Cradle Resources — Update 20 April 2016

Cradle Resources — Update 20 April 2016

Cradle Resources

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Cradle Resources

Lucrative Panda found in Tanzania

Metals & mining

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20 April 2016

Price

A$0.26

Market cap

A$35m

Share price graph

Share details

Code

CXX

Listing

ASX

Shares in issue

134.9m

Business description

Cradle Resources has a 50% interest in the Panda Hill Niobium Project in Tanzania. This interest makes it one of the few niobium explorers/developers in a world in which 90% of the world’s metal supply originates from just one country (Brazil) and just three companies.

Bull

Unremarkable metallurgy.

Specialty and concentrated nature of niobium market.

Access to water, power and transport infrastructure.

Bear

Tanzania ranked 69 out of 109 by Fraser Institute.

30-year life of mine plan includes inferred resources.

Need for HFO power before connecting to the grid.

Analyst

Charles Gibson

+44 (0)20 3077 5724

Cradle Resources is a research client of Edison Investment Research Limited

Cradle has today announced the results of the DFS on the Panda Hill Niobium Project. Cradle’s 50% share of NPV10 equates to US$1.50/share, ie Cradle’s shares are currently trading at just 13.5% of the value of its share in the project. Assuming that its share of initial capex (US$102.2m including working capital) is 50:50 debt:equity funded, it will therefore need to raise just US$51.1m (A$65.7m) in equity finance to advance it. As such, Panda Hill is poised to become the world’s first new niobium mine in 40 years, accounting for c 6% of global production.

Results of definitive feasibility study (DFS)

Compiled by MDM in collaboration with Coffey, SRK, SGS, SLR and Roskill (inter alia), the DFS envisages a 1.3Mtpa open pit operation, expanding by 100% from year four, mining an average 0.68% Nb2O5 grade in years 1-10 (and 0.54% over the 30-year life of mine) to produce an average 8,200t of ferro-niobium pa at an average stripping ratio of 1.5:1 and metallurgical recovery of 61%. Initial capex is estimated to be US$196m, with a further US$93m (to be funded from project cash flows) in year four. Average life-of-mine EBITDA is estimated to be US$112m pa (US$0.83/share undiluted) and the payback period 4.75 years. Ultimately, the DFS calculates a pre-tax project IRR of 32% and a post-tax NPV10 of US$404m at an initial product price of US$37.65/kg Nb and average unit operating costs of US$48.04/t ore processed or US$21.34/kg Nb produced.

Metallurgy similar to existing operations

The Panda Hill carbonatite is a near-circular, volcanic intrusion into the surrounding rock with a diameter of c 1.5km. It is steeply dipping, which renders it amenable to a conventional open pit mine incorporating six push-backs. To date, only 40% of the carbonatite area has been drill tested. Significantly, the ore’s metallurgical characteristics result in a process flowsheet in which 1) the flotation function is similar to Magris Resources’ Niobec project (which has a similar geology and mineralogy to Panda Hill); 2) the leaching function is similar to Anglo American’s Catalao; and 3) the converter function is similar to CBMM’s (the world’s dominant producer) final conversion stage, such that the ultimate product is high-quality Fe-Nb buttons.

Milestones

Cradle is actively involved in funding discussions, while its partner (Tremont) is engaged in well-advanced offtake and debt financing negotiations. A final development decision is expected in H216, leading to construction and commissioning in mid-2018.

Historical financials

Year
end

Revenue
(A$m)

PBT
(A$m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.0

(1.3)

(0.98)

0.0

N/A

N/A

12/15

0.0

(1.9)

(5.61)

0.0

N/A

N/A

Source: Company sources

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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Nektan — Update 19 April 2016

Nektan

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