REG - Kodal Minerals PLC - Bougouni Project DMS Development Opportunity

Kodal MineralsAnnouncement

29/09/2022 07:00

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RNS Number : 0827B  Kodal Minerals PLC  29 September 2022

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 ("MAR")

 

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

 

29 September 2022

Kodal Minerals plc

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

 

Bougouni Project DMS Development Opportunity

 

Kodal Minerals, the mineral exploration and development company focused on
lithium and gold assets in West Africa, is pleased to provide an update on the
potential for initial rapid development of its Bougouni Lithium Project in
southern Mali ("Bougouni" or the "Project").  The Company continues to review
opportunities to accelerate the development of the Project through a faster
and lower capital cost dense media separation ("DMS") processing plant option,
that will provide an opportunity for the Company to take advantage of the
near-term high price environment in the lithium market.

 

Highlights of the DMS option:

·    Capital development cost for the DMS plant and all associated
infrastructure and commencement of mining is estimated at US$65 million,
generating an estimated NPV(7%) of approximately US$557 million (US$420
million post-tax) and, based on full equity funding, a short payback of 2
months from commencement of operations.

·    The DMS option is based on:

o processing material from the Ngoualana deposit feeding 1Mtpa of lithium ore
to a DMS processing plant

o utilising a conventional circuit to maximise spodumene recovery of over
130,000 tonnes per annum of spodumene concentrate

o an initial 4 year mine life.

·    DMS operation revenue forecast to exceed US$1.05 billion in less than
4 years, based on prevailing broker consensus pricing averaging US$2,080 per
tonne (FOB basis).

·    The DMS operation targets production of a 5.5% Li(2)O spodumene
concentrate product which is consistent with other producers currently active
in the market.

·    Future expansion of the Project is expected to continue with the
construction and commissioning of a down-stream flotation plant expected to be
supported by utilising the DMS plant cash flows in order to exploit the
resources at Sogola-Baoulé and Boumou, as well as longer term exploration
prospects.

 

Bernard Aylward, CEO of Kodal Minerals, remarked: "The DMS plant scenario
provides Kodal with a fast-track option towards achieving our goal of becoming
the first operational lithium mine in Mali. At much reduced capital and
operating costs, and an expected construction timeline of around 12 months,
the DMS development option provides Kodal with a near-term solution to take
full advantage of the continuing buoyant lithium market.

 

"The DMS option has a current mine life of nearly 4 years. This is based on
mining all resources at the Ngoualana pit which boasts the highest grade ore
of all deposits, with potential to supply additional DMS ore feed from
adjacent exploration prospects where previous drilling has intersected with
high grade pegmatite veins at Bougouni South, Marigo and Orchard. Importantly,
the existing upside from the Sogola-Baoulé and Boumou deposits would be
retained and processed in a future flotation plant which can be funded from
the DMS operation project cash flows.

 

"This update utilises prevailing broker consensus pricing for the sale price
of spodumene concentrate which has recently traded at spot prices above
US$5,000 per tonne. The life of mine average concentrate price for the fast
track DMS proposal is US$2,080/t.

 

"The lithium market continues to be very strong and our Bougouni Project
continues to attract strong interest. The DMS development option has attracted
interest from the wider market, and Kodal is progressing discussions with
market operators and potential financing partners. The Company will provide
further updates as discussions progress."

 

Further Information - Potential DMS Development and Project Economics Update

The Company is proposing development of Bougouni based on the installation of
a modular DMS plant to process material from the Ngoualana deposit which, due
to its coarse grain properties, delivers high DMS recoveries.

 

The Kodal engineering team believes that, once financing and Mali Government
update and approvals are received, a DMS plant can be constructed and
commissioned within a 12 month period.  The expected capital cost of US$65
million compares favourably to the previously published Feasibility Study
update in June 2022 which showed a capital cost of over US$154 million for
operations based on a flotation plant.

 

The DMS strategy allows the Company to commence production more quickly,
exploiting the near-term advantage of high lithium concentrate prices, to
generate positive cash flows which can be used to fund a downstream flotation
plant in the future.

 

In response to rising spodumene concentrate ("SC") prices and keen interest
from potential off-take partners, Kodal is pleased to provide information on
its Project development plans and an update on associated economics for a DMS
operation at Bougouni. The DMS feasibility study update ("DMSU") contemplates
DMS specific cost input parameters, exploitation of the high grade Ngoualana
deposit, near-term spodumene concentrate sale prices and a fast track
development timeline.

