Stellar Resources Key Study Highlights Positive Economics For Heemskirk Tin

Stellar Resources (ASX: SRZ) has completed a Pre-Feasibility Study that demonstrates the technical and economic viability of its Heemskirk Tin project in Tasmania.

Key takeaways

- Annual production of 4,327 tonnes of tin in concentrate represents an 11% increase from the scoping study estimate

- Competitive direct mining and processing cash costs of US$12,268/t of tin in concentrate and mine gate cash operating cost of US$14,389/t including mine and plant business sustaining expenditure and corporate overheads.

- Initial mine life of 7 years with potential to expand once additional drilling within the current resource is complete

- Mining plan increases head grade to 1.06% tin from scoping study estimate of 0.93%.

- Base case pre-tax NPV of A$61 million or 27 cents per share at a consensus long-term LME tin price of US$25,500/t and A$0.90. The 10% price upside case increases the NPV by 67% to A$102 million.

- 3.7 year payback period

"Completion of the PFS is a significant milestone for the Heemskirk Tin Project," chief executive officer Peter Blight said.

"It demonstrates technical and financial viability using consensus tin price and exchange rate assumptions."

The PFS had used a consensus long-term LME tin price of US$25,500/t and exchange rate of A$0.90 to the US dollar.

Blight added the capital costs reflect the ready access to existing infrastructure while multiple ore sources provide significant flexibility and have allowed a focus on grade to maximise net present value.

Pre-Feasibility Study

The PFS is based on three mineralised zones - Queen Hill, Severn and Montana - that have combined Resources of 71,500 tonnes of contained tin, most of this located within the Severn orebody.

Drilling in April had also made a thicker than expected intersection of high grade tin at the Queen Hill ore body.

Optimised mining plans conducted for the PFS and based on the upgraded Resource, increased the run of mine ore grade to 1.06% tin and provided confidence that the proposed plant capacity of 600,000 tonnes per annum can be comfortably met.

In addition, metallurgical test work demonstrated a 70% average recovery and showed that with further flow sheet development a concentrate grade of 48% tin is achievable.

Direct mining and processing cash costs of US$12,268/t of tin in concentrate are 4% lower than the scoping study estimate of US$12,780/t while adding mine and process plant sustaining expenditure and corporate overheads to direct costs results in a competitive mine gate cash cost of US$14,386/t.

The parameters are based on maximising the head grade to provide the highest NPV under consensus tin price and exchange rate assumptions.

At tin prices above the base case, the optimum outcome could be to maximise the mining inventory which would lead to an increase in mine life at slightly lower head grade.

Further infill drilling at lower Severn could achieve the same outcome if it led to a higher average deposit grade - a possibility that will be tested during the definitive feasibility study.

Under the base case scenario, Heemskirk Tin generates a net present value of $61 million or $0.27 per share. This rises by 67% to A$102 million, or $0.45 per share, if tin prices rise by 10% to US$28,050 per tonne.

Future plans

Over the next 12 months, Stellar plans to drill around and below the known deposits with the objective of expanding the Resource. All deposits are open laterally and at depth.

The company will also carry out additional drilling into the lower Severn as an increase in average deposit grade could transfer 1 million tonnes from the Resource to Mining Inventory.

There will be continued refinement of the process flow sheet through metallurgical test work, while investigations will be carried out into capital reduction alternatives including the use of other suitable processing plants in the area.

Stellar will identify a in industry participant to help progress the project through Definitive Feasibility Study and into development as well as commit to a DFS as soon as possible.

Analysis

The Pre-Feasibility Study for the Heemskirk Tin project demonstrates technical and economic viability for Stellar Resources. There are also other positives for SRZ:

Heemskirk has the highest grade, undeveloped tin resource in Australia. It has transport, power and water on the doorstep unlike many of its overseas brethren.

Macquarie Commodities report

A research report by Macquarie has reported the rise in use of tin.

With the rise of new electronic products such as tablets and smart phones, where the typical tin-solder content ranges from 0.7 grams to 1.0 grams, we can expect to see an increase in demand for tin.

This demand is buoyed with tin use being widely considered to be the most promising technology for storing energy in mobile electronics, electric vehicles and renewable energy systems, such as for wind and solar power (source: Peter Kettle, ITRI).

Although, the electronics manufacturing industry has run down stocks of tin solder over the last two years in response to flat and in some cases declining sales, the rise in shipments is a positive indicator for the future of tin.

This is supported by Macquarie's data that suggests the market could be moving towards a period of re-stocking, which could add to an improved outlook for tin.

The conservative parameters used offer considerable upside in the event of an increase in tin prices or Resource, further highlighting the value of the project, which Singapore-based broker PhillipCapital had recently described as having "the "best tin grade of any project and the volume of contained tin is enough to get serious industry interest".

Glowing broker report

Phillip Capital said, "SRZ is the cheapest tin equity exposure anywhere ... We expect that the results of the PFS will be the basis of a decision by an industry partner to buy a share of the project. "

The Heemskirk project is a major potential source of new supply, enhanced by its high grade.

In our view, the Heemskirk project will attract interest from industry players who are seeking a secure tin supply.

Proactive Investors believes the attractiveness of the project will attract an industry partner which would assist with the heavy lifting for the capex of the project.

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