This article is a sponsored feature from Mining.com.au partner Heavy Minerals Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.
The Shire of Northampton, located 50km north of Geraldton in Western Australia, is ostensibly known for tourism, the coastal lifestyle of Kalbarri, and glorious heritage trails. It is bounded by the Chapman Valley, Shark Bay, and Murchison shires, and the Indian Ocean.
Amidst all this is a lesser known yet incredibly important landmark – the Port Gregory Garnet Project, situated in the established mineralogical terrain of the Hutt River garnet area.
Perth-based junior exploration company Heavy Minerals (ASX:HVY) wholly owns the 166 million tonne resource project, with a Prefeasibility Study (PFS) imminently due to commence.
While at face value garnet doesn’t have the seductiveness of alternative minerals, there is certainty in the market. This is particularly apparent with the Port Gregory project economics, which looks to offer plenty of upside compared to other exotic materials.
In a commentary report in May 2022, Analyst Warwick Grigor from research firm Far East Capital said of Heavy Minerals and its exposure to garnet: “…you can … sleep at night, knowing that there isn’t the risk of a bubble bursting”.
“…you can … sleep at night, knowing that there isn’t the risk of a bubble bursting”
“That has sound merit, in my opinion,” Grigor said.
Containing a JORC-compliant Mineral Resource Estimate (MRE) of 166 million tonnes at 4% total heavy mineral (THM) with 5.9Mt of contained garnet, Heavy Minerals CEO Andrew Taplin tells Mining.com.au now that merit is being validated.
Port Gregory is a unique project in a niche commodity subset. Taplin reiterates it’s a project of low complexity with a reasonably quick construction period on an identified pathway to funding.
Yet despite this progress, more than a year on, Far East Capital’s view in the 2022 report remains valid: “With a market capitalisation of around $11 million, it seems that the market is ignoring the (company’s) upside potential.”
Grigor ponders: ‘Why is the share price so low? Maybe it is just another victim of the weak market we have been experiencing, or maybe the release of a small number of escrowed shares in the middle of the month resulted in some selling. Maybe the market doesn’t know how to assess garnet projects.’
For Taplin, the assessment is actually quite easy.
Blasting into free cash flow
Just a brief synopsis of Port Gregory’s ‘robust’ financial metrics tells the story: “The Scoping Study demonstrates a potential 16-year mine life with a net present value (NPV) of $253 million and capex of just $110 million. It has an internal rate of return (IRR) of 33% and post-tax free cash flow of $588 million over the life of mine.”
Incredibly, Heavy Minerals’ market capitalisation today stands at less than $10 million.
The CEO says with Heavy Minerals just a few short years out from having an operating mine generating some $40 million of free cash flow each year, its flagship project has global significance.
Fortuitously for Heavy Minerals, it borders the GMA Garnet Group (GMA) mine – the largest global supplier of garnet with a 34% market share. And it’s within close proximity to Resource Development Group’s (ASX:RDG) Lucky Bay Project – ‘2 of the highest quality garnet operations anywhere in the world’.
Unsurprisingly with these operations nearby, the area is endowed with road infrastructure on which Heavy Minerals could haul its garnet to the Port of Geraldton from where 90% of its product will be shipped.
“What differentiates us is that for one, we’re in a well-known historical mining district”
The CEO says: “If you look across the commodities sector globally, there’ll be comparable projects for sure. What differentiates us is that for one, we’re in a well-known historical mining district. Two, we’re in a favourable jurisdiction for permitting mines with known processes and reasonably predictable timeframes. And because we’re in that historical mining district, the infrastructure is established.”
Market differentiator
As Taplin reiterates, Port Gregory is a low complexity operation with a simple flow sheet. This means Heavy Minerals has a well-defined number of options and feasibility studies can be advanced reasonably quickly.
Heavy’s garnet will be a high-specification product with very low levels of contaminants. The company expects this to be a ‘market differentiator’.
