Definitive Feasibility Study

Definitive-Feasibility Study Results:

The DFS (summarised below) found Mount Peake would generate a pre-tax internal rate of return (IRR) of 41% based on a pre-production capital cost of A$970 million, total estimated life-of-mine net cash flow of A$11.6 billion and operating cash flows of A$13.6 billion over an initial 17-year project life.

TNG engaged a team of professional engineering, metallurgical, mining, marketing and infrastructure groups, for the completion of the DFS.

The DFS was led and compiled by Snowden Mining Industry Consultants (Snowden). Snowden have been associated with the Mount Peake project since 2009, have compiled all previous Mineral Resources and mine plans for the project, and completed the financial model and results for the Pre-Feasibility Study (PFS). As such Snowden have a very good understanding of the resource, the geology, overall project and financial model; TNG acknowledges Snowdens significant input and contribution to the DFS.

SMS Siemag (SMSS), the Duesseldorf based global metallurgical development and construction group, have been associated with the Mount Peak project since 2011, and assisted in many aspects of the DFS including metallurgical testwork, flowsheet verification, financial modelling and with the final compilation: TNG acknowledges significant input and contribution to the DFS by SMSS.

Definitive Feasibility Study Summary and key assumptions

DFS results show an increase in life-of-mine revenues and cash flows compared to the previous results from the Pre-Feasibility Study (PFS) completed in 2012 (see ASX Announcement – 15 July 2013).

The DFS is based on the production of magnetite concentrate on site at Mount Peake. The DSF assumes that concentrate will be trucked to a rail siding and then railed north to a TIVAN® Process plant facility to be located approximately 10km from Darwin Port. From the magnetite concentrate the TIVAN® facility will produce high-purity vanadium pentoxide, titanium dioxide concentrate and iron oxide. Associated downstream plants will produce high grade titanium pigment, and pig iron.

While the additional plant facilities increase the capital requirement of the project,  the higher revenues achieved from the higher value end products provide the Company with the potential for an early payback (<4 years) and  an exceptional internal rate of return. In addition, the products have well understood markets, transparent pricing and ready demand.

DFS financial model

The DFS financial model was compiled and audited by Snowden.

Key assumptions and findings are as follows:

Summary of Key Financial Parameters from cash flow model:

Mine Life:                                                                                                         15 years

Pre-production capital cost estimate (including all infrastructure:                    A$970 millionTotal operating costs (including mining, processing, transport & royalties):             A$167 per tonne of oreTotal revenue (life-of-mine):                                                                       A$27.3 billion

 Operating cash flow (life-of-mine):                                                                   A$13.6 billion

Net cash flow (life-of-mine):                                                                              A$11.6 billion

Discount rate:                                                                                                    8%

Pay back:                                                                                                          4 years

Nett annual operating cash flow:                                                                       A$780M

IRR pre-tax:                                                                                                       41%

NPV (at 8% discounted)                                                                                    A$4.9 billion

 Mineral Resource

The Mount Peake Mineral Resource estimate was released in an ASX Announcement dated 26 March 2013, (see ASX Announcement – 26 March 2013, “Additional Information on the Mount Peake Resource”, www.tngltd.com.au), and was completed in accordance with the guidelines of the JORC Code (2012). Initial mining and financial assessment work, based on the Mineral Resource, followed (see ASX Announcement – 15 July 2013, “TNG Considers Two-Stage Development Option for Mount Peake Project, NT ”, www.tngltd.com.au).   Details of the methodology and assumptions made are outlined in Appendix One.

The Company confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and, in the case of estimates of Mineral Resources, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. The Company confirms that the form and context in which the Competent Person’s findings are represented have not been materially modified from the original market announcement.

Table 1.                                The 2013 Mount Peake Mineral Resource estimate,

Mineral Resource

Category

Tonnes (Mt)

V2O5%

TiO2%

Fe%

Al2O3%

SiO2%

Measured

120

0.29

5.5

24

8.2

33

Indicated

20

0.28

5.3

22

9.1

34

Inferred

22

0.22

4.4

19

10.0

38

TOTAL

160

0.28

5.3

23

8.6

34

Note:       Tonnage and grade figures in tables have been rounded to 2 or 3 significant figures and as a result small discrepancies may occur due to the effect of rounding. Estimate calculated at a 0.1% V2O5 cut-off.

Ore Reserve

The Probable Ore Reserve estimated as part of the DFS is based on, and inclusive of, the above stated Mineral Resources. The Ore Reserve is classified as a Probable Reserve and constitutes around 30% of the Measured and Indicated Mineral Resource, limited only by price forecasts provided be TNG’s external consultants.