 

 

Key parameters and opportunities from the DMS development include:

·    Construction and commissioning time estimated at 12 months, compared
to 22 months for a full flotation plant.

·    The JORC(1) Mineral Resource at Ngoualana stands at 5.1Mt at 1.2%
Li(2)O with 61% categorised as Indicated, with potential to add DMS tonnes
from adjacent prospects across the Project's Mining Licence area.

·    DMS recoveries from Ngoualana are much higher than from other
deposits at Bougouni (details as announced on 11 May 2020) and recoveries of
71% were achieved from the bulk sample processed by Kodal in 2020 (details as
announced on 11 May 2020).

·    The DMS proposal at Bougouni is based on an initial mine life of 4
years and processing material from the Ngoualana deposit, based on modified
operating assumptions whereby an open cut, truck and shovel contractor mining
operation at Ngoualana is retained, but feeding 1Mtpa of lithium ore to a DMS
processing plant utilising a conventional circuit to maximise spodumene
recovery.

·    The DMS operation is expected to produce 5.5% or higher lithium
concentrate product which is consistent with other producers currently active
in the market.

 

The planned infrastructure for the DMS operation at Ngoualana includes the
infrastructure necessary for a standalone operation including the Ngoualana
pit development, waste rock dump, new access road, DMS plant, associated
infrastructure and mining services facilities as depicted in the figure below:

 

 

 

   Footnote:

1 -  Mineral resources are reported using a 0.5%Li(2)O cut-off.  The JORC
   code Table 1 with details of the resource estimate parameters is available to
   view on the Company's website at www.kodalminerals.com

 

DMS Option Project Capital and Operating Costs

 

Expected capital and operating costs for the DMS option were derived from
previous studies completed at the Bougouni Project, in addition to project
specific estimates for the proposed DMS plant and associated infrastructure.
The DMSU design concept is based on a fast track approach, utilising modular
crushing and DMS processing plant designs which is understood as being capable
of being supplied much quicker than the larger bespoke equipment required by a
flotation operation (such as grinding mills, where current design, supply and
installation timeframes are estimated at 70-90 weeks).

 

In order to accommodate the 1Mtpa proposed throughput for the DMS operation,
the design concept employs dual stream modular crushing and dual stream DMS
facilities. This is expected to provide some redundancy across the plant,
minimise down time and simplify operational and maintenance activities. Below
is a picture(1) of the typical DMS plant modules proposed in the design being
provided by Kodal's engineering consultant, DRA Global South Africa ("DRA").

 

Pricing has been provided by DRA for the ex-works delivery of the crushing
facility and the DMS plant and associated process infrastructure, including an
estimate for the installation and commissioning of the facilities.  Tailings
storage facility and waste rock dump designs are by Knight Piésold in Perth,
Western Australia, and pit optimisations and designs are by Orelogy, also in
Perth, Western Australia. The aforementioned specialist consultants have been
retained from the original pre-feasibility study ("PFS") deliverable,
providing beneficial continuity from established knowledge of the Project.

 

 

   Footnote:

   1-Above photograph was provided by DRA.

 

 

The operational approach for the DMSU matches that contemplated by the PFS,
retaining drill and blast and all mining activities utilising contractor
mining. The capital cost includes allowance for constructing a dedicated
product haulage access road from the DMS operation at Ngoualana, direct to the
main highway approximately 8km east.

 

The drawing below depicts the proposed layout for the dual-stream modular
crushing and DMS facilities.

 

Expected capital and operating cost outcomes and key project development
parameters from the DMSU are presented in the table below.  All costs are in
US Dollars.

 

 Project Parameter                                   Cost Basis/ Key Parameter  Comment

(versus previous FS/flotation where relevant)
 Plant Throughput                                    1 Mtpa                     Shorter DMS mine life and to ensure low capex using modular plant design
 Average per annum Spodumene Concentrate Production  130 ktpa                   DMS concentrate production reduced; smaller DMS plant remains economic given
                                                                                reduced capex/opex
 Spodumene Concentrate Average Sale Price, US$/t     $2,080                     Consensus pricing and reflects increasing demand and supply differential;

