REG - Cadence Minerals PLC - Update PFS Economic Study Delivers Increased NPV

Cadence MineralsAnnouncement

09/07/2024 07:00

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RNS Number : 5850V  Cadence Minerals PLC  09 July 2024

Cadence Minerals Plc

 

("Cadence Minerals", "Cadence", or "the Company")

 

Update PFS Level Economic Study Delivers an Increased Net Present Value of
US$1.145 Billion

 

Cadence Minerals (AIM: KDNC) is pleased to announce the results from the
updated economic study, the progress on the environmental applications and the
ongoing development of the 67% 'Green Iron' processing flow sheet at the
Amapá Ore Project ("Amapá", "Project" or "Amapá Project"). Since the end of
March 2024, Cadence's total investment in the Amapá Project had increased by
approximately US$0.7 million to approximately US$13.9 million, and
consequently, the equity stake in the project now stands at 34.2%.

 

Highlights:

·       20% increase of Post-tax Net Present Value ("NPV") to US$1.14
billion at a discount rate of 10%, with profit after tax of US$3.14 billion
over the Life of Mine ("LOM").

·       10% increase in average production after ramp-up to 5.82
million dry metric tonnes ("DMT") per annum ("Mtpa") of Fe concentrate,
consisting of 4.81 Mtpa at 65.4% Fe and 1.01 Mtpa at 62% Fe concentrate.

·       A 6% decrease in Free on Board ("FOB") C1 Cash Costs to
US$33.5/dmt at the port of Santana. Cost and Freight ("CFR") C1 Cash Costs
US$62.2/dmt in China.

·       Improved Post-tax Internal Rate of Return from 34% to 42%.

·       The port's environmental licensing is on schedule with the
studies complete and the required reports being drafted, it is due to be
submitted on schedule in the current quarter of this year.

·       Testing of the 67% Fe "Green Iron" flow sheet has commenced,
and results are expected by the end of September 2024.

·       If successful, the 67% flow could increase the net operating
profit of the Project, at full production, from approximately US$227 million
to US$324 million per year.

 

Cadence CEO, Kiran Morzaria, commented: "On belhaf of our Board, I am
thrilled with the positive outcomes from the updated economic study at the
Amapá Ore Project, along with further he significant progress made at Amapá.
The increased net present value of US$1.145 billion and the enhanced post-tax
internal rate of return demonstrate substantial improvements to the Project's
already robust economics.

 

The ongoing development of the 67% 'Green Iron' processing flow sheet and the
Project's 100% renewable power source exemplify our commitment to propelling
Amapa forward to meet the growing demand for low-carbon iron ore and steel,
while at the same time demonstrating a potential 43% uplift in projected
annual net operating profit.

 

We are optimistic about the potential of the Amapá Iron Ore Project and look
forward to providing further updates on our progress in the future."

 

Updated PFS-level economic study

In March this year, the Amapa Project announced the results of the
optimisation study, which delivered material capital savings to the Project.
Based on these results, the Amapa Project carried out an updated PFS-level
economic study.

 

Updated Mining Schedule

As part of the optimisation study completed in March 2024, the engineering
consultants identified higher availability at the processing plant, which
increased the annual run-of-mine feed rate to the processing plant. As a
result of this, it was necessary to re-examine the mining and other related
engineering disciplines, and in particular, the mine schedule had to be
recalculated to optimise the project's NPV.

 

A life of mine production plan was scheduled using the Deswik.Blend®
Scheduler Optimizer. The solids used in the mine scheduling were based on the
final pit design, with an SMU (Selective Mining Unit) of 100 m x 200 m x 4 m.
The life of mine schedule allows for 15 years of production with the current
economic values and cut-off of 25% Fe.  The resultant life of mine strip
ratio is approximately 0.4:1 (tonnes waste: tonnes ore) and an average ore
mine delivered to the plant of 13  million metric tonnes per annum.

 

Project Financial Analysis

An updated PFS financial model, which included the updated mining schedule,
lower capex, and lower operational costs, was developed to evaluate the
project's economics. All other aspects of the financial analysis remained the
same as per the PFS published in January 2023, including the iron ore
concentrate price. Which was a long-term average price for 62% iron ore
concentrate of US$95/dmt and US$118.8/dmt for 65.4% iron ore concentrate, both
quoted on a Cost and Freight ("CFR") basis. As of 8 July 2024 the 62% iron ore
concentrate price was US$108.75/dmt and 65% iron ore fines was US$129/dmt.
Summary results from the financial model outputs are presented in the tables
below, including financial analysis. The financial model considers 100% equity
funding for the Project, although, in reality, the financing of the Project
will be a mix of debt and equity. However, the existing obligations in terms
of principal repayment and current interest liabilities payable have been
included in the financial model. A summary of the key financial information is
presented below, alongside the 2022 PFS data.