The forecasts go out to the year 2025 and the resultant Probable Reserve encompasses the first eight years of the planned mine life.

Table 2.                                The maiden Mount Peake Probable Ore Reserve estimate.

 

Category

Tonnes (Mt)

V2O5%

TiO2%

Fe%

Proven

0

-

-

-

Probable

41.1

0.42

7.99

28.0

TOTAL

41.1

0.42

7.99

28.0

                  

Note: Tonnage and grade figures in tables have been rounded to 2 or 3 significant figures and as a result small discrepancies may occur due to the effect of rounding. Estimate calculated at 15% Fe cut-off grade

Planned Mining and Mining Inventory

Under the DFS the planned mine is based on a total mining inventory of 78Mt at an average grade of V2O5 0.38%, TiO2 7.04%, and Fe 27.1%. The mining inventory includes all life-of-mine material within the planned pit shell, and is inclusive of both the Probable Ore Reserve material and the material to be mined during years 9 to 17.  The inventory for mining in years 9-17 is not included in the Ore Reserve due to product pricing estimates not being available.

The mining inventory is defined by a pit shell produced by a Lerchs Grossman optimisation for mine planning purposes, detailed in Appendix One, and the Reserve constitutes around 53% of this mining inventory. The Mineral Resource has been promulgated on a 0.1% V2O5 cut-off and the Ore Reserve on a 15% Fe cut-off. An iron cut-off, rather than a vanadium cut-off has been applied for procedural simplicity in the mine planning process and does not materially affect the Resource estimate, as the iron cut-off encompasses all material above a 0.1% vanadium cut-off.

The total mining inventory assumed under the DFS represents a 65% conversion of the 2013 Measured Resource, but with a significant increase in grade (from 0.28% to 0.42% V2O5). The large size of the orebody (ca. 2000m x 350m x 100m) and gradual grade boundaries allows a low 2% dilution factor to be applied, with ore loss being correspondingly low.

The mining inventory of 78Mt is derived from the Probable Ore Reserve (41Mt), the Measured Resource (27Mt) and the Indicated Resource (10Mt).

87% of the Probable Ore Reserve is derived from Measured Resource (36Mt), and 13% Indicated Resource (5Mt), with no Inferred Resource material included in the Probable Ore Reserve.

The Strip ratio is 0.9. Following a pre-strip, the principal mining method will be an open pit with conventional drill and blast and load and haul with excavators and large mining equipment. Ore and waste will be trucked to the concentrator and waste dump respectively.

The mining schedule has been designed to initially fill the plant and maintain a consistent blend of mined material. Consequently, the majority of the capital development is scheduled to occur in the first 24 months.

Geotechnical and Groundwater Studies

Geotechnical testwork shows the enclosing rock to be geotechnically competent allowing relatively steep pit wall angles. Groundwater exploration, pump testing and modelling simulations have been completed around the Mount Peake deposit. Results indicate that no significant dewatering of the mine environment will be required during mine development.

Mine Site Concentrator

An extensive metallurgical testwork program involving a number of laboratories and the CSIRO (Perth) has been performed for the DFS.

The testwork results show that the ore is amenable to the production of a high specification magnetite concentrate Refinery feed stock via crushing, grinding and conventional magnetic separation.

A detailed mine site beneficiation flow sheet and layout has been developed utilising conventional crushing and HPGR grinding process with a primary crusher fed by a dedicated front end loader from stockpiles.

Other Infrastructure and Logistics

Power for onsite production and facilities is expected to be generated from an on-site gas-fired power station provided by a specialist power generation contractor.  Gas is expected to  be sourced from the Amadeus Gas Pipeline located 20km from the proposed mine site.

A 103km long road will provide access between the Mount Peake mine site and the rail siding, and includes an underpass on the Stuart Highway crossing (for concentrate trucks) and intersections with the Stuart Highway (for mine site access).

The road has been designed in accordance with Austroads Guide to Road Design and is suitable for concentrate and other trucks in a road train configuration of up to 50m in length.

New rail sidings, spur lines and associated signalling infrastructure will be built for both the mine and Darwin Refinery sites.

A 350 person construction village will be built, to be replaced by a 170 person operations accommodation facility.

The project is expected to use the existing Ti Tree airstrip, 70km from the mine site. This 1.6km long bitumen airstrip is available, and able to accommodate jet aircraft such as the Fokker F100 or BAE146.  Negotiations with the Northern Territory Government on this facility are in progress and the upgrade of the current airstrip is anticipated to be covered by the Federal Government’s Development Fund for Northern Australia.

