REG - Kodal Minerals PLC - Bougouni Lithium Project Update

Kodal MineralsAnnouncement

15/06/2022 07:00

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RNS Number : 8874O  Kodal Minerals PLC  15 June 2022

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK Market Abuse
Regulations

 

Kodal Minerals Plc / Index: AIM / Epic: KOD / Sector: Mining

 

15 June 2022

Kodal Minerals plc

("Kodal Minerals" or the "Company")

 

Bougouni Lithium Project Update

 

Kodal Minerals, the mineral exploration and development company focused on
lithium and gold assets in West Africa, is pleased to provide details of an
updated Project Feasibility Study and the development status for its Bougouni
Lithium Project in southern Mali ("Bougouni" or the "Project").  This update
is based on a review of the engineering, process recovery and capital cost for
the proposed Project operation and improved financial metrics based primarily
on an improved market outlook for the sale of lithium spodumene
concentrates.  The current buoyant market conditions for lithium spodumene
concentrate reflect current high and future demand for battery minerals and
recognise a supply deficit.

 

Highlights:

·    Confirmation of robust development project at Bougouni with key
metrics including:

o NPV(7%) of US$760M (US$567M post-tax) compared to US$293M (US$201M post tax)
in the original Feasibility Study.

o Life of mine (8.5 years) revenue exceeding US$2,145,000,000 based on an
average sell price of US$1,060 per tonne (FOB basis).

o C1* cash costs of US$362 per tonne of 6% Li(2)O spodumene concentrate
("SC6"), and costs of US$474 per tonne including transportation and other
selling costs.

o Total SC6 production of 2,024,000 tonnes with an annual average production
of 238,000 tonnes.

·    Bougouni Project development based on unchanged operating assumptions
of open cut truck and shovel contractor mining operation, feeding 2Mtpa of
lithium ore to the flotation processing plant, utilising a conventional
flotation circuit to maximise spodumene recovery.

·    Capital cost of the Project increased approximately 20% to US$154M
reflecting increased raw material and fuel costs.

·    A separate study to assess the capital development cost, including a
review of the process plant, has been undertaken by Yantai Jinpeng Mining
Machinery Co. Ltd ("Jinpeng") which indicates an estimated 20% capital cost
saving for the process plant and associated facilities compared to the
feasibility study update figures.

 

*C1 cash cost includes all mining, processing and all general and
administration costs per tonne sold, and additional to that the costs of
transport to port and associated selling costs

 

Bernard Aylward, CEO of Kodal Minerals, remarked: "We are very happy to
release this feasibility study update to our shareholders and our ongoing
review highlights the robust development opportunity our Bougouni Lithium
Project presents.  The current buoyant market conditions for lithium
spodumene concentrate reflects the increasing demand for battery minerals and
recognises an expected supply deficit that provides further incentive for the
immediate development of the Bougouni Lithium Project.

 

"This feasibility study update continues to utilise conservative pricing for
the sale price of spodumene concentrate when compared with current prices
achieved by producers, including Pilbara Minerals Ltd (ASX: PLS) reporting an
average spodumene price reference for sales in the first quarter of this year
of US$2,650 per tonne of concentrate.

 

"The lithium market continues to be very strong and our Bougouni Project
continues to attract significant interest.  The Company is continuing to
review and discuss potential opportunities for collaboration with third
parties, including major mining groups, to support the development of the
Project and more updates will be provided in due course."

 

Further Information

Bougouni Lithium Project Status

Kodal Minerals was granted an Environmental Permit over the Project in
November 2019. The original Feasibility Study ("FS") was completed by Kodal
Minerals in January 2020, culminating in the granting of a large-scale Mining
Licence in November 2021 to the Company's Mali subsidiary company, Future
Minerals SARL. The Mining Licence is valid for an initial 12-year term and
renewable in ten-year blocks until all resources are mined. The Mining Licence
is granted under the 2019 Mining Code and extends over 97.2 square kilometres
covering the proposed open-pit mining and processing operation at Bougouni
(refer to announcement of 8 November 2021).

 

The FS for the Bougouni Lithium Project proposes a contract mining operation
and conventional "milling and flotation" processing facility, capable of
treating 2Mtpa (million tonnes per annum) of ore, complete with associated
infrastructure, to mine and process approximately 16Mt of pegmatite ore over
an initial 8.5-year life of mine ("LOM") for the production of a 6% lithium
concentrate (refer to announcement of 27 January 2020).

 

Lithium Demand

Since the FS was published in January 2020, a number of factors have resulted
in a significant transformation potential for the Project. Of primary
significance is the forecast very high demand for battery minerals, including
lithium spodumene concentrate, which has experienced exponential price
increases in recent times. Historically high demand is being driven not only
by the EV market, but significantly from an increase in planned gigafactory
facilities.

