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TNG Limited: Interim PFS points to life of mine revenues of $10b at Mount Peake

TNG Limited (ASX: TNG) has received positive interim results from the Pre-Feasibility Study (NYSE:PFS) on its 100%-owned Mount Peake Iron-Vanadium Project in the Northern Territory.

With a JORC resource estimate inventory to more than 70% in the Indicated category, and moving from a Scoping Study accuracy of +-50% to a Pre-Feasibility Study of +-25% accuracy, and securing Chinese partner ECE to support and develop the project, TNG has significantly de-risked the project moving forward.

The results outline potential revenues of $10.4 billion and operating cash flows of $3.2 billion over an initial 17.2-year life.

The robust cash flows, positive returns and recent Chinese investment from East China Mineral Exploration & Development Bureau (ECE), provide a competitive advantage for the project's development through access to finance, EPCM (engineering, procurement, and construction management) and final product end-users.

On November 8 TNG signed a landmark subscription agreement with ECE, formalising a $13.4 million investment in TNG at $0.11 per share for a 30% stake.

The funds raised will bolster a key pilot plant test work program for TNG’s TIVAN™ hydrometallurgical process for Mount Peake, one of Australia’s largest undeveloped vanadium projects.

Paul Burton, TNG's managing director said “these are very positive interim results, building on our initial Scoping Study at the start of the year."

“The Mount Peake Project continues to provide TNG with the opportunity to develop a world-class ferrous and strategic metals business in the Northern Territory.”

The interim PFS results indicate pre-tax Nett annual cash flow of A$151.3 million, life of mine revenues of $10.4 billion, pre-tax IRR of 25.7% and  an initial 17.2-year mine life.

The PFS points to a 2.5 million tonne per annum operation expanding to 5 million tonne per annum  after 4 years and an average annual production of 14,200tpa vanadium oxide (V2O5), 379,000tpa titanium dioxide (TiO2) and 1.2Mt iron (Fe).

Total pre-production capital cost has been estimated at A$476 million with the TIVANTM Process remaining cheaper than standard process.

The final PFS report is scheduled to be delivered in the first quarter of 2012 following completion of optimisation and commercialisation of the TIVAN™ hydrometallurgical process. Product recoveries and purities are expected to increase with completion of optimisation work.

There is potential to add value by downstream processing to produce higher-value Ferrovanadium (FeV) and Titanium products.

In addition, Mount Peake is well located near to key power and transport infrastructure including rail, road and a gas pipeline.

TNG believes the study provides strong commercial support to progress the Mount Peake Project to a Definitive Feasibility Study (NYSE:DFS) early next year.

Consulting Snowden, Mineral Engineering Technical Services and Sinclair Knight Mertz are contributing to the PFS.

The Definitive Feasibility Study (DFS) is planned to commence in the first quarter of 2012 following successful completion of the current final metallurgical optimization test work leading to the pilot plant phase and commercialization of the new TIVAN™ hydrometallurgical process which underpins the project.

The process successfully extracts commercial high-grade quantities of vanadium, titanium and iron from the Mount Peake mineralisation.

Importantly the DFS will also consider in more detail commercial options for value-add downstream processing to produce a high-value ferro-vanadium product, (which indicated the potential to add a further $80 million to the nett annual cash in the supplementary Scoping Study completed earlier this year), and to produce upgraded higher value Titanium products which could also significantly enhance forecast cash flows.

 

Key Points

The key points of the Interim PFS are:

- Total material mined: 147.9Mt
- Total waste movement: 72Mt
- Total ore mined: 75.9Mt
- Strip ratio: 0.95
- Mine life: 17.2 years
- Processing rate (life-of-mine): 2.5Mt/annum, increasing to 5Mt/annum in year 4
- Average head grade: 0.39% V2O5, 27.09% Fe, 7.02% TiO2
- Average recoveries: 80% V2O5, 66% Fe, 67% TiO2
- Total metal production: 245kt V2O5, 20,246kt Fe, 6,495kt TiO2

The key financial outcomes of the Interim PFS are:

- Total revenue (life-of-mine): A$10.4 billion
- Surplus operating cash flow (life-of-mine): A$3.2 billion
- Nett cash flow (life-of-mine): A$2.6 billion
- Pre-production capital cost estimate: A$479 million
- Total operating costs (including mining, processing, transport & royalties): A$90.4/tonne of plant feed
- Nett annual cash flow: A$151.3M2
- IRR pre-tax: 25.7%