TIVAN® Process plant, Metallurgy, and Associated Infrastructure

An extensive metallurgical testwork program for the development of the TIVAN® Proess plant has been in progress since 2009, involving multiple flow sheets. For the DFS an industry standard pilot plant was constructed at the CSIRO (Perth) with leaching and continuous solvent extraction conducted to simulate scale-up to commercial design (see ASX Announcement - 8 July 2015).

The TIVAN® Process plant processing plant for the purposes of the DFS is proposed to be located in Darwin at a site approximately 10km from the Darwin Port. A suitable industrially zoned land site has been identified and reserved, while negotiations on the lease of the land are advanced with the Northern Territory Government. Darwin provides the necessary established infrastructure such as gas supply, power, water, a stable workforce and close access to a port.

The TIVAN® Process plant will have a design feed capacity of 900,000 tonnes of magnetite concentrate per year and is proposed to expand to a maximum capacity of 1,800,000 tonnes in production year 5. The TIVAN® Process plant consists of feed preparation, leaching, solvent extraction and acid regeneration. The  Refinery will produce vanadium pentoxide, pigment grade titanium dioxide and pig iron.   A detailed flow sheet and plant design have been completed with the site layout in progress. The plant layout has been designed with expansion capability should throughput be increased.

Mount Peake Final Products:

During the detailed 24-month DFS and TIVAN® testwork, the challenging commodity markets were constantly addressed. As a result the Company focussed on producing final products that had historically solid demand in readily available and growing markets, in addition to transparent pricing in order to demonstrate a significantly de-risked and robust project for financing. In the DFS it is assumed the following are for production:

Vanadium Pentoxide

It is planned that the Company will produce a high purity vanadium pentoxide (V205) via the 100% owned TIVAN® Process, providing an enhanced vanadium product available for different end-user markets and able to capture a premium price. This will be of a purity that can be used in both the ferro-vanadium and emerging Vanadium Redox battery market sectors. At maximum production TNG would supply approximately 8%  of  current global demand. Prices for V2O5 are at relative historic lows but are forecast to increase over the next few years as supply/demand tightens.

Pigment grade Titanium Dioxide

The Company will produce a high quality titanium dioxide (TiO2) concentrate via the TIVAN® Process. This will then be further refined on site to pigment grade (>95% TiO2purity), through an industry standard chloride process, providing an important high-value titanium product rather than a medium-grade product as was previously considered in the PFS.

Pigment grade titanium dioxide from a chloride process is in high demand and used extensively in chemical and high technology industry for a vast range of industrial and consumer goods. At maximum projected production TNG would supply approximately 2% of current global demand. It currently sells for approximately US$3000/tonne, compared to the US$400/tonne assumed in the PFS.

Pig-Iron

The Company will produce a high purity iron oxide (Fe2O3) via the acid regeneration process of the TIVAN® Refinery. In a reaction to the changed market conditions and outlook for iron oxide, the Company has taken advice from its metallurgical partners and decided to opt for a well-recognised, industry standard, iron product that has a guaranteed market and strong price. Pig-Iron is an intermediate iron product that is cast into ingot “pigs” and used in integrated steel mills and the metal casting industry and currently sells for approximately US$300/tonne. TNG’s projected production would represent 0.05% of the current global production of pig iron.

TIVAN® Process Plant and the Acid Regeneration Plant (ARP)

The ARP is an integral part of the Process plant. For the DFS the ARP will fall under a Build-Own-Operate-Transfer (BOOT) model. As this plant serves an internal purpose (acid recycling) and does not produce any of the final products, the Company considers it is prudent and commercially sensible to outsource it.

It is important to note that the TIVAN® Process plant is expected to be designed for an operational life of approximately 40 years and will therefore be expected to run longer than the current life-of-mine for the Mount Peake project.

Drilling results have indicated the potential to find additional ore in the Mount Peake area, where other vanadium and titanium bearing magnetite-bearing intrusives have already been identified (see ASX Announcement – 15 April 2014). The location of the TIVAN® Process plant near Darwin Port also allows the potential for other concentrates to be shipped to the Refinery for processing.

The potential for the additional long-life revenue streams from the Process plant have not been incorporated into the DFS.

Capital Expenditure

The DFS assumes an overall Capital Expenditure (Capex) cost for Stage One of  AUD $970 million, which includes an EPCM charge of 8% and 5% contingency. This figure includes all infrastructure, access/haul roads, mining, rail works, camp, water supply, concentrator, tailing dam, and the Darwin Process plant and port handling costs.