 

6% spodumene concentrate prices (CIF China) for the month of March 2022
averaged US$2,810/t, an increase of 397% over the past 12 months, as reported
by the Battery Materials Review ("BMR") publication (refer
www.batterymaterialsreview.com (http://www.batterymaterialsreview.com) ). In
April, BMR reported the average price had increased another 25% to $3,510/t.

 

Feasibility Study Costs and Project Economics Update

In response to rising SC6 prices, Kodal is pleased to provide an update on
Project Economics at Bougouni.  Kodal has conducted a Feasibility Study
update ("SU") to assess variations in key cost input parameters, optimisation
of metallurgical recovery, and to reflect increased SC6 sale prices since the
original FS was conducted.

 

The rising SC6 price remains the foremost positive impact on project economics
at Bougouni. However, a number of key capital and operating costs inputs
("capex" and "opex") have increased over the past 2.5 years that have a
direct, albeit moderate, impact on the Project's financial outcomes.

 

Of significance are rising iron ore prices (which directly impacts steel
prices, a major component of the process plant) and rising fuel prices (which
directly impacts shipping costs and mining operating costs) which have been
incorporated into this study update.

 

Overall, this has resulted in an approximate 20% increase in the expected
capital cost to US$154.3 million and a 15% increase in mining cost to US$3.03
per tonne.

 

Further advancement of spodumene concentrate flotation technology has had a
positive impact on metallurgical recoveries which has also been addressed in
the SU. Metallurgical testwork conducted for the FS concluded that the
laboratory flowsheet predicts "a recovery of 75% of Li(2)O to a concentrate
grade of 6%." Average recovery for life of mine of 74% was adopted for the SU.

 

The Feasibility study update incorporated a review of capital and operating
costs of the proposed operation and the outcomes are presented in the table
below, including a comparison to the estimates current at the time of the
original FS (refer to announcement of 27 January 2020).

 

 Project Parameter              Cost Basis; US$ or %      Comment
                                Original FS  SU
 Average Sale Price (/t SC6)    $738         $1,060       ~ 43% increase; increased demand for

                                                             supply of battery minerals
 Capital Costs (US$ millions)   $128.6       $154.3       ~ 20% increase; due to steel costs and

                                                             shipping costs (fuel and demand related)
 Mining Costs (/t mined)        $2.63        $3.03        ~ 15% increase; due to fuel costs and

                                                             contractor demand
 Processing Cost (/t SC6)       $17.19       $18.56       ~ 8% increase; due to power costs and

                                                             impact of fuel costs on opex
 General & Admin. (/t SC6)      $2.92        $3.22        ~ 10% increase; due to labour costs
 SC6 Freight Costs (/t SC6)     $93.60       $112.32      ~ 20% increase; due to impact of fuel costs

                                                             on transport
 SC6 Recovery                   71%          74%          ~ 3% increase; reflects improved process

                                                             recoveries, technology advancement,     and low level of impurities in
                                                          ore
 Other Costs
 Royalties                      3.0%         3.0%
 Local Partner Royalties        0.5%         0.6%
 Land Tax                       $149,333     $149,333        Per annum
 ISCP on Turnover               3.0%         3.0%            Special products tax and ad Valorem tax     as required by the Mali
                                                          Mining Code
 Corporate Tax                  25%          25%

 

Incorporating the above changes to key cost input parameters into the
operating cost model prepared for the FS highlight a C1 (Brook Hunt) operating
cost excluding product selling costs for the SU of US$362 per tonne of
concentrate produced, with an additional $112/t for selling costs which
includes inland transport to the port. This benchmarks the Project as a
reasonably low-cost producer.  A summary of the operating cash costs is
tabled below:

 

 Project Parameter             Base Case (Total US$M)      Cash Cost (US$/t of SC6)
                               Original FS   SU            Original FS    SU
 Mining Costs                  334           385           172            190
 Processing Costs              275           297           141            147
 General & Admin. Costs        47            51            24             25
 Sub Total C1 Cash Cost                                    337            362
 (per tonne of SC6 produced)
 Selling Costs                 182           227           94             112
 All-in C1 Cash Cost                                       431            474
 Royalties (Govt. & NSR)       50            77            26             38
 Sustaining Capital Costs      16            16            8              8
 Net Cash Operating Costs      904           1,053         465            520

 

These operating and capital costs were then assembled into the proposed mining
and processing operation from the FS, based on Indicated and Inferred
Resources to develop a high-level financial model in order to evaluate the
economics of the operation.  The estimate for revenue is based on delivering
a 6% spodumene concentrate, Free on Board (FOB), to the Port of San Pedro in
Côte d'Ivoire.

 

SC6 concentrate selling price (FOB San Pedro Port in Côte d'Ivoire) is based
on a start price of $1,250/t for the first two years of production, reducing
to $1,200/t for the following 2 years, and then $900/t for the remaining life
of mine. This equates to the $1,060/t life of mine average price, which is
considered reasonable under current market conditions.

