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Sierra Rutile Ltd: THE INVESTMENT CASE

Sierra Rutile PLC set for expansion with new dry mine

Last year, the company produced 126,000 tonnes of rutile and 37,600 tonnes of ilmenite
Sierra Rutile PLC set for expansion with new dry mine
INVESTMENT OVERVIEW: SRX The Big Picture
Titanium is crucial for the aerospace industry

Mineral sands miner Sierra Rutile PLC (LON:SRX) has traditionally relied on dredging to produce rutile, the natural source of titanium, from its large deposit in Sierra Leone.

But times and the economic backdrop have changed and the company also now has dry mines at Lanti and Gangama as well as dredging operations at both places.

The next place to get a dry mine looks certain to be Sembehun, where a pre-feasibility study has come back with significantly improved numbers compared to a scoping report carried out less than a year ago.

Value rises as costs of building fall

Depending on whether the company decides to run at a throughput rate of 500 tonnes per hour (tph) or 1,000 tph, the value of the Sembehun project over its life is now estimated at US$130mln or US$224mln.

At the lower throughput the project would run for 41 years and cost US$72mln upfront, while the higher level of production would mean a 21 year life and a cost of US$99mln.

Those costs are 22% lower than the original scoping study projection while operating costs of US$ 343 per tonne are in line with its two existing dry plants.

Wet and dry production mix

Last year, the company produced 126,000 tonnes of rutile and 37,600 tonnes of ilmenite.

The new mine at Sembehun will produce 71,000 tonnes a year at 1,000 tph or 36,000 at 500tph.

John Sisay, chief executive, said the PFS for Sembehun highlighted the potential of its portfolio.

“If commissioned, the Sembehun Dry Mine would be the third dry mining operation constructed at Sierra Rutile.

“The experience gained from the Lanti and Gangama Dry Mines will be leveraged in the construction of the Sembehun Dry Mine, helping to ensure even greater confidence that the project will be constructed on-time and on-budget.”

Titanium is different from other metals

Times are hard in mineral sands at the moment, but not all mineral sands are alike, and equally neither are mineral sands companieshttp://images.intellitxt.com/ast/adTypes/icon1.png.

It’s been the collapse in the zircon price that’s really done for rivals such as Iluka and Kenmare.

But Sierra Rutile is different.

It’s the only company out there that bases its investment decisions solely on what’s happening in the natural rutile market.

The key constituent in natural rutile is titanium, and the fundamentals of titanium demand for both pigment and metal remain intact.

The primary reason for this is that titanium is ubiquitous – in paints, plastics and metals, and also irreplaceable.

Products built with titanium last longer and are stronger and lighter. Its strength to weight ratio is unmatched for aerospace, automotive, medical and military applications.

All of which makes titanium consumption closely tied into global economic growth.

Zircon’s use in ceramics by contrast is far more specialised and niche.

In spite of all that though, Sierra Rutile has faced its fair share of challenges in recent years as it operates what’s well established as the world’s largest rutile deposit.

The long-standing method of extraction was by dredge mining, but this has had glitches in recent years, and the company is now moving to more of a focus on dry mining.

That transition may put some upward pressure on operating costs, but it also beds down a projected 65 year mine life at current output rates, based on a JORC resource of 900 million tonnes grading 0.94% rutile.

In 2015 the company produced 126,000 tonnes of rutile, although the mineral separation plant on site has recently been upgraded to handle over 200,000 tonnes per year.

At the same time the company is also bearing down on costs, which last year on an all-in-operating cost basis were US$666 per tonne.

It has all led to a situation where the company should be able to support growth through cash flow.

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