Investment Update: Future Metal Holdings CPR

RNS Number : 6350F

Jade Road Investments Limited

19 July 2021

 

19 July 2021

RNS

JADE ROAD INVESTMENTS LIMITED

(" Jade Road " or the " Company ")

Investment update:

Future Metal Holdings: Competent Persons Report (CPR)

SRK Consulting Report Published

Jade Road Investments Limited, the London-quoted, pan-Asian diversified investment vehicle focused on providing shareholders with attractive uncorrelated, risk-adjusted long-term returns, is pleased to announce an investment update, and confirms that the full SRK report dated March 2021 ("CPR") on Future Metal Holdings ("FMHL" or the "Quarry") has been published on https://jaderoadinvestments.com/home and will be published on https://futuremetalholdings.com in due course. Jade Road has an 85% shareholding in Future Metal Holdings Limited.

Highlights:

· The CPR confirms a JORC Code Compliant Mineral Resources of the Zhuangpeng Mine of 35.95 million tonnes ("Mt") with an average grade of 20.74% dolomite oxide ("MgO") (Measured); 81.40Mt with an average grade of 20.48% MgO (Indicated); and 31.81Mt with an average grade of 20.61% MgO (Inferred) (see resources table below)

· The Quarry has already obtained all necessary operational licences and permits

· The CPR, incorporating the expanded ("3Mt") production rate, estimates a net present value of the asset is RMB487.47 million (c.USD75.5 million) by using the discounted cash flow method with a 9% discount rate. The assumptions are also set out below. The internal rate of return is 28.55%. Jade Road applied a further 17% discount to the independent valuation conducted by SRK and as of 31st of December 2020, the asset was valued at USD50.4m in the portfolio

· The Quarry is currently in production at a rate of 300kt pa

Summary of the Report:

Geologically, the dolomite quarry project ("Quarry") is located approximately 40 kilometres ("km") east of Xi County, 90km northwest of Linfen City, or 220km southwest of Taiyuan, the capital city of Shanxi Province, P.R. China. The main ore mineral is dolomite.

Mining and stripping operations are conducted under conventional contract mining, and environmental risk is well managed under Chinese national requirements. The estimated ore loss rate and dilution rate are both 5%, respectively. As of 31 December 2020, at a cut-off grade of 19% dolomite oxide ("MgO"), the JORC Code Compliant Measured, Indicated and Inferred Mineral Resources of the Zhuangpeng Mine were:

· Measured:35.95 million tonnes ("Mt") with an average grade of 20.74% MgO;

· Indicated: 81.40Mt with an average grade of 20.48% MgO; and

· Inferred: 31.81Mt with an average grade of 20.61% MgO, respectively .

Based on the parameters mentioned above, as of 31 December 2020, the Quarry has a Proved and Probable Reserves of 113Mt, out of approximately 149Mt of dolomite as calculated by Measured, Indicated and Inferred Resource.

SUMMARY OF RESERVES AND RESOURCES BY STATUS

Category	Gross			Net attributable (85% to Jade Road)			Operator
Ore/Mineral Reserves per asset	Tonnes (millions)	Grade MgO  (%)	Contained Metal	Tonnes (millions)	Grade MgO  (%)	Contained Metal
Proved	34.89	19.70	n/a	29.59	19.70	n/a	Future Metal Holdings
Probable	78.51	19.47	n/a	66.58	19.47	n/a	Future Metal Holdings
Subtotal	113.40	19.54	n/a	96.16	19.54	n/a
Mineral Resource per asset
Measured	35.95	20.74	n/a	30.49	20.74	n/a	Future Metal Holdings
Indicated	81.40	20.48	n/a	69.03	20.48	n/a	Future Metal Holdings
Inferred	31.81	20.61	n/a	26.97	20.61	n/a	Future Metal Holdings
Subtotal	149.2	20.57	n/a	126.49	20.57	n/a

Source: SRK

The Quarry has already all necessary operational licenses and permits, the most important being the Mining Licence and the Work Safety Permit which are valid until March 2023 and August 2023, respectively. In December 2020, the Quarry also obtained approval of its onsite environmental facilities from the local Ministry of Ecology and Environment.

