Bougouni Project DMS Development Opportunity

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% Li₂O 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 JORC¹ Mineral Resource at Ngoualana stands at 5.1Mt at 1.2% Li₂O 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%Li2O 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 picture¹ 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 (per tonne of SC produced)		436
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 Ore Tonnes Mined Lithium Grade Lithium metallurgical recovery Lithium Concentrate Produced Average Annual Production NPV Discount Rate	Years Mt % % kilo-tonnes kilo-tonnes %	3.9 3.9 1.13 63.5 505 130 7.0%

Cash flow model results:

Parameter	DMSU Case (US Dollars)
Pre-Tax Cash Flow (EBITDA) Pre-Tax NPV @ 7%	$712,582,000 $557,834,000
Post-Tax Cash Flow (NPAT) Post-Tax NPV @ 7% IRR Payback Period Life of Mine Revenue	$474,138,000 $420,400,000 274% 2 months $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 350km² 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% Li₂O) versus Inferred Resources (1.12% Li₂O) 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 97.2km² 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 .com or contact the following:

Kodal Minerals plc Bernard Aylward, CEO	Tel: [phone]
Allenby Capital Limited, Nominated Adviser Jeremy Porter/Vivek Bhardwaj/Nick Harriss	Tel: [phone]
SP Angel Corporate Finance LLP, Financial Adviser & Broker John Mackay/Adam Cowl	Tel: [phone]
St Brides Partners Ltd, Financial PR Susie Geliher/Ana Ribeiro	Tel: [phone]

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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