                                                                                Increased demand for supply of battery minerals and confirmation from off-take
                                                                                companies
 Capital Costs (US$ millions)                        $64.8                      Reduced capital costs for DMS development when compared to the PFS flotation
                                                                                plant PFS case
 Mining Costs (/t mined)                             $3.65                      20% increase for DMS operation, due to mining fleet economy of scale
 Processing Cost (/t SC)                             $15.41                     20% decrease, due to lower unit cost for DMS processing
 General & Admin. (/t SC)                            $6.15                      Double the unit cost, due to halved throughput
 SC Freight Costs (/t SC)                            $125.00                    10% increase, due to economy of scale
 SC Recovery                                         63.5%                      10% decrease, reflects typical DMS recovery profile when compared with
                                                                                flotation
 Other Costs
 Royalties                                           3.0%
 Local Partner Royalties                             0.6%
 Land Tax                                            $149,333                   Per annum
 ISCP on Turnover                                    3.0%                       Special products tax and ad Valorem tax   as required by the Mali Mining
                                                                                Code
 Corporate Tax                                       25%                        Discount for first three years

 

Incorporating the above key cost input parameters into the operating cost
model prepared for the DMSU highlights a C1 (Brook Hunt) operating cost
excluding product selling costs of US$436 per tonne of concentrate produced,
with an additional US$125/t for selling costs which includes inland transport
to the port. This benchmarks the Project as a reasonably low-cost producer
when considering the plant throughput of 1Mtpa.  A summary of the life of
mine ("LOM") operating cash costs as per the DMSU and corresponding Cash Cost
per tonne of spodumene concentrate ("SC") produced is tabled below:

 

 Project Parameter            LOM Cost (Total US$M)  Cash Cost (US$/t of SC)
 Mining Costs                 137                    271
 Processing Costs             59                     118
 General & Admin. Costs       24                     47
 Sub Total C1 Cash Cost                              436
 (per tonne of SC produced)
 Selling Costs                63                     125
 All-in C1 Cash Cost                                 561
 Royalties (Govt. & NSR)      38                     75
 Sustaining Capital Costs     6                      11
 Net Cash Operating Costs     327                    647

 

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

 

 

Lithium Demand

In selecting a consensus pricing for the lithium concentrate product, Kodal
has used forecasts from brokers and analysts active in the market. These are
summarised in the table below on a US$ per tonne of SC basis, along with
Kodal's pricing consensus basis for the purpose of the DMS fast track option.

 

 Year               2024   2025   2026   2027   2028
 Broker 1           2,250  2,250  2,250  1,500  1,500
 Broker 2           4,200  3,525  2,725  1,185  1,200
 Commodity Analyst  3,034  2,410  2,150  2,100  1,809
 Kodal Consensus    2,950  2,560  2,250  1,500  1,400

 

These concentrate selling prices (FOB San Pedro Port in Côte d'Ivoire) are on
average higher than the previous studies, reflecting the continued demand for
lithium products and is considered reasonable under current market conditions
given the Company's fast track development scenario for the DMS option.

 

DMS Option Financial Assessment

Summary of the cash flow model inputs and results are tabulated below.

 

Model Inputs:

 

 Variable                         Units         DMSU Case
 Mine Life                        Years         3.9

 Ore Tonnes                       Mt            3.9

 Mined Lithium Grade              %             1.13

 Lithium metallurgical recovery   %             63.5

 Lithium Concentrate Produced     kilo-tonnes   505

 Average Annual Production        kilo-tonnes   130

 NPV Discount Rate                %             7.0%

 

Cash flow model results:

 

 Parameter                    DMSU Case

                             (US Dollars)
 Pre-Tax Cash Flow (EBITDA)  $712,582,000

 Pre-Tax NPV @ 7%            $557,834,000
 Post-Tax Cash Flow (NPAT)   $474,138,000

 Post-Tax NPV @ 7%           $420,400,000

 IRR                         274%

 Payback Period              2 months

 Life of Mine Revenue        $1,051,684,000

 

 

Future Flotation Plant Development

The implementation of the DMS development option does not preclude the
development of a flotation plant facility, the original PFS base case. The
Company is confident that the DMS operation will quickly provide the necessary
cash flow to expand the operation to install the Flotation Plant in the
future.

 

The much lower capital costs required to build the DMS operation provides a
pathway to positive cash flow for Kodal, with a very quick payback and a
robust option that will be quicker in taking advantage of the buoyant lithium
market. The orebodies at Sogola-Baoulé and Boumou are amenable to flotation
processing but not DMS, and will be exploited in the future by a standalone
flotation facility reflecting the original PFS concept, funded wholly from the
DMS operation's cash flows, and leveraging from the then established mining
operation at Ngoualana.

