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The EPO award is sure to change Zulu’s potential for the better. As with any mine with a potential such as what we'll see the mining plan will I'm sure establish an incremental approach for its development based on modules.
We see Circum will be adopting such an approach with it's Danakil project.If it's taken the IPO route that is.
The modular approach sets out a mines expansion in phases with optimisation and steady states identified for each phase. In this way the expansion can be financed from profit generated in the main thereby keeping the need to release further equity or taking on further debt to a minimum.
As I see it Zulu will ultimately produce Lithium in Carbonate from its Spodumene at the same time as producing Concentrate from its Petalite resource.
It's not difficult to envisage a mine of Zulu's potential producing at least 100kt's of Carbonate and 300kt's of Concentrate as a minimum. In that situation the Market Cap is going to be roughly $6 to $8bn dollars. It's sure to be of a size to test the world's largest hard rock lithium mines for the top spot.
Prems management skills will be tested to keep as much of the mine as they possibly can as Zulus development is progressed.
The Capex needed for the first module is going to be the most difficult to finance. I see that as being about $120m.
But there are several ways of skinning the cat other than entering into a j.v. although that is clearly an option.
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By way of example and in vogue at the moment in situations like this is one whereby the development is sub-let to a specialist who also provides the necessary finance up to the point where the mine becomes profitable.
But the Lithium story is only part of the opportunity THE EPO area will bring to Prem.
There a geological belt that crosses the EPO area. it's a belt that is known to contain the highest concentrates and grades of gold of its type in the world.
I don't want to tempt fate but from what I believe Lithium is unlikely to be the only potential mining activity we'll be seeing and as exciting as it is it isn't clear yet whether it will be the main one.
Fingers crossed we hear it's been signed off by the President soon.
AIMHO & GLA genuine shareholders.
The price of tungsten is rallying and that will do the financials on RHA no harm at all.
It's currently US$225-245/mtu APT European and up over 17% in a matter of two months or so!
Fingers crossed we have an RNS update on how the re-start and electrification is going soon.
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Just a reminder on Zulu whilst we wait for news.
I like to think of the drilling campaign on the current Licensed Area as having been carried out in three phases even though there all connected and have not been separated by Prem in it's RNS's. It makes it less complicated and easier for me to understand. So using my own nomenclature then Phases 1,2 &3.
Phase 1 I regard as the work done to get to Prems PEA or Scoping Study as some prefer to call it. As all fairly well documented and recorded as it needed to be by BARA to comply with the requisite SAMREC code. The SS was derived from an analysis of the drill results if just 15% of what became called the main strike.
The SS told us that over 20mt’s of the Pegmatites on strike contained 1.06% Li2O in roughly one third Petalite and two third Spodumene proportions. It also gave us the grades for the two types which were particularly high in the Spodumene ore and told us the lithium had a low quantity of iron which made it a premium quality.
All fairly standard stuff but just to emphasise it was minimalist and only represented about 15% of the main strike
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The campaign continued along the strike to its end. This is what I regard as Phase 2. At that point and from the logs Prem gave us the overall estimated resource of up to 160mt's and we see that estimate being used quite often. Again all relatively straightforward and easy to follow.
What seems to be less well known or perhaps understood however is that in Prems eagerness to delineate the total resource over the site Prem carried on drilling. This is what I call Phase 3.
One of the strikes discovered during this phase was simply an extension to the main one. But there were three further step out zones discovered too. These were appropriately categorised at the time as SOZ's 01 to 03.
The Pegmatites in SOZ's 01 to 03 were shown to contain predominantly very high grade Li2O in Spodumene with very little Petalite and Lepidolite encountered. Highly encouraging as it affected the sites proportionality and potential.
Assay results from ZDD-45 was particularly noteworthy if not world beating where a length of Li2O having a bonanza grade in excess of 4% was identified.
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GR is quoted as saying in an RNS at the time “Not often is a grade of 4.24% Li2O seen in drill core” There would have been Tantalum present too no doubt as there would have been in all the cores. But to date it's overall extent is undisclosed.
The additional strikes identified in SOZ’s 01 to 03 along with the main strikes extension ran up to the boundaries of the current licensed area and by interpolation far beyond.
This as well as a “walkover survey” of the adjoining land by experts could well have encouraged Prem to apply for the EPO we're now seeing.
In a Proactive interview you may recall GR also saying that he believed the additional EPO area was on strike as it was quite a significant and encouraging comment.
If you take the additional area of 22,000 ha under application as having a similar density and grade of Li2O then Zulu if developed could likely be proven to be the largest hard rock lithium mine in the world. That's how big Zulu ha the potential to be.
What the EPO area will do is give Prem more flexibility and options on how it develops the asset and obviously a more profitable mine because of the economy of scale.
