Sundance Resources Limited (ASX: SDL)
Title: Open Briefing. Sundance. Maiden JORC Iron
Ore Resource
Record of interview:
corporatefile.com.au
Sundance Resources Limited (ASX code
SDL) recently reported its maiden JORC-Code compliant Mineral Resource of
Direct Shipping Ore (?DSO?) quality hematite at the Mbalam Iron Ore Project
(SDL 90%) in Cameroon, West
Africa. Can you explain how important this milestone is for
your objective of developing a world-scale iron ore project?
MD Don Lewis
Sundance recently announced its
first JORC-Code compliant resource statement for the Mbalam Project ? an
Inferred Resource of 190 million tonnes of DSO quality hematite (60% Fe grade)
at the Mbarga and Mbarga South Deposits. The resource is of high quality and is
very well suited to our target markets.
This is a very significant milestone
for the company. Our DSO resource is already larger than most of the DSO
resource tonnages reported by our peers in the Australian iron ore
sector. It has been achieved in less than 12 months of exploration and
significantly exceeds the tonnage range we announced in January 2008 for the
Mbarga Deposit.
In addition, our recent drilling
continues to build confidence in the scale and quality of the itabirite
hematite at Mbarga, which is open at depth and to the west of the
deposit. Sundance has previously announced 1-1.2 billion tonnes of
itabirite at ~39% Fe grade (non JORC-Code compliant) at the Mbarga deposit and
our most recent drill results and modelling support this tonnage range.
We have also announced an overall Exploration Target of 2.0-2.5 billion tonnes
itabirite for the broader project and we remain optimistic about achieving this
objective.
What this means is that the Mbalam
Project has the potential to be of similar scale to the large itabirite iron
ore projects in Brazil.
Mbalam also has significant upside in respect of the high-grade DSO resource
identified at the Mbarga deposits.
The release of this first Mineral
Resource statement is therefore important in building confidence in the Mbalam
Project and reinforcing its potential as a world-scale iron ore project.
We will be releasing regular resource updates over the next 6 months and will
report our initial JORC-Code compliant Inferred Resource for itabirite
mineralisation at the Mbarga deposit in the next quarter. We will then
look to expand our resource base by drilling Metzimevin
and other key exploration targets on our permit areas.
corporatefile.com.au
What are the implications for the
value of the Mbalam Iron Ore Project now that you have defined your maiden DSO
Resource and the Exploration Target for itabirite mineralisation?
MD Don Lewis
Sundance currently has a market
capitalisation of around A$540 million. In our view, we are now
significantly undervalued on the basis of both identified and targeted
resources at Mbalam.
Current undeveloped DSO projects in Australia
are valued at anything up to A$10/tonne of in-ground DSO resource. Our
current market capitalisation is equivalent to around A$2.50/tonne based on our
current DSO Inferred Resource base of 190 million tonnes of high quality DSO
material. This ignores any prospect to increase this DSO tonnage as
drilling extends to new exploration targets and completely discounts the value
of the significant itabirite mineralisation identified to date.
Recently completed acquisitions of
itabirite projects in Brazil
translate to a value of US$1-$3 per tonne of in-ground itabirite
resource. Clearly, the Mbarga deposit is of very significant scale.
Our current 1-1.2 billion tonne range for itabirite therefore has significant
value when assessed on a comparative basis against recent transactions in Brazil.
We expect to see significant growth
in value for the Company as we progressively report JORC-Code compliant
resources through 2008.
corporatefile.com.au
You have stated that this initial
Mineral Resource Statement provides confidence that the project is capable of
producing significant DSO product from start-up. What initial production
volumes of DSO do you currently consider might be possible? What ultimate
targets would be reasonable?
MD Don Lewis
Production is planned at 35 million
tonnes per year. We will start-up mining DSO quality ore but ultimately
transition to itabirite ore. Our current Inferred Resource will sustain
DSO production for the first 5 years of operations, with our aim being to
progressively grow this resource to extend DSO production. We are
currently modelling DSO production until year 8, transitioning to itabirite for
the next 12 years of production. We do, however, expect the itabirite
resource at Mbalam to grow and thereby support a mine life in excess of 20 years.
This strategy delivers lowest
operating costs from start-up and will allow maximum repayment of capital on
the rail and port infrastructure works from high-margin DSO operations.
The Mbarga deposit is a simple
mining proposition with a very low stripping ratio, currently estimated at
0.2:1 for DSO Operations. This will allow very efficient, low cost, open
pit DSO production.
corporatefile.com.au
The Mbalam Iron Ore Project will
require a large amount of capital expenditure to get it into production.
With the knowledge gained from the recent drilling, can you summarise the
potential to progress Mbalam to a commercial iron ore operation?
