Bougouni Lithium Project Update

RNS Number : 8874O

Kodal Minerals PLC

15 June 2022

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulations

Kodal Minerals Plc / Index: AIM / Epic: KOD / Sector: Mining

15 June 2022

Kodal Minerals plc

("Kodal Minerals" or the "Company")

Bougouni Lithium Project Update

Kodal Minerals, the mineral exploration and development company focused on lithium and gold assets in West Africa, is pleased to provide details of an updated Project Feasibility Study and the development status for its Bougouni Lithium Project in southern Mali ("Bougouni" or the "Project").   This update is based on a review of the engineering, process recovery and capital cost for the proposed Project operation and improved financial metrics based primarily on an improved market outlook for the sale of lithium spodumene concentrates.  The current buoyant market conditions for lithium spodumene concentrate reflect current high and future demand for battery minerals and recognise a supply deficit .

Highlights:

· Confirmation of robust development project at Bougouni with key metrics including:

o NPV_7% of US$760M (US$567M post-tax) compared to US$293M (US$201M post tax) in the original Feasibility Study.

o Life of mine (8.5 years) revenue exceeding US$2,145,000,000 based on an average sell price of US$1,060 per tonne (FOB basis).

o C1* cash costs of US$362 per tonne of 6% Li₂O spodumene concentrate ("SC6"), and costs of US$474 per tonne including transportation and other selling costs.

o Total SC6 production of 2,024,000 tonnes with an annual average production of 238,000 tonnes.

· Bougouni Project development based on unchanged operating assumptions of open cut truck and shovel contractor mining operation, feeding 2Mtpa of lithium ore to the flotation processing plant, utilising a conventional flotation circuit to maximise spodumene recovery.

· Capital cost of the Project increased approximately 20% to US$154M reflecting increased raw material and fuel costs.

· A separate study to assess the capital development cost, including a review of the process plant, has been undertaken by Yantai Jinpeng Mining Machinery Co. Ltd ("Jinpeng") which indicates an e stimated 20% capital cost saving for the process plant and associated facilities compared to the feasibility study update figures.

*C1 cash cost includes all mining, processing and all general and administration costs per tonne sold, and additional to that the costs of transport to port and associated selling costs

Bernard Aylward, CEO of Kodal Minerals, remarked: "We are very happy to release this feasibility study update to our shareholders and our ongoing review highlights the robust development opportunity our Bougouni Lithium Project presents.  The current buoyant market conditions for lithium spodumene concentrate reflects the increasing demand for battery minerals and recognises an expected supply deficit that provides further incentive for the immediate development of the Bougouni Lithium Project.

"This feasibility study update continues to utilise conservative pricing for the sale price of spodumene concentrate when compared with current prices achieved by producers, including Pilbara Minerals Ltd (ASX: PLS) reporting an average spodumene price reference for sales in the first quarter of this year of US$2,650 per tonne of concentrate.

"The lithium market continues to be very strong and our Bougouni Project continues to attract significant interest.  The Company is continuing to review and discuss potential opportunities for collaboration with third parties, including major mining groups, to support the development of the Project and more updates will be provided in due course."  

Further Information

Bougouni Lithium Project Status

Kodal Minerals was granted an Environmental Permit over the Project in November 2019. The original Feasibility Study ("FS") was completed by Kodal Minerals in January 2020, culminating in the granting of a large-scale Mining Licence in November 2021 to the Company'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 97.2 square kilometres covering the proposed open-pit mining and processing operation at Bougouni (refer to announcement of 8 November 2021).

The FS for the Bougouni Lithium Project proposes a contract mining operation and conventional "milling and flotation" processing facility, capable of treating 2Mtpa (million tonnes per annum) of ore, complete with associated infrastructure, to mine and process approximately 16Mt of pegmatite ore over an initial 8.5-year life of mine ("LOM") for the production of a 6% lithium concentrate (refer to announcement of 27 January 2020).

Lithium Demand

Since the FS was published in January 2020, a number of factors have resulted in a significant transformation potential for the Project. Of primary significance is the forecast very high demand for battery minerals, including lithium spodumene concentrate, which has experienced exponential price increases in recent times. Historically high demand is being driven not only by the EV market, but significantly from an increase in planned gigafactory facilities.