Just a little more patience needed that's all here! I firmly believe the Mining Affairs Committee have recommended and approved Prems application all that remains now is the boss to sign it!
GLA and fingers crossed
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I like to think of the drilling campaign on Zulu's current Licensed Area as having been carried out in three phases even though there all connected and have not been separated by Prem. It makes it less complicated and easier for me to understand. So using my own nomenclature then Phases 1,2 &3.
Phase 1 I regard as the work done to get to Prems PEA or Scoping Study as some prefer to call it. As all fairly well documented and recorded as it needed to be by BARA to comply with the requisite SAMREC code. The SS was derived from an analysis of the drill results if just 15% of what became called the main strike.
The SS told us that over 20mt’s of the Pegmatites on strike contained 1.06% Li2O in roughly one third Petalite and two third Spodumene proportions. It also gave us the grades for the two types which were particularly high in the Spodumene ore and told us the lithium had a low quantity of iron which made it a premium quality.
All fairly standard stuff but just to emphasise it was minimalist and only represented about 15% of the main strike.
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The campaign continued along the strike to its end. This is what I regard as Phase 2. At that point and from the logs Prem gave us the overall estimated resource of up to 160mt's and we see that estimate being used quite often. Again all relatively straightforward and easy to follow.
What seems to be less well known or perhaps understood however is that in Prems eagerness to delineate the total resource over the site Prem carried on drilling. This is what I call Phase 3.
One of the strikes discovered during this phase was simply an extension to the main one. But there were three further step out zones discovered too. These were appropriately categorised at the time as SOZ's 01 to 03.
The Pegmatites in SOZ's 01 to 03.
were shown to contain predominantly very high grade Li2O in Spodumene with very little Petalite and Lepidolite encountered. Highly encouraging as it affected the sites proportionality and potential.
Assay results from ZDD-45 was particularly noteworthy if not world beating where a length of Li2O having a bonanza grade in excess of 4% was identified.
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GR is quoted as saying in an RNS at the time “Not often is a grade of 4.24% Li2O seen in drill core” There would have been Tantalum present too no doubt as there would have been in all the cores. But to date it's overall extent is undisclosed.
The additional strikes identified in SOZ’s 01 to 03 along with the main strikes extension ran up to the boundaries of the current licensed area and by interpolation far beyond.
This as well as a “walkover survey” of the adjoining land by experts could well have encouraged Prem to apply for the EPO we're now seeing.
In a Proactive interview you may recall GR also saying that he believed the additional EPO area was on strike as it was quite a significant and encouraging comment.
If you take the additional area of 22,000 ha under application as having a similar density and grade of Li2O then Zulu if developed could likely be proven to be the largest hard rock lithium mine in the world. That's how big Zulu ha the potential to be.
What the EPO area will do is give Prem more flexibility and options on how it develops the asset and obviously a more profitable mine because of the economy of scale.
Patience needed thats all here! I firmly believe the Mining Affairs Committee have recommended and approved Prems application all that remains now is the boss to sign it!
GLA and fingers crossed.
I don't think it takes much nowse to see that Prem is a gift horse at this price level!
Care needed though not to just look it in the mouth and do nothing!
The positive events here are in the pipeline now!
AIMHO and fingers crossed.
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Prems value will inevitably be made up of it's constituent parts of which Circum Minerals is one four taking center stage at the moment.
Overview :-
Circum is a private company of substance. It has a “Board” of six Directors who appear to compliment each other will and are experts in their own field. They are supported by an extensive and competent management team and together with outsourced specialists and I’ve no doubt they form a team with a high level of skills. A team more than competent to develop the Danakil project into a successful potash mine if that’s the way it goes.
Circum through its wholly-owned subsidiary, Circum Minerals potash Ltd. has held a majority ownership of Danakil since 2013. It was originally owned by AgriMinco but they sold 70% of it to Circum and 30% to Prem. Circum subsequently bought out Prem in 2014. But Prem have been buying back the shares since then and currently own just over 5%.
As things stand Prem holds 5,010,333 shares in Circum Minerals Limited ("Circum"). The project has the potential to be a world class asset and one of the largest potash mines on Earth producing both Muriate of potash (MOP) & Sulphate of potash (SOP) at the same time from the same boreholes.
From Circums recent letter to it's shareholders we now know a little more about their intentions on their Danakil potash project in Ethiopia as set out below. Also from Pems RNS’s we’re told that Circum are on schedule to achieve their objectives. Moreover Prem has pledged to give its shareholders a choice of how the company's shares are dealt with come the day conditionally but entirely to the advantage of it's shareholders which is truly extraordinary.
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The project is situated in the Danakil evaporite basin which is recognised as one of the hottest places on Earth. Temperatures there are over 40* C for most of the year and that’s an ideal climate for the mines evaporation process. Just about as good as it gets.. The area is also well mapped for potash having been extensively explored for over 100 years.
