Special Report: With iron ore prices continuing their upward march this year, Brazil-focused junior Centaurus Metals (ASX: CTM) has emerged as one of the relatively few ASX-listed juniors with exposure to the revitalised sector.

The $24 million company emerged from a trading halt this morning to announce positive outcomes from a Pre-Feasibility Study (PFS) on a planned 1Mtpa operation at its Jambreiro Iron Ore Project in central Brazil.

The strong study outcomes put it on track to start work immediately on a Bankable Feasibility Study and potentially make a final investment decision at Jambreiro by early next year.

The PFS numbers make for impressive reading.

Centaurus said in an ASX statement this morning that the study outlines a “robust 1Mtpa start-up project” capable of generating life-of-mine revenues of A$1.05 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) of A$533 million over an initial 18-year life.

Other key highlights included a project net present value or NPV of A$114.9 million using an 8 per cent discount rate and a 32 per cent internal rate of return using an assumed life-of-mine average domestic iron ore price of US$41 a tonne, based on a long-term 62 per cent Fe reference price of US$75 a tonne.

That’s well below the spot price of US$126 a tonne for 62 per cent Fe iron ore which the market reached earlier this week.

Centaurus back in the frame as an iron ore play

While the surging iron ore price has propelled the share prices of some of Australia’s leading miners to record highs, there are relatively few juniors offering leveraged exposure to the sector.

Hardly surprising given that the junior iron ore sector was largely decimated after the collapse in iron ore prices earlier this decade.

Centaurus was itself a part of that fallout, after being forced to shelve financing and development plans for its Jambreiro Project when risk appetite for new iron ore projects evaporated almost overnight as the last great China-driven commodities boom hit a brick wall.

Centaurus largely repositioned itself as a copper-gold and nickel explorer, securing projects in northern Brazil which it continues to progress.

But with ongoing supply disruptions in Brazil and other factors sparking a major turnaround in the iron ore market this year, Centaurus has been able to move adeptly to bring Jambreiro squarely back into the frame.

“The PFS shows clearly that we still have a really solid, long-life development asset at Jambreiro which is perfectly placed to capitalise on the changed iron ore market environment that has emerged both domestically in Brazil and internationally this year,” said Centaurus managing director Darren Gordon.

“Given where iron ore is at the moment, we obviously see significant upside to the PFS project economics but we have decided to base our project development strategy on relatively conservative commodity price assumptions,” he said.

“From the customers we talk to in the Brazilian market, we believe the disruptions to supply are likely to persist for longer than many people realise – and that’s changed the tone of the conversation around iron ore supply quite significantly.”

Compelling project economics

Centaurus told the ASX the strong economics of the proposed A$59.8 million development provided “a strong foundation” for it to progress off-take arrangements and commence “more detailed” debt finance discussions.

The PFS outlines a 1Mtpa operation capable of delivering a high-grade +65 per cent Fe low-impurity sinter product over an initial mine life of 18 years (based on Ore Reserves of 43.3Mt at 29.1 per cent Fe, which delivers 17.9Mt of high-grade, low impurity sinter feed product).

Mine gate cash operating costs are estimated at A$29 per tonne of sinter feed product, with the operation forecast to generate annual average operating cash flows of A$29.6 million.

Centaurus says off-take discussions are progressing with potential customers, with the project able to move forward rapidly to development thanks to a Mining Licence already being granted and in place.

Importantly, Centaurus has also moved pre-emptively to avoid being caught up in any issues surrounding tailings dam approvals – currently a hot topic in Brazil.

“With tailings management being such a strong focus point for all stakeholders in Brazil at the present time, the Company has proactively made the decision that it will dry stack all tailings from the operations of the Project,” it told the ASX.

“This approach has the benefit of facilitating an easier future expansion pathway for the Project (no tails dam capacity constraints) and minimising the potential impact of government and/or non-government organisation intervention as the Project advances towards production.”

Centaurus said its board had approved the immediate commencement of a Bankable Feasibility Study, which is targeted for completion before the end of 2019.

“We have completed a vast amount of work on the Jambreiro Project over a number of years and we now have a great opportunity to quickly advance the project to production,” Gordon said.

“While a detailed BFS will be required to advance all elements of the project to a stage that can support debt financing, we expect that a large portion of the capital and operating costs included in the PFS will be able to be rolled forward to the BFS without much more work given the high level of confidence we have in the process flowsheet and the cost of key capital and operating inputs.”

“In parallel, we are advancing product off-take discussions with both domestic consumers and international export traders.”

“The recent change in the supply dynamic, both domestically and internationally, is driving a strong and sustained demand for the Jambreiro product, and we are aiming to have agreements in place in line with the delivery of the BFS.”

 

 

This story was developed in collaboration with Centaurus Metals, a Stockhead advertiser at the time of publishing.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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