MD Don Lewis
In January 2008, we reported capital
estimates for mining, rail and port development sufficient to export DSO
product. In April 2008, we completed an initial scoping study in respect
of itabirite beneficiation.
We are currently working on
completing bankable feasibility studies and associated project approvals by mid
2009, to allow commencement of the development program for start-up DSO
production.
Although the Mbalam Project will
require a large amount of capital, the scale of project means that operating
cash flow from DSO operations will be more than US$1 billion per annum at 35
million tonnes annual production. This will underpin project
financing. The iron ore industry must support substantial capital investment
in new, large scale projects if it is to meet growing market demand. The
marginal cost of this new production is now benchmarked to beneficiation of
magnetite as large-scale hematite projects are becoming increasingly rare.
Importantly, the project is also a
transforming project for Cameroon
and will generate billions of dollars of revenue to the Cameroon
economy over the life of the mine. The Government wants to fast-track
development of the project wherever possible.
The benefits of a project of this
scale to a developing country are well recognised. This has the potential
to introduce financing options beyond conventional commercial financing and we
are currently exploring a number of these options.
corporatefile.com.au
The current Inferred Mineral
Resource at Mbarga and Mbarga South is 190 million tonnes averaging 60% iron,
6.9% SiO2, 2.7% Al2O3 and 0.06% P with an LOI
of 2.1%. How does the quality of the resource compare with commercial
iron ore deposits around the world?
MD Don Lewis
The reported DSO resource is of high
quality, particularly for the proposed scale of production. There is a
growing trend, particularly in Australia,
for reporting DSO resources of iron grades below 60% and phosphorous grades of
0.08% or even higher.
The scale, quality and life of our
resource is attracting significant supply interest from the world?s major iron
ore customers in Europe and Asia.
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How large is the EP area relative to
the areas containing the Inferred Mineral Resource at Mbarga and Mbarga South?
What exploration opportunities have you identified on the new 1,000 km2
permit secured adjacent to EP92 earlier this year?
MD Don Lewis
Our current resource is based on
drilling over an area of approximately 9 km2. EP92 covers an
area of 937 km2 and we have recently secured an adjacent permit,
EP143, with an area of 877 km2. These two permits give a total
landholding of 1,814 km2 in an area which is clearly showing
significant hematite enrichment. Of that total area, we have obviously
only drilled a very small proportion.
We have a number of prospective
exploration targets beyond the Mbarga deposit. These include the Metzimevin deposit, where previous exploration estimated 35
million tonnes of DSO quality hematite (non JORC-Code compliant) and additional
itabirite mineralisation.
corporatefile.com.au
You have stated that
drilling has identified two different styles of iron mineralisation. Can
you explain the characteristics of enriched itabirite hematite? What
similarities and differences are there between the itabirite-style
mineralisation at Mbalam and some of the commercial itabirite projects in Brazil?
What is its commercial appeal?
MD Don Lewis
Our drilling has
identified two different styles of mineralisation at Mbarga: high-grade,
near-surface supergene hematite of DSO quality and an enriched itabirite
hematite, generally underlying the supergene DSO but also extending beyond the
DSO envelope.
The high grade DSO
quality hematite identified at the Mbarga and Mbarga South Deposits is
supergene in origin, extensive in area and extends from surface to average
depths of 40-50 metres.
The underlying itabirite
hematite is effectively an enriched banded iron comprising bands of high-grade
hematite and quartz with very low levels of alumina and phosphorous
impurities.
The term itabirite is
used to describe a number of major hematite orebodies in Brazil?s
southern system, including operations owned by MMX, Samarco (a joint venture
between BHP and Vale) and Vale. These deposits range in scale from 1 to 4
billion tonnes of itabirite, with average grades of between 37% Fe and 52% Fe.
The key commercial
benefit of concentrate produced from this ore is its quality. The
concentrate is high grade with very low phosphorous, alumina and silica
content. It is keenly sought by mills seeking direct reduction (?DR?) grade
feed or pellets and by mills seeking high-grade product that they can blend
with lower grade ore, particularly DSO ores which are showing increasing levels
of alumina and phosphorous contamination.
Previous exploration on
EP92 at the Metzimevin prospect has also reported a third style of
mineralisation ? deep, steeply-dipping hypogene hematite of potential DSO
quality from near surface. We have not encountered this form of
mineralisation on Mbarga as yet but two recent diamond drill holes have located
significant intersections of high-grade hematite at depth.
These intersections hint at the
possibility of hypogene enrichment at Mbarga at
depth, with the potential to add to the DSO resource base or elevate the
average feed grade of the itabirite mineralisation. This potential has
yet to be tested but will be examined through targeted drilling over coming
months.
corporatefile.com.au
Can you explain how the
itabirite-style mineralisation is upgraded into a saleable concentrate?