6% spodumene concentrate prices (CIF China) for the month of March 2022 averaged US$2,810/t, an increase of 397% over the past 12 months, as reported by the Battery Materials Review ("BMR") publication (refer www.batterymaterialsreview.com ). In April, BMR reported the average price had increased another 25% to $3,510/t.

Feasibility Study Costs and Project Economics Update

In response to rising SC6 prices, Kodal is pleased to provide an update on Project Economics at Bougouni.  Kodal has conducted a Feasibility Study update ("SU") to assess variations in key cost input parameters, optimisation of metallurgical recovery, and to reflect increased SC6 sale prices since the original FS was conducted.

The rising SC6 price remains the foremost positive impact on project economics at Bougouni. However, a number of key capital and operating costs inputs ("capex" and "opex") have increased over the past 2.5 years that have a direct, albeit moderate, impact on the Project's financial outcomes.

Of significance are rising iron ore prices (which directly impacts steel prices, a major component of the process plant) and rising fuel prices (which directly impacts shipping costs and mining operating costs) which have been incorporated into this study update.

Overall, this has resulted in an approximate 20% increase in the expected capital cost to US$154.3 million and a 15% increase in mining cost to US$3.03 per tonne.

Further advancement of spodumene concentrate flotation technology has had a positive impact on metallurgical recoveries which has also been addressed in the SU. Metallurgical testwork conducted for the FS concluded that the laboratory flowsheet predicts "a recovery of 75% of Li₂O to a concentrate grade of 6%." Average recovery for life of mine of 74% was adopted for the SU.

The Feasibility study update incorporated a review of capital and operating costs of the proposed operation and the outcomes are presented in the table below, including a comparison to the estimates current at the time of the original FS (refer to announcement of 27 January 2020). 

Project Parameter	Cost Basis; US$ or %		Comment
	Original FS	SU
Average Sale Price (/t SC6)	$738	$1,060	~ 43% increase; increased demand for   supply of battery minerals
Capital Costs (US$ millions)	$128.6	$154.3	~ 20% increase; due to steel costs and   shipping costs (fuel and demand related)
Mining Costs (/t mined)	$2.63	$3.03	~ 15% increase; due to fuel costs and   contractor demand
Processing Cost (/t SC6)	$17.19	$18.56	~ 8% increase; due to power costs and   impact of fuel costs on opex
General & Admin. (/t SC6)	$2.92	$3.22	~ 10% increase; due to labour costs
SC6 Freight Costs (/t SC6)	$93.60	$112.32	~ 20% increase; due to impact of fuel costs   on transport
SC6 Recovery	71%	74%	~ 3% increase; reflects improved process   recoveries, technology advancement,   and low level of impurities in ore
Other Costs
Royalties	3.0%	3.0%
Local Partner Royalties	0.5%	0.6%
Land Tax	$149,333	$149,333	Per annum
ISCP on Turnover	3.0%	3.0%	Special products tax and ad Valorem tax   as required by the Mali Mining Code
Corporate Tax	25%	25%

Incorporating the above changes to key cost input parameters into the operating cost model prepared for the FS highlight a C1 (Brook Hunt) operating cost excluding product selling costs for the SU of US$362 per tonne of concentrate produced, with an additional $112/t for selling costs which includes inland transport to the port. This benchmarks the Project as a reasonably low-cost producer.  A summary of the operating cash costs is tabled below:

Project Parameter	Base Case (Total US$M)		Cash Cost (US$/t of SC6)
	Original FS	SU	Original FS	SU
Mining Costs	334	385	172	190
Processing Costs	275	297	141	147
General & Admin. Costs	47	51	24	25
Sub Total C1 Cash Cost (per tonne of SC6 produced)			337	362
Selling Costs	182	227	94	112
All-in C1 Cash Cost			431	474
Royalties (Govt. & NSR)	50	77	26	38
Sustaining Capital Costs	16	16	8	8
Net Cash Operating Costs	904	1,053	465	520

These operating and capital costs were then assembled into the proposed mining and processing operation from the FS, based on Indicated and Inferred Resources to develop a high-level financial model in order to evaluate the economics of the operation.  The estimate for revenue is based on delivering a 6% spodumene concentrate, Free on Board (FOB), to the Port of San Pedro in Côte d'Ivoire.  

