is close to receiving credit-approved offers of finance.
Taken together, MZI appears to be increasingly mispriced as an explorer rather than a near term producer with its current market cap. of around $36 million and EV of $32 million. Proactive Investors expects the re-rating to continue in the share price of MZI in 2013 to our estimated target range of $0.03 - $0.04.
MZI had around A$5.6 million in cash at the end of the December quarter 2012.
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