Once in production, the end product will be used for 2 purposes – as abrasive blasting media and for abrasive water jet cutting.
The CEO adds: “As such, end users that require a high-specification garnet will be a target client base. High-specification garnet is used in the space, military, shipbuilding and oil and gas sectors in particular, but also in any application where the surface preparation requires a high-standard of treatment prior to coating application.”
Taplin says with this in mind, beyond Port Gregory the global outlook for garnet looks incredibly positive.
Heavy Minerals could eventually produce about 150,000 tonnes and potentially sell up to as much as 20,000 tonnes per annum into strategic offshore markets.
Taplin says: “The current thinking around our strategy at the moment is that we’ll place the material into the US market, where there’s strong demand for it, and likely into the European, Middle East, and the Southeast Asian markets. In those markets, we’ll have multiple customers – we’re only going to produce 100,000 to 150,000 tonnes. If someone has a shipbuilding yard, or if someone has large steel fabrication … it won’t be too difficult for us to sell them 10 to 20,000 tonnes of the product a year.”
This marketing strategy will be better defined during the PFS, which could take 6 months to complete.
Garnet – enigmatic and in-demand
The CEO notes even without completing a PFS yet, an evidently unique element of Heavy’s garnet is its quality. This means, for example, when an end user prepares the surface of a material to coat, they will be confident it’s low in contaminants and the surface finish will be premium standard.
“If you’re investing in the marine environment for example, on a wharf or a ship, you put your coatings on and you want them to last and you want to have a high level of confidence they’re going to last for 20 years. Because the expense of going back after 5 years and repairing coatings which haven’t adhered properly is very expensive. You want to make the upfront investment with the highest possible products, both coatings and also abrasive materials, to make sure that that coating system is going to last for decades … 30 years, 50 years in some applications.
Imagine if you’re blasting a marine structure, wharf piles, which is a very common application for blast media. If you’re blasting wharf piles with slag, there’s potential for all those heavy metals to get into the marine environment. There’s no way that developed countries will permit that on a going forward basis into the future.
“There’s going to be a massive opportunity for garnet and the reason I say that is garnet’s inert – it doesn’t have the workplace health and safety risks”
There’s going to be a massive opportunity for garnet and the reason I say that is garnet’s inert – it doesn’t have the workplace health and safety risks. It doesn’t have the environmental risks that come with silica sands and also come with the slag. So, you can see how there’s going to be a massive market opportunity for those materials, but people will become a lot more aware of garnet as an inert material, an environmentally friendly material, and a safe material to be used.”
Despite all these applications, Taplin says the garnet market is not well understood by the average investor.
The benefits of alluvial garnet in particular and its applications in the construction of new steel structures, ships, wharves, as well as oil and gas platforms, and the critical role it plays in refurbishing existing aging steel infrastructure has until now gone unnoticed.
Modern industry relies on high-quality garnet in a host of different size specifications for applications as varied as polishing, ‘abrasive blasting’, water jet cutting, water filtration, and industrial flooring.
A water jet cutter produces a high-pressure jet of water with garnet and other abrasive grains in it. When the jet is aimed at a piece of metal, ceramic, or stone, it cuts the material producing very fine dust.
Taplin says garnet is starting to replace silica sands as an abrasive blast media because silica can be harmful to workers’ health.
“Of all of the blast media types available the alluvial garnet from Port Gregory will have the lowest workplace health and safety (WHS) risks and is the most environmentally friendly of the blast media options. WHS and environmental regulations will ultimately preclude the use of blast media such as silica sand and slags (copper, nickel, coal) which in the US constitutes a large part of the market.
As such the demand for alluvial garnet, given its favourable WHS and environmental characteristics can reasonably be expected to increase significantly as regulatory changes are made.”
The CEO adds in the US market the largest source of blast media is silica sands. The country uses some 2 million tonnes of silica sands for blasting surfaces, with slag also widely used and garnet “right down the list of abrasive materials”.
