MZI Resources gains debt funding, underwrites Keysbrook development
MZI Resources (ASX: MZI) has pulled off a mighty coup in today's tougher capital markets with a heady US$64 million (A$68.2 million) in project debt funding from RMB Australia Holdings, demonstrating just how profitable Keysbrook will become when in production.
Combined with the previously announced
US$41.5 million funding package to be provided by Resource Capital Fund
VI, MZI is now fully funded for the construction and development of
Keysbrook.
This paves the way for construction to commence in late June 2014 with first production scheduled for mid-2015.
The debt funding offer represents a significant vote of confidence in Keysbrook from leading resource financier FirstRand Group.
It is fully underwritten by RMB Australia Holdings Limited and was arranged by RMB Resources Limited, both part of FirstRand.
MZI
chief executive officer Trevor Matthews said the project debt was the
final key ingredient needed for the development of Keysbrook.
“In
our view, having two highly regarded financial institutions express
their confidence in Keysbrook through the provision of funding is a sign
of the project’s technical and economic strength,” he added.
“Our
feasibility studies show that Keysbrook will generate strong returns,
even at this relatively low point in the mineral sands economic cycle.
“Based
on forecasts provided by mineral sands analysts, the recovery in the
feedstock demand cycle should be well underway by the time Keysbrook
comes into production, leaving MZI ideally placed to benefit from the
project’s relatively low capital and operating costs, premium product
suite and access to key markets.”
Chairman Mal Randall said finalising the funding package for Keysbrook marked a pivotal point in the company’s growth.
“This
is the culmination of much hard work by the MZI team. I thank them for
their persistence, which I have no doubt will pay handsome dividends for
the Company and its shareholders as Keysbrook is developed and brought
into production.”
Project Debt Facilities
The
Project Debt Facilities comprise a US$50 million Senior Debt Facility, a
US$3 million Working Capital Debt Facility and a A$12.124 million Bank
Guarantee Facility.
The Senior Debt Facility has the following key terms:
- US$50 million construction and amortising term loan, with final repayment on 31 December 2018; and
-
Interest at a margin of 4.75% per annum above the US$ LIBOR rate
pre-project completion and a margin of 4.25% post-project completion.
The Working Capital Debt Facility has the following key terms:
-
US$3 million facility, to be available from commencement of mining of
ore and production of HMC from the wet plant at Keysbrook; and
- Interest at a margin of 4.00% per annum above the US$ LIBOR rate.
The Bank Guarantee Facility has the following key terms:
-
Guarantee amount of up to A$12.124 million to provide bank guarantees
securing Keysbrook’s obligations under Western Australian Environmental
Protection Agency approvals and landowner agreements;
- Facility to be available for the term of the Senior Debt Facility.
The
finalisation of the Project Debt Facilities and RCF funding package is
subject to the agreement and execution of formal financing and security
documentation, which is expected to be concluded in June 2014.
The timing for the shareholder general meeting to approve the funding is expected to be late May/early June 2014.
Keysbrook Mineral Sands Project
MZI
already has offtake agreements in place covering approximately 50% of
the forecast annual revenue from Keysbrook and approximately 60 per cent
of forecast annual production.
Discussions are well advanced on offtake agreements for its high-grade L88 titanium dioxide product.
The
Keysbrook Project will produce an average 91,000 tonnes per annum of
mineral sands products from 110,000 tonnes of dry heavy mineral
concentrate. This comprises:
- 26,000 tonnes per annum (dry) of leucoxene 70% titanium dioxide;
- 36,200 tpa (dry) of leucoxene 88% titanium dioxide (L88); and
- 28,700 tpa (dry) of zircon concentrate.
Heavy
mineral concentrate will be trucked about 120 kilometres to Doral’s
mineral separation plant, which is just 10 kilometres from the Bunbury
Port, for toll treatment.
Keysbrook has total development costs
of A$64.3 million and is expected to have LOM average operating costs of
A$34.1 million per annum, or A$379 per tonne of product.
It has
total Proved and Probable Ore Reserves of 26 million tonnes grading 2.6%
for in situ total heavy minerals of 670,000 tonnes. This is sufficient
for a mine life of 5.5 years with potential for extension to more than
15 years.
Analysis
There is no doubt that MZI Resources has scored a major coup with the US$64 million in project debt funding
from RMB Australia Holdings as it highlights the confidence that
FirstRand Group – RMB’s parent – has in the Keysbrook Mineral Sands
Project.
This is especially true given today’s tougher capital
markets where a project has to really stand out in order to secure the
required financing.
Now fully funded – when combined with RCF’s
US$41.5 million funding package, construction at Keysbrook will commence
in late June 2014 with first production scheduled for mid-2015.
That Keysbrook will generate strong returns, even at the current low point in the mineral sands economic cycle, is a testament to the strong project economic metrics.
With a likely recovery in the feedstock
demand cycle underway by the time Keysbrook comes into production, MZI
is set to reap higher margins from its premium product suite.
Proactive Investors maintains its valuation and share price target of $0.042 to $0.055 for MZI within the next 6-9 months.
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