Group 6 Metals expects more ‘robust returns’ from updated review of Dolphin Tungsten Mine, Tasmania

Group 6 Metals (ASX:G6M) reports it is updating the project economics for the Dolphin Tungsten Mine, located on King Island in Tasmania.

The company advises that its team on site has undertaken a detailed review of costs associated to complete construction activities and the working capital requirements to achieve steady state production amid concerns of rising costs due to global inflationary pressures.

The review has identified several areas of cost escalation, however the company says these increased costs are more than offset by sustained ‘higher’ Ammonium Paratungstate (APT) prices and ‘favourable’ foreign exchange rates.

Group 6 Metals Managing Director and CEO Keith McKnight said despite the challenges faced by many mining projects under construction over the last 12 months due to escalating capital and operating costs, logistical challenges and labour shortages, the company is very happy with the progress achieved at Dolphin to date and with the updated project financial metrics.

“The NPV for the project has increased significantly from $241 million to $300 million pre-tax after factoring in all of these factors.

“The NPV for the project has increased significantly from $241 million to $300 million pre-tax after factoring in all of these factors”

The project is tracking well against schedule, with commissioning of the process plant still expected to be completed by the end of March 2023, as all the major OEM equipment has now been delivered to site to complete the construction of the process plant.

In parallel, the mine infrastructure is also progressing well with construction of the tailings storage facility underway and expected to be available in March 2023 when needed for commissioning.

The market fundamentals for tungsten continue to look increasingly positive. There is an anticipated shortage of tungsten concentrate in 2023 due to increasing demand and limited new supply coming online/

The price for APT has remained stable at US $335 to $340 per mtu WO3, for much of the last 6 months and given the current AUD to USD exchange rate, is the highest APT price in Australian dollar terms since the mine last operated.

While there has been cost escalation in capital and operating costs, by overcoming these challenges the company can take advantage of very favourable market conditions to maximise returns from one of the highest-grade tungsten projects in the western world.”

The company reports it is currently undertaking construction of the project which is planned to commence the production of tungsten concentrate for sale to its offtake partners in Q2 2023, following the commissioning of the concentration plant in Q1 2023.

It also states the updated project economics have been provided following a ‘detailed’ review of capex cost to complete, and updated OPEX costs.

Group 6 reports input costs have been adjusted to account for project design enhancements, increased inflation for materials and labour costs, and increased energy costs, and these costs have been updated but are based on the work completed and referred to in the Revised Feasibility Study (RFS) released in December 2020.

The increase in NPV is attributed to the sustained increase in APT prices and favourable drop in the USD to AUD foreign exchange rate, and the company says these benefits to the project have been offset by an increase in CAPEX and OPEX which are largely due to inflationary cost pressure for materials, spare parts, mine and process plant consumables and fuel.

Prior to and after commencement of construction, Group 6 implemented several design enhancements to improve the construction, operation and reliability of the mine and process plant operation.

These included changes to the tailings storage facility, tailing pumping system, explosives storage and civil structural design.

In addition, the company says there has also been several scope changes relating to the Gekko contract and a change in mining fleet, provision of dedicated diesel power station, modification of site electrical configuration, addition of front-end loader for material handling at process plant and stocking of additional mobile equipment and process plant spares.

Group 6 also reports there has been ‘unprecedented’ global inflation for the supply of tools, parts, consumables, fuel, tyres and equipment such as electrical switchgear, batch plant, galvanising and logistics.

Other factors influencing the increase in costs include significant delays on the delivery of mining equipment due to global shortages has resulted in Group 6 renting equipment while waiting for their own to arrive, as well as higher than average rainfall impacting ground conditions, and ongoing labour shortages incurring additional costs as the company hires contractors to fill vacant positions.

These factors have resulted in an increased CAPEX expenditure outside of Group 6’s control, however they say they have reduced this impact as much as possible.

A review of OPEX expenses has also identified several areas of cost escalation, with the most significant reported by Group 6 being the price of Ammonium Nitrate Explosive (ANE) which has doubled, and diesel fuel which has increased by around 55%.

Substantial increases in international shipping rates have also been factored into the company’s updated financial model, with a 57% increase applied.

Group 6 comments despite these challenges, the design enhancements to the process plant have resulted in operating cost improvements and better overall plant reliability.

Group 6 Metals is an Australian resource exploration and development company focused on redeveloping its Dolphin Tungsten Mine on King Island in Tasmania.

The initial focus of the project is producing a ‘high-grade’ tungsten concentrate, and it plans to value-add the concentrate supply into the upstream tungsten industry.

Images: iStock
Written By Harry Mulholland
Hailing from the Central Coast region of NSW, Harry is a passionate journalist with a background in print, radio and ESG news. When not bashing away on his keyboard, he can be found brewing a coffee or playing with his dog.