 

Table 1.1 Key Project Metrics (100% project basis)

 Metric                                         Unit      2022 PFS Data  2024 PFS Data
 Total ore feed to the plant                    Mt (dry)  176.88         176.93
 Life of Mine                                   Years     16             15
 Fe grade of ore feed to the plant              %         39.34          39.34
 Recovery                                       %         76.27          76.27
 62.0% iron ore concentrate production          Mtpa      0.89           0.95
 65.4% iron ore concentrate production          Mtpa      4.23           4.51
 C1 Cash Costs FOB *                            US$/dmt   35.53          33.50
 C1 Cash Costs CFR **                           US$/dmt   64.23          52.20
 Pre-Production capital investment***           US$M      399            343
 Sustaining capital investment over LOM****     US$M      245            245
 Post-tax NPV (10%)                             US$M      949            1,145
 Post-tax IRR                                   %         34             42
 Project payback                                Years     4              4
 Total profit after tax (net operating profit)  US$B      2.96           3.14

 

 *     Means operating cash costs, including mining, processing, geology, OHSE, rail,
       port and site G&A, divided by the tonnes of iron ore concentrate produced.
       It excludes royalties and is quoted on a FOB basis (excluding shipping to the
       customer).
 **    Means the same as C1 Cash Costs FOB; however, it includes shipping to the
       customer in China (CFR).
 ***   Includes direct tax credit rebate over 48 months
 ****  Includes both sustaining CAPEX and deferred capital expenditure, specifically,
       improvements to the railway and the installation of conveyor belt and mine
       site to rail load out

 

Table 1.2 FOB and CFR average cash cost per tonne of dry product over the LOM

 Cash Cost Per Discipline                                          PFS 2022  PFS 2024
                                                                   US$/dmt   US$/dmt
 Mine                                                              17.05     16.73
 TSF                                                               0.08      0.08
 Beneficiation Plant, Road / Conveyor Transfer & Rail Loading      12.43     10.94
 Rail Freight                                                      2.43      2.43
 Port                                                              1.55      1.55
 G & A (5% total cost)                                             1.99      1.77
 FOB Cash Costs                                                    35.53     33.50
 Marine Logistics                                                  28.70     28.70
 CFR Cash Costs                                                    64.23     62.20

 

Table 1.3 Summary of key financial information for the Project.

 Item Over Life of Mine                              Unit  2022 PFS Data  2024 PFS Data
 Gross revenue                                       US$M  9,387          9,389
 Freight (Maine Logistics)                           US$M  (2,350)        (2,351)
 Net Revenue                                         US$M  7,037          7,038
 Operating costs                                     US$M  (2,910)        (2,744)
 Royalties and taxes (excluding income tax)          US$M  (373)          (373)
 EBITDA                                              US$M  3,754          3,922
 EBIT                                                US$M  3,315          3,547
 Net Taxes and Interest                              US$M  (355)          (390)
 Net Operating Profit                                US$M  2,960          3,144
 Initial, Sustaining capital costs & repayments      US$M  (727)          (645)
 Free Cash Flow                                      US$M  2,672          2,874

 

 Item             Unit   2022 PFS Data  2024 PFS Data
 LOM              Years  16             15
 Discount rate    %      10             10
 NPV              US$M   949            1,145
 IRR              %      34             42
 Project Payback  Years  4              4

 

Licensing

As announced in September 2023, Amapá Project Management had agreed with the
Amapá State Environmental Agency ("SEMA") to an expedited environmental
process, given the Project had previously been granted all its Operational
Licenses ("LO").

 

SEMA is reviewing the application for the Installation License ("LI") for the
mine and railway, which were submitted in March 2024. The the LI application
for the wholly-owned port are nearing completion, with the final reports due
for submission in the current quarter. Our understanding from SEMA is that
based on the current timeline, the LI will be granted by the end of 2024. The
LI allows the rehabilitation and construction of the Amapá Project, and once
this is completed, the LO is granted, and mining operations can commence.