 

A summary of the cash flow model inputs and the resulting cash flow model
results are tabulated below:

 

Model Inputs:

 

 Variable                          Units         Original FS Case  SU Case
 Mine Life                         Years         8.5               8.5

 Ore Tonnes                        Mt            16.0              16.0

 Lithium Grade                     %             1.03              1.03

 Lithium metallurgical recovery    %             71.0              74.0

 6% Lithium Concentrate Produced   kilo-tonnes   1,942             2,024

 Average Annual Production         kilo-tonnes   218               238

 NPV Discount Rate                 %             7.0%              7.0%

 

Cash flow model results:

 

 Parameter                    Original FS Case    SU Case

(US $'000)

                                                 (US $'000)
 Pre-Tax Cash Flow (EBITDA)  395,766             1,067,679

 Pre-Tax NPV @ 7%            293,460             759,839
 Post-Tax Cash Flow (NPAT)   306,186             773,634

 Post-Tax NPV @ 7%           200,769             567,231

 IRR                         50.9%               91.2%

 Payback Period              1.8 yrs             0.8 yrs

 Life of Mine Revenue        1,432,907           2,145,062

 

 

Project Development Activities

The SU has highlighted the development of the Project as a robust,
economically viable proposition. Since publishing the first FS, the Company
has continued its activities to optimise and advance the Project, including
various strategic advances in support of the SU and associated costs.

 

Kodal engaged an experienced Chinese engineering consultancy based in
Shandong, Yantai Jinpeng Mining Machinery Co. Ltd ("Jinpeng"), who boast
direct experience in the design of hard rock milling and flotation plants.
Jinpeng were engaged to conduct study update engineering services for the
complete range of plant area design necessary to provide a technically
compliant processing plant facility for Bougouni. This included all processing
plant equipment and services including crushing, milling, flotation,
filtration, tailings handling and product load out facilities.

 

The Jinpeng study update was completed in Q1 2022 and was based on equipment
suppliers from China for the same flowsheet as defined in the FS. The original
FS contemplated major equipment suppliers in Europe and South Africa.

 

The Jinpeng SU capital cost estimate realised a circa 20% capital cost saving
for the process plant and associated facilities and services when compared
with the original FS. Engaging with Jinpeng provides Kodal with an opportunity
to decrease capital costs (particularly given the forecast increased capital
costs), and this will be pursued in more detail in the future as the Company
advances the Project to development stage.

 

Other areas that have the potential to enhance the Bougouni Lithium Project
include:

 

·    Resource growth and increase of head grade from further exploration
in the highly prospective areas contained within existing exploration leases;

·    Reduction in capital cost through further optimisation of the
flowsheet and engaging with experienced Chinese manufacturers;

·    Investigate more favourable power supply solutions to reduce
operating costs, which is currently under way on the basis of connecting to
the future high-voltage grid approximately 15km from the site (the new
Bougouni substation is being constructed presently under the 225 kV
Sikasso-Bougouni-Sanankoroba-Bamako Transmission line project by the Mali
power authority - Energies de Mali);

·    Optimisation of mine scheduling and drill and blast strategy; and

·    Cost savings relating to the construction of the tailings storage
facility ("TSF").  Currently the design of Stage 1 is based on 24 months of
capacity to combat potential for adverse climatic conditions.  Potentially
this could be reduced to about 18 months' capacity if the sequencing of
construction is favourable with respect to maximising construction in the dry
season.

 

**ENDS**

 

For further information, please visit www.kodalminerals.com or contact the
following:

 

 Kodal Minerals plc

 Bernard Aylward, CEO                                            Tel: +61 418 943 345

 Allenby Capital Limited, Nominated Adviser

 Jeremy Porter/Nick Harriss/Liz Kirchner                         Tel: 020 3328 5656

 SP Angel Corporate Finance LLP, Financial Adviser & Broker

 John Mackay/Adam Cowl                                           Tel: 020 3470 0470

 St Brides Partners Ltd, Financial PR

 Susie Geliher/Ana Ribeiro                                       Tel: 020 7236 1177

 

Glossary:

 

CIF China - Cost, insurance, and freight (CIF) - Under CIF, the buyer takes
over ownership of the merchandise only at the port of destination. The seller
is responsible for the cost and freight and ownership handover takes place at
the destination port.

 

C1 (Brook Hunt) - a standard metric used in mining as a reference point to
denote the basic cash costs of running a mining operation to allow a
comparison across the industry.  Under the Brook Hunt definition, C1 costs
are direct costs, which include costs incurred in mining and processing
(labour, power, reagents, materials) plus local G&A, freight and
realisation and selling costs. Any by-product revenue is credited against
costs at this stage.

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