SC6 concentrate selling price (FOB San Pedro Port in Côte d'Ivoire) is based on a start price of $1,250/t for the first two years of production, reducing to $1,200/t for the following 2 years, and then $900/t for the remaining life of mine. This equates to the $1,060/t life of mine average price, which is considered reasonable under current market conditions. 

A summary of the cash flow model inputs and the resulting cash flow model results are tabulated below:

Model Inputs:

Variable	Units	Original FS Case	SU Case
Mine Life Ore Tonnes Lithium Grade Lithium metallurgical recovery 6% Lithium Concentrate Produced Average Annual Production NPV Discount Rate	Years Mt % % kilo-tonnes kilo-tonnes %	8.5 16.0 1.03 71.0 1,942 218 7.0%	8.5 16.0 1.03 74.0 2,024 238 7.0%

Cash flow model results:

Parameter	Original FS Case (US $'000)	SU Case (US $'000)
Pre-Tax Cash Flow (EBITDA) Pre-Tax NPV @ 7%	395,766 293,460	1,067,679 759,839
Post-Tax Cash Flow (NPAT) Post-Tax NPV @ 7% IRR Payback Period Life of Mine Revenue	306,186 200,769 50.9% 1.8 yrs 1,432,907	773,634 567,231 91.2% 0.8 yrs 2,145,062

Project Development Activities

The SU has highlighted the development of the Project as a robust, economically viable proposition. Since publishing the first FS, the Company has continued its activities to optimise and advance the Project, including various strategic advances in support of the SU and associated costs.

Kodal engaged an experienced Chinese engineering consultancy based in Shandong, Yantai Jinpeng Mining Machinery Co. Ltd ("Jinpeng"), who boast direct experience in the design of hard rock milling and flotation plants. Jinpeng were engaged to conduct study update engineering services for the complete range of plant area design necessary to provide a technically compliant processing plant facility for Bougouni. This included all processing plant equipment and services including crushing, milling, flotation, filtration, tailings handling and product load out facilities.

The Jinpeng study update was completed in Q1 2022 and was based on equipment suppliers from China for the same flowsheet as defined in the FS. The original FS contemplated major equipment suppliers in Europe and South Africa.  

The Jinpeng SU capital cost estimate realised a circa 20% capital cost saving for the process plant and associated facilities and services when compared with the original FS. Engaging with Jinpeng provides Kodal with an opportunity to decrease capital costs (particularly given the forecast increased capital costs), and this will be pursued in more detail in the future as the Company advances the Project to development stage.

Other areas that have the potential to enhance the Bougouni Lithium Project include:

· Resource growth and increase of head grade from further exploration in the highly prospective areas contained within existing exploration leases;

· Reduction in capital cost through further optimisation of the flowsheet and engaging with experienced Chinese manufacturers;

· Investigate more favourable power supply solutions to reduce operating costs, which is currently under way on the basis of connecting to the future high-voltage grid approximately 15km from the site (the new Bougouni substation is being constructed presently under the 225 kV Sikasso-Bougouni-Sanankoroba-Bamako Transmission line project by the Mali power authority - Energies de Mali);

· Optimisation of mine scheduling and drill and blast strategy; and

· Cost savings relating to the construction of the tailings storage facility ("TSF").  Currently the design of Stage 1 is based on 24 months of capacity to combat potential for adverse climatic conditions.  Potentially this could be reduced to about 18 months' capacity if the sequencing of construction is favourable with respect to maximising construction in the dry season. 

**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/Nick Harriss/Liz Kirchner	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:

CIF China - Cost, insurance, and freight (CIF) - Under CIF, the buyer takes over ownership of the merchandise only at the port of destination. The seller is responsible for the cost and freight and ownership handover takes place at the destination port.

C1 (Brook Hunt) - a standard metric used in mining as a reference point to denote the basic cash costs of running a mining operation to allow a comparison across the industry.  Under the Brook Hunt definition, C1 costs are direct costs, which include costs incurred in mining and processing (labour, power, reagents, materials) plus local G&A, freight and realisation and selling costs. Any by-product revenue is credited against costs at this stage.

 

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