Key assumptions include:

- Operating costs and pit slope angles related to mining estimated to a Pre-Feasibility Study level (±25%)
- V2O5 price of US$20,305/tonne (>80% grade)
- TiO2 price of US$400/tonne (> 67% grade)
- Fe2O3 price of US$200/tonne (>66% grade)
- Royalty rate of 2.5% per tonne of plant feed
- Discount rate of 8%
- A$/US$ exchange rate of 0.85 US$ = 1A$

Pricing:

Product pricing was supplied by an Independent Commodities Analyst based on all available forecasts, price trends and previous averages for each commodity, and is subject to final test work results.

Base case product markets were used for all commodities. Specialized markets such as Iron-pigment (paint), where prices exceed US$500/tonne for high purity Fe2O3, have not been included at this stage but will be identified and quantified in future studies. These provide potential significant upside to base case pricing.

Exchange Rate:

An exchange rate of 0.85 US$ was used as this remains the medium-term forecast from major Australian banks.

However, as a comparison TNG also commissioned Snowden to run the financial analysis with the same parameters using a 0.95 US$ exchange rate. The results of this study still provide the Project with Nett annual cash flow of $89.4 million and an IRR of 17.6%, indicating that the Project remains robust but clearly sensitive to price and exchange rate fluctuations.

Capital Cost (MUTF:CAPEX):

The details of the estimated capital expenditure are shown in Appendix 1.
Process Plant - Process plant direct costs of $365 million are comparable to the previously reported Scoping Study figures. The capital cost required to expand the plant from 2.5Mtpa to 5Mtpa has been estimated at A$151.8 million which would be incurred in year 4.

Infrastructure and other fixed assets – The pre-production capital cost estimate of A$78 million is based on detailed estimates for roads, power, accommodation and onsite buildings. The costs to expand to 5Mtpa have been estimated at $14 million.

These costs were not included in the previous Scoping Study and account for the increase in the overall CAPEX when comparing the two studies.

The company recognises that a decision to expand to a 5Mtpa operation would be a future commercial decision based on prevailing market conditions. It is anticipated that expansion would be funded partially by cash flow from operations.

Operating Costs (OPEX):


A breakdown of total operating cost estimates is provided in Appendix 2. The total operating cost per tonne of material is estimated at $90/tonne and includes total mining, processing and transport costs.

Process costs - Processing costs have increased from $46/tonne to $60/tonne when compared to the Scoping Study. These increases are based on definitive cost increases for the processing reagents in the hydrometallurgical process.

Despite these increases the process still remains approximately 40% cheaper than the standard pyrometalurgical process cost (which only produces one product).

Transport costs - Product transportation cost estimates have increased from $19/tonne to $27/tonne of ore based on preliminary cost estimates sourced by SKM from infrastructure-providers.

The PFS has considered that final products of commercial grades would be trucked to a railhead and then railed to Darwin (approximately 1,180km) for shipping. Positive discussions have been held with all key infrastructure groups, indicative pricing obtained and confirmation received that appropriate infrastructure solutions can be put in place for all aspects of the Project.

The proximity to key infrastructure facilities of gas power, heavy duty roads, and rail provides the Mount Peake Project with a significant advantage.

Mining Costs - Mining costs supplied by Snowden have increased marginally by 4% due to changes in strip ratio and are comparable to existing operations.

Mine Life:

The process life of mine has reduced from 20 years to 17 years due to higher throughput at the 5tpa production rate and mining of higher grade material in first years.

The next stage:

Metallurgical test work carried out by TNG and METS has shown that the magnetic concentrate that would be produced from Mount Peake material is amenable to the TIVAN TM hydrometallurgical processing, resulting in high recoveries and grades of vanadium pentoxide (96.7% purity), titanium dioxide (55%) and iron oxide (66%) in the acid leaching and recovery process.

Recoveries of product grades and the final purity of titanium dioxide is expected to increase as optimization work is completed.

Further optimization and test work is ongoing to up-scale to a commercial operating plant. This work is planned to be completed over the next few months leading to the pilot plant phase and commercialization process for the TIVAN™ process.