Demand for abrasive blast media is also increasing. One case in point, Taplin notes, is the recent commitment to infrastructure investment in the US where US$40 billion will be invested in aging infrastructure such as the refurbishment of steel structures, mainly bridges.
“The slags have all come out of smelters and those slags contain heavy metals, so when they’re used for blasting, they become airborne and there’s a risk that those contaminants get into the environment. So, I anticipate in years to come, silica sand will be regulated out of many jurisdictions, but in particular the US.”
Blasting onto the market
In recent years the global supply of garnet has changed materially as a result of the Indian government significantly constraining the production of alluvial garnet. Additionally, operational changes at recently established garnet operations globally have reduced the level of new supply coming to the market.
As mentioned, the Biden Administration has announced a wider US$1 trillion investment in infrastructure of which the aforementioned $40 billion will be invested in aging infrastructure.
Taplin says this will require blast media to blast the surfaces and apply new coatings in order to extend the life of the infrastructure. Other developed countries such as Australia, Canada, and New Zealand are also following suit by refurbishing and rebuilding existing infrastructure.
As Analyst Warwick Grigor from research firm Far East Capital previously said in May last year, ‘there isn’t the risk of a bubble bursting’ with garnet, which from his outsider’s point of view ‘has sound merit’.
The Port Gregory Garnet Project is a 226km-square tenement package 100% owned by Heavy Minerals. The company’s tenements are located over an area of heavy mineral deposits in Western Australia which are ultimately, but indirectly, derived from the weathering of crystalline igneous rocks in the Archean Yilgarn Block. Heavy mineral grains derived from the Yilgarn Block were initially deposited in thick sequences of Mesozoic sediments that filled the Perth Basin. The tenement area lies in the most northerly part of the Perth Basin, on the western side of the Northampton Block.
Taplin says there are few barriers to market entry for Heavy Minerals as other garnet suppliers, including GMA, will struggle to cater for the forecast global supply deficit, which is expected to grow exponentially over the coming decade. GMA is the largest global supplier of garnet – both alluvial and hard rock – and the company has been in operation for several decades with a well-established brand, as well as logistics and distribution networks.
However, the world needs more garnet, priming Port Gregory to be a project of global significance.
During the June quarter, Heavy Minerals upgraded the MRE and increased the resource by 23% with 71% in the higher confidence measured category. Currently, 5.5Mt of the TMH is within the measured and indicated JORC category.
The CEO says the bolstered mineral resources adds more value to the project and positions Heavy well when it begins to engage prospective project financiers.
“The mine life gets longer and we’ve maturely de-risked the feasibility studies going forward because 71% of the resource is now in the measured category. So, we’ve got the level of resource definition that we need to give us a high level of confidence that there’s a good inventory of garnet there. In fact, there’s enough garnet there – there’s over about 6 million tonnes, which is enough to supply the global market for about 5 years.”
“From an investment standpoint and all things being equal, an alluvial garnet mine such as Port Gregory is a better option over a hard rock mine”
Another market differentiator – it’s an alluvial garnet deposit.
There are 2 types of garnet – alluvial and hard rock, although alluvial is preferred. Hard rock garnet particles have ‘sharper, irregular and jaggered’ edges. This means they embed in surfaces and tend to break down. Alluvial garnet particles have more rounded edges, are less prone to embedding and hence produce a better surface finish. The particle shape of alluvial garnet also means it is a faster and more efficient blast media compared with hard rock garnet.
Taplin adds: “Alluvial garnet mining requires significantly less fracturing (blasting) prior to mining and the breakout forces are significantly less, meaning that the mining process is significantly less energy intensive and hence less expensive for alluvial deposits.
From an investment standpoint and all things being equal, an alluvial garnet mine such as Port Gregory is a better option over a hard rock mine.”
Write to Adam Orlando at Mining.com.au
Images: Heavy Minerals
