Hill End set to join high-purity alumina party with multi-decade maiden resource

Barry FitzGerald

High-purity alumina is touted as the next hot industrial mineral - and there is a growing view that Hill End may have lots of it. The guessing will soon be over, with a maiden resource expected shortly. Plus, Centaurus’ local knowledge lands it a highly prospective Brazilian nickel-cobalt play.

A diary entry shows that the misnamed Hill End Gold (HEG) must be close to releasing a maiden resource estimate for its Yendon high-purity alumina (HPA) project some 25km south-east of Ballarat.

It is bound to gain attention as HPA is following in the footsteps of previously ignored specialty materials like graphite and cobalt which are enjoying super-charged growth in demand due to their use in a range of new and hi-tech applications.

HPA is a high-value material, fetching between $US25-$US40/kg depending on quality and the particular end-use. Compound annual growth rates of 15-20% are forecast, with the high growth reflecting its exposure to a number of high-growth markets.

The stuff is used as the separator between the anode and cathode in lithium-ion batteries to prevent meltdowns, as well as in LED lighting, and scratch-resistant synthetic sapphire gas (smartphone screens and lenses).

Having said all that, it is not a big market. Annual consumption is currently put at about 25,000 tonnes. But the strong expected growth rates means that new sources of supply will be needed.

Hill End - its name is a throwback to when its focus was on gold projects in central NSW - identified the HPA opportunity a while back, striking a deal with Tolga Kumova and Tom Eadie of Syrah (SYR) graphite fame for ownership of the Yendon kaolin (aluminous clay) deposit.

The region around Ballarat has long been known for its production of high-quality kaolin for the paper filler and ceramics markets. But HPA, or more correctly kaolin for processing into HPA, is something new.

The soon-to-released Yendon kaolin resource estimate is expected to confirm a quality resource capable of sustaining a HPA project for decades to come. As might be suspected given the current size of the HPA market, Hill End’s HPA ambitions are not going to be resource-constrained.

To become a significant HPA producer, Hill End would probably need to mine no more than 100,000 tonnes of material annually to produce 40,000 tonnes of kaolin.

The kaolin would then go in to a calcining and acid-heavy chemical process to yield 10,000 tonnes of HPA (99.99 per cent purity) — enough to account for 40 per cent of current global consumption.

While the resource base at Yendon is likely to support such a grand ambition, a smaller ambition would seem likely. The maiden resource estimate will nevertheless tick another box on Hill End’s HPA ambitions.

It already has ticked the box on the metallurgical side of things. Next up will be subjecting the HPA ambition to a preliminary feasibility study, including a decision on where to send Yendon’s kaolin concentrates for processing into HPA.

A HPA business could have very attractive economics, particularly when viewed against Hill End’s current market cap of $21m at 14.5c a share. For a feel of HPA economics in the absence of a PFS for Yendon, its best to take a squiz at what Iggy Tan’s Altech (ATC) reckons is achievable at its Australian-Malaysian HPA project.

Centaurus secures Brazilian nickel-cobalt leg

Last year was a big one for cobalt. The price more than doubled from its 2016 average of $US25,600 a tonne to $US54,600 a tonne, if you don’t mind.

Prices have gone on with things since, with the metal climbing to $US80,750 a tonne this week.

The spectacular price gains reflect cobalt’s status as a critical raw material for cathodes in lithium-ion batteries which are powering the global electric vehicle and energy storage revolution.

Nickel did not have such a great year in 2017, with its annual average of $US4.64/lb representing only a modest improvement on 2016’s $US4.35/lb. But it has come good of late and currently stands at $US6.05/lb.

Despite a big overhang of stockpiles, it is benefitting from the EV and energy storage revolution as it too is a critical raw material in lithium-ion batteries.

Take all that in and it stands to reason that cobalt and nickel are two of the preferred exposures for 2018 and beyond. That’s particularly so for cobalt, the production of which is dominated by the Democratic Republic of the Congo.

The Congo has just put the wind up the mining industry by positioning itself to bump up royalties on cobalt from 2% to 10% on it declaring the metal to be one of strategic importance.

Given it supplies more than two-thirds of current demand for cobalt, it is safe to assume that it will be declared strategic to the struggling nation.

The royalty increase was part of a broader sweep of changes (including a super tax on profits when commodity prices rise 25% above the assumptions used in a project’s bankable feasibility study) that is now the subject of a fierce pushback by the miners.

Good luck to them. What is more certain is that the DRC’s grab has served to increase the scramble by end-users to find new sources of cobalt. That has come on top of the pressure the end-users are feeling to ensure they source more ethical and auditable supplies than are available from DRC.

It is against that backdrop that the hardy ASX-listed Brazilian explorer Centaurus Metals (CTM) has popped on to the radar.

Centaurus has been knocking around Brazil for years, initially with domestic iron ore production as its focus. A couple of handy iron ore assets continue to be on the books, with realisation efforts underway.

But the game changer for Centaurus has been the swing in its focus to copper-gold, and more recently nickel-cobalt, in Brazil’s mineral rich Carajas province in the north of the South American powerhouse.

Unlike the crowded Australian exploration scene, Brazil is a land of opportunity for juniors. But it is no walk in the park. In-country knowledge and connections are needed. Centaurus has that in spades.

And it has been delivering the company with new opportunities, the likes of which aren’t generally available for juniors in the Australia.

Centaurus’ latest deal over the Itapitanga nickel-cobalt project in the Carajas is an example of that.

Itapitanga covers the southern extension of Anglo American’s Jacare nickel-cobalt deposit, a 307Mt monster with grades of 1.3% nickel and 0.13% cobalt which will come in to its own as non-DRC demands of the EV/battery storage revolution take hold.

Sandwiched between Jacare and Itapitanga sits the king of the Carajas, Brazil’s Vale, with a 15km stretch of ground with known but unpublished nickel-cobalt resources.

Centaurus was able to get away a heavily oversubscribed $2.65m placement to get cracking at Itapitanga and its copper-gold prospects in the Carajas. The initial focus at Itapitanga is to confirm the widths and grade of mineralisation seen at surface by soil sampling and auger drilling, followed immediately by RC drilling.

It will add to the news flow in 2018 to come from the group’s other projects in the Carajas – the Salobo West copper-gold and the Pebas copper project. Salobo West sits 12km from Vale’s big Salobo copper-gold mine.

So in essence then little old Centaurus is walking with and among giants in the Carajas. The hope now is that the earlier promise of its projects in the region gets converted in to some real upside for the company which last traded at 1.4c for a market cap of $29m, excluding tonnes of listed and unlisted options.


Barry FitzGerald

One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.

Expertise

nickel lithium cobalt ASX:HEG ASX:CTM asx:atc high purity alumina

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