The potential resource there is nothing short of mind blowing. The licensed area covers 36,500ha which is over 140 square miles. It’s a similar size to the Isle of Wight for scale. So it’s big. Very big!
There's an NI 43-101 compliant reserve and resource of 5 billion tonnes of potash salts there at grades of over 18% KCI at varying depths from a shallow 80m to 500m. Again as things stand.
There's also an additional 7 to 9 billion tonne potential identified reasonably accurately by a detailed seismic survey.
Again for scale a large mine there producing 5m tonnes of MOP & SOP a year combined would give the project a mining extraction rate or ROM of 27.5m/t’s p.a. and give the project a LOM of over 5 centuries!
Again just for perspective that would give the project an in ground value of nearly $650 billion at today's potash prices. Using the adage of valuing the project from its in ground resource we get to roughly a $6.5 to $10 bn Market Cap at its height running in an optimised state producing the 5m tonnes annual production figure I’ve used.
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I believe Circum now has a new DFS for Danakil. But as far as I'm aware it's a private document that’s currently undisclosed. The new one is now based on further studies to optimise the project. The development of the processing plant has been modularised enabling Circum to build the mine in phases which will produce much better economics and at the same time require lower initial Capex.
For now as shareholders we’re only able to consider Circums latest information in the public domain along with any further information we're given by Prem or are able to wheedle out of them. Significantly amongst other things the new DFS will enable a bankable valuation to be made and the importance of that to both Circum as a sales document in an outright sale or to raise finance in an IPO cannot be overstated.
We're told that Circum is at a crossroads with the project and there's been debates going on behind closed doors amongst Directors as to which way to take it for some time. Circums recent update confirms:-
“The Boards approved strategy is to achieve a liquidity event for shareholders either through an outright sale or development of the project. Strategic Sale/Partnering Process As advised previously, various parties are in the process of undertaking due diligence and given the size of the project this is a time consuming process, however, it is expected that it will be concluded by year end. These parties could either acquire the company outright or contribute a significant portion of the equity leading towards the development of the project.”
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The update goes on to say:-
“The company is, however, doing some preparatory work including debt and offtake workstreams for an IPO in the background and should market conditions change, this option could be activated.”
So Circums BOD are running two scenarios. One preferred and the other secondary.
Furthermore the update tells us:-
“In the event that the project is taken forward to development it is intended to finance Capex through a combination of debt and equity to enhance project returns. A leading London based financial advisor was appointed last year to structure a suitable debt package. Excellent progress has been made in this regard, with Expressions of Interest being received from various commercial and development banks for the entire debt package. In addition, there have been strong indications of support by various Export Credit Agencies to provide the required commercial and political risk insurance.
The Board of Circum is optimistic that the positive developments noted above will result in a successful achievement of a liquidity event for shareholders in due course.”
Should a mine be developed by Circum the plan is to achieve a steady state production of 3.5mt's/ annum in less than four years. Based on the estimated total resource that production rate would give the project a Life Of Mine of roughly 750 years which is the best part of a kiloyear or 1 Millennium. So it’s a huge mine from that perspective too.
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Circum was granted its mining license over two years ago which is valid for an initial 20 years, renewable thereafter in 10 year increments. Circum has also obtained Government approval of its Environmental and Social Impact Assessment and Environmental Management Plan. Since then they appear to have been working on getting the $1bn Capex finance arranged. No doubt all aspects necessary for making a start on constructing the mine will be under consideration too not least of all selecting a suitable contractor to build the mine.
The processing plants have now been modularised and Circums plan is to ramp up production to 3.5mt's/annum in four phases in order to minimise the Capex needed and to mitigate the risk. Potash mines are renowned for needing disproportionately high Capex which is why very few get beyond feasibility stage. So the planned construction period for the mine of two years may at first appear long is probably commensurate. Phase 1 production target of 750kt's /annum is set for 2021 leading up to a phase 4 optimised and steady state production of 3.5mt's /annum by sometime in 2024. The modules have been designed to be either SOP or MOP focused to allow Circum to adapt its production to respond to changes in demand and market forces.
The development this way adds exceptional optionality to the project as Circum can bolt on more production modules over time after the initial construction period and it makes any additional phases beyond phase one largely self-funding out of WIP.
The Capex needed to get to phase one is said to be $1bn. Although the figure mentioned in Prem's last Webinar was $1.1bn. I'm not sure but I imagine the addition $100m is for contingencies which is an allowance that always features.
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Solution potash mining uses exceptionally high volumes of water but Circum's process is designed to predominantly use saline brines from the existing water table. Hydrogeological studies that show Circum has access to sufficient brines for its initial operations from the nearest three alluvial fan complexes, all within its license area. All very conducive to mining and reflected in the appraisal.
