Australian resources companies are always progressing ambitious plans to turn mineral deposits into operating mines. It is a long and sometimes painful rite of passage, and it requires significant investment (both equity and debt funding), and the companies have to jump through a lot of hoops.
These days, the “critical” minerals – both in the “clean energy transition” and more geo-politically sensitive defence/aerospace applications – are major talking points in the global mining industry.
Here are three situations where Australian mining hopefuls are well on the way to bringing deposits into production, to tap into these themes – and in one case, extending the country’s mineral production into the more exotic regions of the periodic table.
(There was to be a fourth company, but it went into a trading halt this morning — you don’t mess with trading halts (which, of course, can presage good as well as bad news) so I took it out).
- Poseidon Nickel (POS, 3.8 cents)
Market capitalisation: $129 million
12-month total return: –54.2%
Three-year total return: 4.8% a year
Analysts’ consensus price target: 11 cents (Stock Doctor/Refinitiv, one analyst)
Poseidon Nickel — holder of a very famous name in Australian resources, but it has nothing in common with the stock that shot to the moon and back in 1969-70 — is on track to become Australia’s next nickel sulphide concentrate producer, following a positive feasibility study outcome at its flagship Black Swan project in Western Australia.
Black Swan is the most advanced of three wholly owned projects located in the Goldfields region of Western Australia: Poseidon also has the Lake Johnston and Windarra projects, and in total, it sits on a resource base of about 400,000 tonnes of nickel and 180,000 ounces of gold, with huge exploration potential — as shown by the discovery of the Abi Rose deposit at Lake Johnston and the Golden Swan high-grade resource discovered at Black Swan in 2020.
While nickel enjoys high demand in its traditional role in steel-making, these days it is also considered a crucial ingredient in the lithium-ion batteries used in electric vehicles, and renewable energy.
Poseidon Nickel is initially proposing to mine and process 1.1 million tonnes a year of ore from Black Swan, to produce a high-grade nickel concentrate with about 15% nickel and an iron-to-magnesium oxide ratio of 5:1, a mix that is highly desirable for conventional nickel smelters. Existing infrastructure – including a concentrator at Black Swan, which will need to be refurbished – means a relatively low-cost (and lower-risk) commencement compared to a completely new operation: POS estimates that it will take about $50 million of spending to get to production.
The 1.1 million-tonnes-a-year mill-feed bankable feasibility study (BFS) is part of Poseidon’s “fill the mill” strategy, with production targeted in 2024. The company envisages processing 5 million tonnes of ore over about 4.5 years to produce about 200,000 tonnes of concentrate, containing about 30,000 tonnes of contained nickel, at a cash production (C1) cost of $6.70 a pound — the current nickel price is US$10.98 ($16.64) a pound.
The company says the project could deliver free cash flows of $333 million with a pre-tax net present value of $248 million and an internal rate of return (IRR) of 103%, at the current Australian dollar nickel price. A payback period of about 1.3 years underpins strong cashflows in the first two years of production, says broker Morgans, which has a price target on POS of 11 cents.
Poseidon Nickel is in discussions with potential offtake and financing partners to achieve a final investment decision (FID): if, as expected, FID is announced before July, first concentrate production would be expected by July 2024. That would be coming into a “robust” nickel market.
Further out, the strong exploration and development potential at Lake Johnston and Windarra comes with the shares.
- Australian Vanadium (AVL, 3.7 cents)
Market capitalisation: $147 million
12-month total return: –47.9%
Three-year total return: 54.7% a year
Analysts’ consensus price target: n/a
Vanadium is another metal that is coming into its own in demand terms, being another “battery mineral” that is needed for electric batteries to be produced in line with the growing global demand for electric vehicles (EVs) and renewable energy. In
particular, vanadium is crucial to the vanadium redox flow battery (VRFB) energy storage business, as well as (like nickel) having traditional demand from the steel industry.
But vanadium is currently a gap in Australia’s production of metals.
Australian Vanadium wants to change this, having completed a bankable feasibility study (BFS) in April for its eponymous Australian Vanadium project, centred around the Gabanintha resource, 750 kilometres north-east of Perth, and set about seeking debt funding.
According to the BFS, the Australian Vanadium project is one of the most advanced projects of its kind being developed around the world, with a resource of 239 million tonnes at a grade of 0.73% vanadium pentoxide, and an ore reserve of 30.9 million tonnes, grading 1.09%. The company says the project has a pre-tax net present value (NPV) of $833 million and internal rate of return (IRR) of 20.6%, based on a vanadium pentoxide price of US$10.50 a pound (it is currently US$8.30 a pound).
