Advanced mineral sands explorer Sheffield Resources (ASX: SFX) has collared a “transformational” binding agreement to supply Bengbu Zhongheng New Materials with unroasted ilmenite from its wholly-owned Thunderbird project in Western Australia’s north-west.
Under the offtake deal, Bengbu will take 650,000 tonnes per annum of unroasted primary ilmenite from the project.
Bengbu will pay the prevailing US dollar market price which will be agreed upon quarterly along with product specifications.
The deal underpins Sheffield’s strategy to generate early cash flow and postpone the proposed low temperature roast (LTR) circuit at the project, which would require additional capital outlay.
According to Sheffield, the company would look to replace roasted ilmenite cash flow with zircon sales as part of its planned stage one operations. The LTR would then be installed under a stage two development.
Sheffield managing director Bruce McFadzean described this morning’s primary ilmenite offtake agreement as “transformational” for the project.
“This is the first of several exciting outcomes emerging from the updated bankable feasibility study (BFS), which is running in parallel with the strategic partner process.”
“The BFS update is targeting the deferral of the LTR ilmenite circuit and focusing on increased zircon production to deliver lower capital and operating costs, lower construction risk and a financially stronger project,” Mr McFadzean explained.
Advancing Thunderbird with a new strategy
An initial BFS was published in March 2017 and revealed a 42-mine life to bring in earnings before tax depreciation and amortisation of more than $5 billion.
The stage one capital outlay was estimated at $324 million plus $24 million in contingencies. However, this included development of the LTR circuit.
Sheffield’s updated BFS, which is evaluating the viability of this new zircon focus, is due for completion before the end of the September quarter.
“As Thunderbird is a zircon-rich project with a premium zircon product, we have the opportunity to strengthen our position as a globally significant future zircon producer,” Mr McFadzean noted.
“We are seeking to respond to the global market consensus which predicts strong growth and a structural supply deficit [for zircon] for the foreseeable future.”
With the chloride slag market currently growing, Mr McFadzean added the company would receive a “financial benefit” from selling a primary ilmenite product.
He said the added financial benefit of selling the unroasted ilmenite would bring in revenue and “further enhance project economics”.
Thunderbird has an ore reserve of 680.5 million tonnes at 11.3% heavy minerals, with Sheffield claiming the project hosts one of world’s largest zircon-rich heavy mineral sands deposits.
Ongoing exploration at the project has resulted in new high-grade discoveries including the Night Train deposits which has a resource of 130Mt at 0.5% zircon, 1.7% HiTi leucoxene and rutile and 0.7% ilmenite.
The project is fully-permitted and construction ready, with first production scheduled to begin by the first quarter of 2021.
Sheffield’s production schedule for Thunderbird aims to take advantage of an expected global zircon and heavy mineral sands supply shortage.
Around 50% of the world’s zircon arises from three mature assets, which are experiencing declining grades and reserves.
A material supply deficit is expected to emerge this year and increase from 2022 as demand outpaces supply, with this figure factoring in new projects.
By early afternoon, shares in Sheffield were up almost 14% to $0.41.