What are the technical challenges in the beneficiation process? How
feasible is the process from a cost viewpoint?
MD Don Lewis
Commercial itabirite ores are
commonly beneficiated by grinding and flotation to liberate and remove silica
from the feed ore with the remaining product being a high-grade hematite
concentrate. Magnetic separation is generally
not required for itabirite hematite.
The preliminary flow
sheet proposed for Mbarga comprises a two-stage grinding process. This is
similar to that being developed by MMX for the Minas Rio project in Brazil.
The fine concentrate
product may then be transported either by rail or slurry pipeline to port (for
instance, MMX are currently building a 525 kilometre slurry pipeline from mine
to port, with the capacity to transport 26 million tonnes per annum of
concentrate product).
The process is
commercially competitive as evidenced by significant production in Brazil.
The concentrate
produced in Brazil
for export is either shipped direct to steel mills or pelletised prior to
shipment.
The process is technically
straightforward and uses no new technology. The key issues are scale and
cost. The cost is driven by the grain size and hardness of the feed ore
which dictates the grind size and power demand. Sundance
is currently undertaking test work to confirm the grind size. Preliminary
test work reported in January 2008 was based on a single stage 75 micron grind
size.
corporatefile.com.au
You have stated that recent
evaluation of the itabirite hematite mineralisation at Mbarga has provided
increased confidence in the scale and quality of this mineralisation and that
the estimated range of 1,000 to 1,200 million tonnes of itabirite (non JORC-Code
compliant) is currently subject to an aggressive drilling programme. How
have you determined that estimated range for the itabirite style of iron
mineralisation?
MD Don Lewis
We have reported an estimated range
of 1,000 to 1,200 million tonnes of itabirite grading ~39% Fe (non JORC-Code
compliant) from the Mbarga deposit.
This estimate is based on modelling
of drilling data from a total of 107 holes, this includes both laboratory
assays and data collected by hand-held field XRF instrumentation. Block
modelling is based on results from RC drilling up to 300 metres drill depth and
diamond drilling up to 500 metres drill depth with hole spacing of between
200-400 metres.
The enriched itabirite
mineralisation generally lies under the high grade DSO hematite on Mbarga but
also appears to extend to the west and south of the DSO resource. The
current itabirite tonnage range is based on modelling under the DSO resource
envelope to the full depth of diamond drilling.
corporatefile.com.au
What ultimate hematite and itabirite
resources targets do you think are required to support your project
ambitions? What importance do you think the itabirite style of
mineralisation will be for the overall success of the project?
MD Don
Lewis
Our financial modelling of the
project is currently based on staged DSO and itabirite production. The
model assumes around 300 million tonnes total feed of DSO hematite in the first
8 years of production, followed by approximately 1,000 million tonnes total
feed of itabirite ore over the following 12 years. This is based on a
total 20 year mine life.
Ultimately, however, we have an
exploration target of 2-2.5 billion tonnes of itabirite. This would underpin a
significantly longer mine life than currently modelled. Whilst we are
aiming to expand the current DSO resource tonnage, our primary focus at present
is only to define sufficient DSO tonnage to underpin start-up production and
financing of the project infrastructure. The scale of the itabirite
resource is ultimately of key strategic value to the project as it underpins
the longevity of the project.
corporatefile.com.au
What is the exploration plan looking
forward? What are the objectives or targets? Will your immediate
programs involve in-fill drilling to increase the confidence in the current
Resource or will it mainly concentrate on extensional/step out drilling?
What other milestones can investors look forward to over the coming months?
MD Don
Lewis
It is already apparent that the
Mbarga deposit has the potential to support large scale, long life DSO /
itabirite production. This deposit, the first target that we have drilled
on EP92, is shaping up as a world-scale iron ore body in its own right.
We therefore, have all of our 6 rigs
on site currently drilling on Mbarga with two principal objectives.
First, two diamond rigs and two of
the RC rigs are undertaking in-fill drilling on the main part of Mbarga, both
spatially and at depth, to upgrade JORC-Code compliant resources to Indicated
status. Second, two RC rigs are drilling prospective extensions of the
itabirite resource to the west of the Mbarga DSO resource envelope.
We anticipate reporting an initial
Inferred Resource for itabirite mineralisation at Mbarga in the third quarter
of 2008. We also expect to report results from the second phase of
metallurgical test work from Mbarga in our June Quarterly Activities Report.
Investors can look forward to a
regular flow of news and the achievement of significant milestones as we build
on the solid foundations established to date on the Mbalam Project.
corporatefile.com.au
Thank you Don.
For further information on Sundance
Resources visit www.sundanceresources.com.au or call Don Lewis on 08 9220 2300.
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