In field test work, over 600 million litres of brine (roughly the equivalent of two hundred and fifty full size olympic size swimming pools) but only 1 weeks supply of water the mine needs was extracted without any significant impact being observed in the water table. Based upon these results and extensive groundwater modelling expert engineers have concluded that the alluvial fans are excellent aquifers of sufficient storage and yield to supply the required volume of water to satisfy the mines demand beyond the envisaged requirements called for in Circums mining plan.
Nevertheless the groundwater supply is finite and whatever the limitations of that source will almost certainly be the factor that will determine the LOM and more importantly it’s optimised production rate. The water usage is estimated to be 30 gigalitres which per annum is 30 bn litres per annum and Danakil will be allowed to use that amount of water under Ethiopian Law as it will be collected from within it’s licensed mine area.
The SOP & MOP is able to be extracted in solution from the same boreholes. They are able to be kept entirely separate in the boreholes as they are situated in well defined salt layers at different levels. It's quite an important point to make as it brings flexibility to the mining plan as does the plant modularisation all of which will allow the mine to vary the output for each type potash at any time to its advantage. It’s only when the brine is pumped into the drying beds that the two types of brines are separated to dry. Initially I imagine the mine will produce more SOP to enable it to finance the ramp up from phase one out of profit rather than dilute the equity any further or take on more debt
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SOP & MOP have both cost and value differentials. Cash Costs (CC’s) or mining production costs if you prefer are said to be less than $40/t for MOP and $112/t or thereabouts for SOP. Both of those rank amongst the lowest costs in the world.
Revenues after Offtake commissions is more difficult to assess but I have them at about $150/t for MOP and nearer $350/t for SOP respectively.
In Prems last Webinar we were also told that Circum had secured the $750m debt finance it was looking for and two Brokers were negotiating the $350m balance needed to be raised in equity with eight funds or interested parties. All of that seems a while ago now and it seems the negotiations may have changed tack slightly and are nearing conclusion.
The intention is to ship the potash from the mine to the port using huge “roadtrains” via a newly built dedicated road financed by the Ethiopian Government to the port in Djibouti. But even so to ship 3.5mt's /annum is going to be a big ask.The mine will be capable of producing considerably more than 3.5mt's/annum but to do so the mine is going to need a rail link in my view. A combination of both may be the optimum.
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwijur_mut7hAhVDEVAKHTKHDRcQwqsBMAB6BAgHEAQ&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3D0iFkKRh5kcM&usg=AOvVaw0s-jdVaz20mpYk5YiiwQ_h
In fact rail transport has also been evaluated by Circum with the intention of incorporating it into the project economics once production in the Danakil Basin exceeds 3.5 m/t's per annum.
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World fertilizer prices ebb and flow on the basic law of economics supply and demand as we all would expect. In recent history we've seen potash prices fall and they only bottomed out last year. They now continue to follow an upward trend and slow rally in line with the forecast by many experts. All of this bodes well for the Danakil project. SOP prices also continue to demand a considerable premium over those for MOP and I can't see that changing. This is what Circums update tells us:-
"potash Markets potash prices have continued their recoveries from the 2017 lows, owing to tight global supply/demand fundamentals, aided by increasing market demand for both SOP and MOP. The SOP price premium over MOP has been increasing but is expected to taper as China has relaxed its regulations on SOP exports. Positioning on the cost curve will be the key to success, this is where Circum, as one of the lowest cost producers, will have an advantage over other producers."
There was a noteworthy event that happened last year too but it isn't quite so well broadcast. In or around August India being one of the largest end users entered into a huge long term offtake agreement with the Belarusian potash Company (BPC) one of the worlds largest producers. The prices agreed were at a premium to the then market prices of about 25%.
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The effect of that has been not only to lift the market prices generally but more importantly to lay a floor on future prices to prevent them falling close to or below cost. All good news for Danakil. This is what Londons ICIS said at the time:-
“The global muriate of potash (MOP) market is bracing for a flurry of trading and price fluctuations after Indian buyers finalised negotiations for a crucial long-term import contract at a $50/tonne increase”.
So what does all of what I’ve written come down to for Prem and it’s shareholders. Well for starters it tells us that we have a 5% holding in what is looking very likely to be a world class potash mine regardless of who the developers are. It’s reasonable to assume that a bankable valuation will have been made on the project using the new DFS which will give support to values arrived at by the other methods. Those of you familiar with the NI 43-101 Certification that it’s mandatory for valuations to be made on the project once it’s in production. Unfortunately for us however that document remains undisclosed for the time being at least.
It’s not difficult to see that Circums BOD’s are now favouring an outright sale of the project. The signs are clear and you don't have to look too hard to see Curcums update supports that view