The licence covers an area of 2.3 square kilometres and allows a mining capacity of 0.3 million tonnes per year ("Mtpa"). The designed capacity, which the Directors understand is feasible upon expansion, is 3Mtpa. The expected mine life is 40 years with a two-year construction period for the expansion design.

The net present value of the asset is RMB487.47 million (c.USD75.5 million) by using the discounted cash flow method with a 9% discount rate (the assumptions are set out below). The internal rate of return is 28.55%.

Risks regarding geology and resource, mining, processing, environment and capital and operating costs are considered by SRK to be relatively low since the Quarry is already in production stage. Finally, the Directors believe that enhancing the product market and sales would be the key to achieve better economic goals.

Jade Road applied a further 17% discount to the independent valuation conducted by SRK and as of 31^st of December 2020, the Company valued the asset on its Balance Sheet at USD50.4m.

Economic Assumptions for the expanded plant, as of 31 December 2020

Item	Unit	Amount
Ore Reserve
Proved + Probable Ore Reserves (JORC Code 2012)	Mt	113.40
Production Plan
Dolomite Production Rate	Mtpa	3.0
Qualified* Dolomite Yield	%	80
Unqualified** Dolomite Yield	%	20
Saleable Wall Rock Yield	%	92
Construction Period Proposed	year	2
Life of Mine	year	38
Calculation period	year	40
Economy
Construction Expenditure	M'RMB	286.50
Working Capital	M'RMB	46.64
Sustained Capital (Project Investment Base)	%	2.5
Stripping Cash Operating Cost	RMB /t	7.69
Mining and Crushing Cash Operating Cost	RMB/t	12.37
Dolomite Load and Haul Cost on Site	RMB/t	1.00
Wall Rock Load and Haul Cost on Site	RMB/t	1.50
Depreciation and Amortization	M'RMB/year	19.56
G&A	M'RMB/year	33.01
Financial Expenses	M'RMB/year	1.96
Sales Expenses (Sales Revenue Base)	%	1.00
Price of Qualified Dolomite (including VAT)	RMB/t	75.00
Price of Unqualified Dolomite (including VAT)	RMB/t	20.00
Price of Saleable Wall Rock (including VAT)	RMB/t	20.00
Resource Tax (sales revenue based)	%	5.00
Value-added Tax (VAT)	%	13.00
City Maintenance and Development Tax (payable VAT based)	%	7.00
Educational-surtax and Local Educational-surtax (payable VAT based)	%	5.00
Corporate Tax Rate (grass profit based)	%	25.00
Discount Rate	%	9

Exchange rate as of 14^th July: 1RMB-0.15$USD

*Qualified Dolomite: Carbonate mineral sold as raw material for magnesium smelting.

** Unqualified Dolomite: Carbonate mineral unsuitable for smelting and sold as building stone.

Production Schedule

Item	Unit	Ramp-up Stage		Production Stage
		2021	2022	2023	2024-2038	2039-2042	2043-2045
Mined ore	kt	300	300	2,100	3,000	3,000	3,000
Stripping rock	kt	7,300	9,700	7,900	7,000	6,500	3,230
Stripping ratio	m3/ m3	24.33	32.33	3.76	2.33	2.17	1.08
Ore and waste rock in total	kt	7,600	10,000	10,000	10,000	9,500	6,230
Rock for sale	kt	550	9,260	7,540	6,690	6,210	3,080
Qualified dolomite for sale	kt	240	240	1,680	2,400	2,400	2,400
Unqualified dolomite for sale	kt	60	60	420	600	600	600
Item	Unit	Production Stage
		2046-2053	2054	2055-2056	2057-2058	2059	2060
Mined ore	kt	3,000	3,000	3,000	3,000	3,000	3,000
Stripping rock	kt	1,500	1,200	1,000	700	400	200
Stripping ratio	m3/ m3	0.5	0.4	0.33	0.23	0.13	0.07
Ore and waste rock in total	kt	4,500	4,200	4,000	3,700	3,400	3,200
Rock for sale	kt	1,430	1,150	960	670	380	190
Qualified dolomite for sale	kt	2,400	2,400	2,400	2,400	2,400	2,400
Unqualified dolomite for sale	kt	600	600	600	600	600	5,400

