MRC’s Quarterly operating update (Edison)

Below is an excerpt from independent, 3rd party organization, Edison Investment Research Limited. The full report is available for download on the left-hand side of this page.

December quarter – in transition, uplift in 2016

Mineral Commodities (MRC) operates the Tormin mineral sands project in South Africa. This is differentiated by the high grades and profitability relative to its peers, even during the current period of subdued mineral sands prices. Technical enhancements are forecast to lift earnings. Exploration offers the potential for a larger and longer life operation.

December quarter below budget due to GSP delay

The commissioning of the Tailings Scavenger Plant (TSP) in mid-October led to an increase in heavy mineral concentrate (HMC) to the Secondary Concentrator Plant (SCP). However, Tormin production in the December quarter was below the original processing budget. This was based on completing the Garnet Stripping Plant (GSP) in the September quarter, designed to increase the hourly throughput by around 25%. Commissioning of the GSP is now deferred until early July 2016.

GSP financing secured – commissioning in July 2016

Financing a $4.5m loan for the GSP has been secured, together with an increased offtake agreement for garnet concentrate. The GSP will remove the garnet fraction from the HMC with the end effect being a higher overall recovery of zircon and rutile and higher zircon and rutile grades in the non-magnetic combined product. This will lead to higher received prices and lower unit costs.

Exploration 10km offshore and along 24km coastline

MRC’s South African subsidiary, Mineral Sands Resources (MSR), has been granted prospecting rights over a c 10,000ha area, extending its prospecting area up to 10km offshore from current mining activities at Tormin. Resource definition is planned for early 2016. MSR has also lodged a prospecting and bulk sampling application targeting c 24km of coastline to the north of Tormin. These initiatives have the potential to increase resources and the life and potential scale of the Tormin operation.

Valuation: Significant upside for an existing producer

Using NPV10 analysis to value the Tormin project and valuing the early-stage Xolobeni project on a nominal basis, our base case valuation is A$0.31/share for a four-year mine life, supported by existing resources. This is higher than our mid- 2015 A$0.21/share valuation, mainly due to the efficiency benefits from the GSP plant, which we have now fully factored into our forecasts. We have also assessed the impact of resource extensions and calculated a valuation of A$0.50/share for the scenario of an eight-year life.

This data has been taken from the official Industry Research report compiled by Edison Investment Research Limited

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