The mine would produce 24.7 million pounds (11,200 tonnes) of 99.5% vanadium pentoxide concentrate, as well as 900,000 tonnes of an iron-titanium co-product, a year, over its 25-year mine life. With a cash production cost of US$4.43 a pound of vanadium pentoxide, the project would generate $4.4 billion of life-of-mine EBITDA (earnings before interest, tax, depreciation and amortisation), and pay back its capital spending 7.3 years into production.
With more than 75% of global vanadium supply currently sourced from China, Russia, and South Africa, there is a growing case for users of the metal to diversify their supply-chains toward politically stable, ESG-credentialled jurisdictions – and Australia fits that bill.
AVL also plans to develop a commercial vanadium electrolyte manufacturing facility in Western Australia, to support its strategy to become a vertically integrated ‘pit to battery’ vanadium producer. A location for the plant has been secured, detailed design completed and equipment ordered for the plant, which will produce vanadium redox flow battery (VRFB) high-purity electrolyte: AVL says the plant will be capable of producing up to 33MWh (megawatt hours) storage worth of VRFB high-purity electrolyte a year, making it an “early mover” in supplying the growing Australian long-duration energy storage market, “in which VRFBs will play a key role.”
The value-adding project has been given Federal Major Project Status by the Australian government and State Lead Agency Status by the Western Australian government, demonstrating the project’s potential strategic importance to both. The Australian government has awarded AVL a grant of $3.69 million to co-fund the plant.
AVL expects vanadium demand to double by 2032, with more than 90% of this growth coming from VRFBs. While the VRFB market only accounts for about 3%—5% of vanadium production, industry research suggests that the continued shift to renewable energy solutions could trigger a surge in vanadium demand and account for 20% of vanadium consumption by 2030. If all goes to plan, Australian Vanadium has told the market that it will become the world’s fourth primary vanadium producer, commencing in 2025.
- Silver Mines (SVL, 3.8 cents)
Market capitalisation: $309 million
12-month total return: 0%
Three-year total return: 37.3% a year
Analysts’ consensus price target: n/a
Silver Mines owns the Bowdens Silver project, located near Mudgee in central New South Wales, which is Australia’s largest undeveloped silver deposit and one of the largest in the world. The project plans an open-cut silver, lead and zinc mine and processing plant that will work through up to 2 million tonnes of ore a year, over a planned 23-year life, including 16.5 years of silver production, with zinc, lead and gold as by-products.
While silver is both a precious metal and an industrial metal, its range of uses has exploded in recent years, based on its main industrial use-case – that it is the best electrical conductor. From this quality, silver is essential in the production of both solar panels and electric vehicles (EVs). Silver’s conductivity and corrosion resistance make it necessary for conductors and electrodes; nearly every electrical connection in an EV uses silver and, in total, the automobile industry uses 55 million ounces of it a year – and that demand is growing.
According to the project’s feasibility study, Bowdens is expected to produce an average of 3.4 million ounces of silver a year, together with approximately 6,900 tonnes of zinc and 5,100 tonnes of lead. Due to higher silver grades in the early stages of mining, average production during the first three years of operation will be approximately 5.4 million ounces of silver a year, plus 6,000 tonnes of zinc and 5,200 tonnes of lead.
Last month, despite local community objections, the Bowdens silver project gained final development approval from the Independent Planning Commission (IPC) of New South Wales allowing the project to proceed now to development and production later this year, subject to conditions of consent.
That followed the release in March of an updated mineral resource estimate for Bowdens, to
200 million tonnes at 62 grams per tonne (g/t) silver equivalent, for 396 million ounces of silver equivalent. (The contributing grades were 29g/t silver, 0.37% zinc, 0.26% lead and 0.07 g/t Au gold.) Compared to the 2017 Mineral Resource estimate, the resource upgrade represented a 56% increase in total tonnes, and a 44% increase in total silver equivalent ounces – a big lift, in what was already Australia’s largest known undeveloped silver deposit.
The mineral resource estimate also includes 19 million tonnes at 0.31 g/t gold for 190,000 ounces of gold: adding the gold boosts the value of the project significantly.
The project also has substantial potential expansion opportunities through exploration. For example, in three zones beneath the open pit, there is an underground mineral resource of almost 43 million ounces of silver equivalent. Like the open pit, the underground resource is likely to be expanded.
While the company works to convert the updated mineral resource estimate to an ore reserve, it will also use it to plan the mine. While there was considerable community disquiet over the mine proposal, Silver Mines says the area has outstanding logistics and infrastructure for future mine development.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