Future Metal Holdings Update:

During Q1 2020, the Quarry recommenced activities with the construction of a steel structure to enclose its stockpile site as well as the process of land hardening to comply with the local environmental requirements. The construction of both the land hardening and the enclosed structure was completed around the end of Q2 2020. Due to the two construction projects, production was suspended between April and May 2020. In line with the wide-ranging industrial activities in China, the Quarry resumed operations in June 2020.

In 2020, the Directors understand intense efforts were exerted to maximise the value of the project. In order to expand the Quarry's sales channels, the local team engaged a new contractor in 2021 to help expand the local networks and to facilitate the process of product selling to downstream customers.

With the appointment of the new contractor, it is intended that the Quarry's products will reach customers with a further geographical radius. Currently, all the mined dolomite is sold to mixing plants in the local region for construction purposes. The Directors also understand that the management team of the Quarry is in contact with external parties regarding a potential business collaboration of a highway construction project using dolomite and wall rock. Jade Road will continue to keep investors informed of project updates in this area. The Directors of Jade Road will also continue to focus on enhancing the asset's efficiency of operations and actively seeking potential or partial exits where possible.

John Croft, Executive Chairman of Jade Road, commented:

'We are very pleased to share the full SRK Report on Future Metal Holdings, one of Jade Road's main assets. The notable improvement in the Asset between 2019 and 2020 is mainly attributed to the effort made to substantially improve the Quarry from the completion of its external structure in 2019 to the different licences secured to comply with the latest environmental regulations in 2020. Furthermore, the production schedule shows a strong commitment to develop the different resources on site and the local Management Team is in constant interaction with external parties for potential business collaborations. Our objective remains to maximise the value of the asset whilst also positioning it for a possible monetisation event, which would ultimately benefit the Shareholders of Jade Road'.

FOR FURTHER INFORMATION, PLEASE CONTACT:

Jade Road Investment Limited	[phone]
John Croft
Lionsgate Communications - Communications Adviser	[phone]
Jonathan Charles
Hybridan LLP - Corporate Broker	[phone]
Claire Noyce
WH Ireland Limited - Nominated Adviser	[phone]
James Joyce
James Sinclair Ford

About Jade Road Investments Limited

Jade Road Investments Limited (Jade Road) is quoted on the AIM Market of the London Stock Exchange and is committed to providing shareholders with attractive uncorrelated, risk-adjusted long-term returns from a combination of realising sustainable capital growth and delivering dividend income.

The Company is focused on providing growth capital and financing to emerging and established Small and Medium Enterprises (SME) sector throughout Asia, well diversified by national geographies, instruments and asset classes. This vital segment of the economy is underserved by the traditional banking industry for regulatory and structural reasons.

The Company's investment manager, Harmony Capital, seeks to capitalise on its team's established investment expertise and broad networks across Asia. Through rigorous diligence and disciplined risk management, Harmony Capital is dedicated to delivering attractive income and capital growth for shareholders with significant downside protection through selectively investing in assets and proactively managing them.

Harmony Capital is predominately sourcing private opportunities and continues to create a strong pipeline of attractive income-generating assets from potential investments in growth sectors across Asia, including healthcare, fintech, hospitality, IT and property. 

For further information, please visit the Company's website at https://jaderoadinvestments.com and follow the Company on Twitter (@JadeRoadInvest).

 

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