 

Hence the overall positive cash flows presented in the Study Update ("SU")
(announced on 15 June 2022) will be preserved longer term, and importantly the
capital cost burden required for the flotation plant development will be
funded by cash flows from the DMS Operation.

 

The DMS option provides Kodal with a development scenario that is expected to
accelerate Project funding, taking advantage of currently high spodumene
prices, while retaining the full Project mine life upside, and achieving a
self-sufficient business that is able to internally fund all future Project
and exploration expenditures to the benefit of all stakeholders.

 

Exploration Upside at Bougouni

The exploration upside at Bougouni is positive, with a number of drill ready
targets providing opportunity to expand on both the DMS material, and
flotation material. Ngoualana, Sogola-Baoulé and Boumou comprise the current
Mineral Resources at Bougouni but represent only three of the ten lithium
spodumene prospects identified to date.

 

The DMS development option will also provide cash flow for exploration to
expand lithium resources across the Company's 350km(2) project area, with the
following prospects already identified for further investigation:

 

·    Kola

Within trucking distance of Ngoualana, field investigations confirm that the
Kola prospect boasts similar geological characteristics to Ngoualana,
providing confidence that additional DMS ore feed can be discovered.

·    Marigo

Within trucking distance of Ngoualana, field investigations indicate the
deposit is similar in grain structure, providing reasonable prospectivity for
defining additional resources amenable to DMS processing.

 

·    Orchard

Within trucking distance of Ngoualana, Orchard historic trenching work
conducted by Kodal confirmed parallel pegmatite veins of up to 11m in width
identified in trenches with surface samples of up to 2.04% Li(2)O.

·    Boumou North

Field investigations provide confidence in discovering additional orebodies
amenable to flotation processing directly adjacent to the current Boumou
Resource which shows reasonable extension potential.

·    Filon B

Another potential supplement to the future flotation plant ore, Filon B is
relatively underexplored.

 

Project Development Activities

The DMS option has highlighted the development of the Project as a low
development cost scenario and rapid payback option, that is robust and
economically viable. Kodal is progressing discussions with consultants and
contractors experienced with DMS plants and operating in Mali, in order to
quickly move to construction once funding is secured.

 

Kodal is preparing to undertake additional drilling to provide samples for
confirmatory metallurgical testwork at Ngoualana, but also to conduct in-fill
drilling in order to convert Indicated Resources to Measured, and Inferred to
Indicated. Notably at Ngoualana given the broad pegmatite zones encountered,
closer spaced drilling has historically resulted in higher grade estimates.
This is evident based on the grade of the current Indicated Resources (1.25%
Li(2)O) versus Inferred Resources (1.12% Li(2)O) which has the potential to
improve Project economics further.

 

Bougouni Lithium Project Status

Kodal was granted an Environmental Permit over the Project in November 2019.
The original Feasibility Study ("FS") was completed by Kodal in January 2020,
culminating in the granting of a large scale Mining Licence in November 2021
to Kodal'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
97.2km(2) covering the proposed open-pit mining and processing operation at
Bougouni (as announced on 8 November 2021). The Mining Code has provision for
notification of change which will be required for the fast track DMS option.
Kodal has conducted initial discussions with the DNGM to seek their
endorsement for the change. Kodal's next step will be to make a formal
application for change in accordance with the Mining Code, in order to obtain
approval for the DMS development option, and to confirm the Flotation Plant
will be implemented as already permitted.

 

**ENDS**

 

For further information, please visit www.kodalminerals
(http://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/Vivek Bhardwaj/Nick Harriss                       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

JORC - 'Australasian Code for Reporting of Mineral Resources and Ore Reserves'
of December 2012 ("JORC Code") as prepared by the Joint Ore Reserves Committee
of the Australasian Institute of Mining and Metallurgy. Terms including
Measured, Indicated and Inferred Resources as defined therein.

1Mtpa - One million tonnes per annum, pertaining to throughput of the proposed
plant.

PFS - pre-feasibility study refer RNS of 15 June 2022.

C1 (Brook Hunt) - Under the Brook Hunt definition, C1 costs are direct costs,
which include costs incurred in mining and processing (labour, power,
reagents, materials) plus local general and administration costs, freight and
realisation and selling costs.

Incoterms: FOB - Incoterms are a set of internationally recognized rules which
define the responsibilities of sellers and buyers in the export transaction.

DNGM - Direction Nationale de la Geologies et des Mines; which in English
translates to "The National Directorate of Geology and Mines". This
Directorate reports to the Minister of Mines, being the administrative body in
charge of mining activities in Mali.

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