 

67% 'Green Iron' Flowsheet

The Amapá Project Management team continues to develop the 'green iron'
flowsheet. Part of the work entails carrying out a mineralogical and
multi-elemental analysis of run-of-mine ore, concentrate, and tailings and
testing the full circuit at a pilot-scale level.

 

To this end, the Project has completed a life-of-mine sampling programme,
collecting approximately two tonnes of material, which was shipped to our
independent consultant engineers in March. The samples were shipped and
cleared Chinese customs in late June. The samples have been checked and
reconciled, and flow sheet testing results are expected by the end of the
current quarter.

 

Assuming the testing confirms the flow sheet, we will update the project
economics to reflect the increased revenue and any capital expenditure changes
and update the market with these figures.

 

Project Financing

In October 2023, Cadence announced a memorandum of understanding ("MOU") to
obtain debt financing for the Project. More information can be found in the
announcement here
(https://www.londonstockexchange.com/news-article/KDNC/strategic-development-and-financing/16186336)
. The MOU remains in place and our primary focus has been on securing the
equity needed for the Project's construction.

 

We have signed several non-disclosure agreements in this regard, and
interested parties have been and will be conducting technical site visits as
part of their due diligence. The Project will need to have the necessary
equity and debt in place to start construction. We will inform the markets if
any definite agreements are made. In the meantime, Cadence plans to fund
ongoing work, including the advancement of the 67% flow sheet, licensing,
maintenance of the tailings storage facility, and general working capital for
the Project.

 

About the Amapá Project and Cadence Ownership

The Amapá Project is a brownfield integrated iron ore project in the Amapá
State of Brazil. It has Mineral Resources of 276 million tonnes (Mt) at 38.33%
Iron (Fe) and Ore Reserves of 196 Mt at 39.34%. The Project comprises the
mine, processing plant, wholly owned port and a 194km railway.

 

Since the end of March 2024, Cadence's total investment in the Amapá Project
had increased by approximately US$0.7 million to approximately US$13.9
million, and consequently, the equity stake in the project now stands at
34.2%.

 

 For further information contact:

 Cadence Minerals plc                                         +44 (0) 20 3582 6636
 Andrew Suckling
 Kiran Morzaria

 WH Ireland Limited (NOMAD & Broker)                          +44 (0) 20 7220 1666
 James Joyce
 Darshan Patel

 Isaac Hooper

 Fortified Securities - Joint Broker                          +44 (0) 20 3411 7773
 Guy Wheatley

 Brand Communications                                         +44 (0) 7976 431608
 Public & Investor Relations
 Alan Green

 

Qualified Person

Kiran Morzaria B.Eng. (ACSM), MBA, has reviewed and approved the information
contained in this announcement. Kiran holds a Bachelor of Engineering
(Industrial Geology) from the Camborne School of Mines and an MBA (Finance)
from CASS Business School.

 

Cautionary and Forward-Looking Statements

Certain statements in this announcement are or may be considered
forward-looking. Forward-looking statements are identified by their use of
terms and phrases such as "believe", "could", "should", "envisage",
"estimate", "intend", "may", "plan", "will", or the negative of those
variations or comparable expressions including references to assumptions.
These forward-looking statements are not based on historical facts but rather
on the Directors' current expectations and assumptions regarding the company's
future growth results of operations performance, future capital, and other
expenditures (including the amount, nature, and sources of funding thereof)
competitive advantages business prospects and opportunities. Such
forward-looking statements reflect the Directors' current beliefs and
assumptions and are based on information currently available to the
Directors.  Many factors could cause actual results to differ materially from
the results discussed in the forward-looking statements, including risks
associated with vulnerability to general economic and business conditions,
competition, environmental and other regulatory changes actions by
governmental authorities, the availability of capital markets reliance on
crucial personnel uninsured and underinsured losses and other factors many of
which are beyond the control of the company. Although any forward-looking
statements contained in this announcement are based upon what the Directors
believe to be reasonable assumptions. The company cannot assure investors that
results will be consistent with such forward-looking statements.

 

The information contained within this announcement is deemed by the company to
constitute Inside Information as stipulated under the Market Abuse Regulation
(E.U.) No. 596/2014, as it forms part of U.K. domestic law under the European
Union (Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via a regulatory information service, this information is
considered to be in the public domain.

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