Table 3: Capital cost summary

 

Capital Expenditure

Stage 1

$AUD Million

Stage 2

$AUD Million

*Total Mining and Infrastructure Capex

$208

$67.1

**Total Process plant Capex

$647

$631

TOTAL CAPEX

$856

$698

EPCM (8%)

$68.4

$55.9

CONTINGENCY (5%)

$46.2

$37.7

TOTAL

$970

$792

 

*Includes: Camp, roads and rail infrastructure, water supply, concentrator and tailings facility.

**Includes: TIVAN Process plant, Pig Iron and Titanium plants and port handling facilities.

Stage Two is planned to occur in years 4-5, where mine production is projected to increase from 3Mtpa to 6Mtpa, and the capacity of both the concentrator and Process plant to double. It is assumed that Stage 2 Capex costs of AUD $793 million are to be paid out of operating revenue.

Operating Costs

Overall Operating Expenditure (Opex) costs have been estimated based on life-of-mine tonnage and grade information, processing costs for the beneficiation plant, Process plant costs, output tonnages, and sales revenues, with an overall assumed Opex of $167/tonne of ore mined.

Commodity Pricing

Independent pricing forecasts for each commodity were commissioned by TNG.  These included forecasts for vanadium (supplied by Roskills, London), titanium dioxide (supplied by Roskills, London) and pig iron (supplied by commodity traders, Shanghai). Mount Peake is planned to commence production at a time when vanadium prices are forecast to have recovered from recent price lows, while titanium pigment and pig iron prices are expected to remain strong.

Forward estimate “Real” and “Nominal” prices for all commodities were provided by the consultants and are commercial in confidence. The methodology used by the consultants in the commodity forecasts was based on the following: Current market reviews of suppliers, consumers, reviews of global consumption, new markets, trends, Strengths Weaknesses Opportunities Threats (SWOT) analysis, historical and future trends of supply and demand in “Real” and “Nominal” prices.  Only “real” pricing was used for all commodities in the DFS.

Exchange Rate

A USD exchange rate of 0.75 AUD based on RBA estimates was used in the DFS.

Commodity Off-take

At full production, the TIVAN® Process plant is expected to produce an average of 17,560tpa of V2O5, 236,000tpa TiO2 pigment and 637,000tpa of pig iron.

TNG has shortlisted, and is continuing to progress advanced negotiations with major global tier one companies as potential off-take customers. It has secured initial agreements for all commodities, and a Binding Term sheet for vanadium pentoxide Offtake. Binding Offtake Agreements are in negotiation and expected to be completed this quarter.

Development Schedule

After the final Native Title Agreement is signed by TNG and the Traditional Owners, TNG expects a recommendation to be made by the NT Department of Mines and Energy with regards to the granting of the Mount Peake Mining Leases (ML28341, ML29855, ML29856, and ML30686). This is expected to take one month from the finalisation of the Native Title Agreement.

The Environmental Impact Statement (EIS) is well advanced and expected to be submitted shortly. No issues are currently anticipated from any of the above approvals and processes.

Subject to all regulatory approvals, permitting and receipt of financing, initial site works are expected to commence early in 2016 and will comprise concurrent construction of the accommodation village, the access road and commencement of clearing of the open cut through the overlying sand cover to enable the establishment of the first areas for mining.

The Mount Peake project proposed implementation schedule is dictated by the development of the TIVAN® Process plant. It is planned that first ore is expected to be extracted in Q1 2018, with initial ore stored on a run of mine (ROM) stockpile.

The process plant will commence processing when the ROM stockpile contains sufficient ore feed, which in the DFS assumes will occur in Q1 2018.

First concentrate production is expected to be sent to the TIVAN® Process plant in Q1 2018 and the first vanadium pentoxide, titanium pigment and pig-iron shipment is expected to occur in Q2 2018.

Satisfactory financing, final development approvals, signing of the final Native Title Agreement, the grant of the Mining Leases and a number of other environmental and other regulatory approvals and permits will be required before mine development and production can commence. The proposed schedule described above is subject to satisfying those requirements.

Next Steps

Financing and offtake discussions have progressed significantly and it is possible that these will be finalised prior to receipt of all necessary statutory approvals.

While the Company’s immediate focus is on the permitting and development of the Mount Peake mine, it is also well placed to continue with developing its extensive asset portfolio to build TNG into a premier mining group.

Following recent discussions with Australian, European, Korean and Chinese Engineering Procurement and Construction (EPC) companies, TNG will now give immediate consideration to identifying potentially suitable partners for development of the project.