RESOURCEStocks: How do you best describe E25's value proposition to investors, given an arguable under-appreciation of the high-purity manganese sector?
Justin Brown: E25 has a genuine opportunity to develop a globally significant high purity manganese production hub at its 100% owned Butcherbird project located in a tier one jurisdiction, and at a time when demand growth for manganese is strong and our competitors' costs are rising. Our competitive advantages in having access to very cheap highly leachable ore and our unique, low-cost processing flowsheet means we are aiming to be the lowest cost producer globally. The PFS will give visibility on this to the market and we fully expect it to show that E25 has a world class asset, ripe for development. We are also talking about a massive resource and a mine life measured in decades not years. With a current EV of around A$8 million and a strong cash position of around $7M, we believe E25 shares represent incredible value. All of this is predicated on traditional manganese metal markets. The battery thematic provides wonderful blue sky growth potential on top. There are also the beginnings of a shift to high manganese cathodes for their higher energy density and better safety characteristics. If this continues, the future for E25 looks very exciting indeed.
RS: When do you hope to release the PFS for Butcherbird and what will that mean for E25?
JB: We are currently targeting a release date of Q3 2019. The release of the PFS will give the market clear visibility on capital and operating cost estimates as well as the usual financial metrics around NPV and IRR. The investment case should be clear, and in parallel with the PFS work, we are also making good progress on project financing and offtake activities, so the market should be able to see a pathway to funding, construction and strong short, medium and long term returns for investors. In a normally functioning market, this should lead to upward pressure on our share price, meaning investors who enter the market now should be well positioned for this eventuality.
RS: The company recently substantially increased Butcherbird's contained manganese in a resource update, increasing it by more than a third to 263 million tonnes Mn, at a grade of 10%. How will this impact the base case being investigated by the PFS?
JB: The resource update further confirmed Butcherbird as a world class manganese resource however it was also geared towards doing quite a bit of infill drilling in the starter pit areas. The work delineated sufficient tonnes in the indicated and measured categories to provide feed for the full 25-year initial mine life of the project. This will allow the publication of a maiden reserve as part of the PFS release, providing further confidence to investors and project financiers alike. Beyond the first 25 years of production, there is still a huge resource base, providing feed for future production growth.
RS: E25 is aiming to meet the demands of high-purity manganese sulphate for lithium ion battery cathodes, as well as electrolytic manganese metal (EMM) for specialty steels. Is one looking to take precedence at this point, and why?
JB: The bulk of the established high purity manganese demand is currently in the traditional manganese markets, primarily manganese metal. Securing bankable offtake to underpin project debt is likely to focus on these markets. Given our competitive advantages in ore costs and process efficiencies, we plan to have a compelling bankable base case targeting this segment. The battery sector on the other hand is in the early stages of what most analysts predict will be a period of massive growth. The principal chemistry currently being deployed uses NMC or Nickel-Manganese-Cobalt cathodes, so manganese, along with nickel and cobalt, should enjoy fantastic growth in demand in coming years as this thematic plays out. On top of this, there are significant moves in the industry to transition to high manganese cathodes called LNMO or Lithium-Nickel-Manganese-Oxide cathodes which use around 75% manganese in the cathode, a much higher proportion that current cathodes which use around 30% manganese. If this continues, it should turbocharge high purity manganese demand growth and have a significant positive impact on the E25 business. Given our massive resource, we are in a unique position to ramp up production to take advantage of this new demand.
RS: Since we last spoke, bulk testing yielded very high purity 99.95% EMM. How is the scaling up of the processing flowsheet, developed in conjunction with the CSIRO, advancing?
E25 executive director Justin Brown
JB: Every time we run our ore through our process we get great results further de-risking flowsheet development, and we expect this to continue. We are currently completing a bulk test programme comprising approximately 2t of ore from diamond drilling within the planned started pit areas. The programme is going very well and the results of this work will inform the engineering design for the PFS and a larger tonnage pre-production pilot test programme is in the planning stages. We continue to work with CSIRO to find the best pathway forward for long term improvements to the process.
E25 is making a point of difference by investigating renewable energy options for Butcherbird, how is this unfolding and how could it impact project economics?
JB: We have a fantastic advantage in that, whilst the project is remote, we have the Great Northern Highway and Goldfields Gas Pipeline passing straight through the project. This provides turn-key logistics and energy solutions. The gas generation scenario formed the base case for the successful scoping study. Renewable energy costs, however, could be as low as half the cost of gas generation, and since this work, we have identified that a combined gas/renewable energy power solution in fact should drive our power costs down and improve overall project economics whilst decarbonising the project. Because making metals using electrolysis uses quite a lot of power, the hybrid scenario has the potential to make a big impact over and above the scoping study financial numbers. We are aiming at a project with the lowest production costs, environmental impacts, and carbon footprint globally. We are also doing some development work co-funded by the Australian Renewable Energy Agency, to further develop our electrowinning technology to improve on this again with even greater renewable energy penetration and even lower energy costs.
RS: You've honed your focus on Butcherbird, selling the Green Dam gold project in WA for $700,000 in cash this month and selling the Holleton gold project for $1 million last year. What are your plans for your other assets aside from Butcherbird?
JB: Our primary focus is Butcherbird, and we are keen to talk to interested counterparties on JV or sale arrangements for our other projects, including in particular the Pinnacles Nickel-Cobalt Project and the Cummins Range Rare Earths Project which both have great potential as the world moves away from fossil fuels to new energy vehicles.
RS: RESOURCEStocks understands E25 is in early-stage talks regarding project financing, what opportunities are being identified and how are these discussions progressing?
JB: Debt sizing analysis on the scoping study cashflow models indicate that a traditional bank finance-equity structure should work, however we are also looking at more innovative arrangements, including project level equity investment, export credit agency finance, and offtake funding as well as talking to groups like NAIF and CEFC who may want to get involved given the high penetration renewable aspect and the project's location within the NAIF area of interest in the Pilbara region of Western Australia.
RS: Finally, what milestones would you like to see achieved before year-end?
JB: Key milestones include:
- Completion of the PFS and commencement of the DFS.
- Publication of the maiden reserve.
- Power solution IPP tenders received and preferred suppliers identified.
- Significant progress on project finance and offtake arrangements.
- Pilot testing commenced.
- Completion of environmental surveys (completed, results pending).
- Native Title and Pastoral Lease Access Agreements signed off.
- Mining Lease granted.
- Project milestone reports on the electrowinning development work being done with ARENA.