IMAGE Resources managing director Patrick Mutz said the ramp-up to full-scale production at the miner’s Boonanarring project was achieved in only two months (as opposed to six months) after operations started in February, partially due to higher grade ore than expected based on the Ore Reserve.
“It was equally due to three very important contributors,” he said.
These were a high quality deposit with coarse grained mineralisation and high heavy mineral (HM) grade; the proper matching of plant and equipment with the deposit; and a very experienced workforce.
“The rapid ramp-up was beneficial as it contributed to higher than forecast production and revenue,” Mr Mutz said.
At the recent Noosa Mining Conference in Queensland, Mr Mutz told investors the company underestimated the head grade.
“We found that we missed a high grade core that was just thin enough that it was just between the 20m spaces holes,” he said.
“We had to go back and re-drill this deposit on 5m spacings to understand the complexity of the deposit and how rich it really is.”
While a welcome bump, the ramp-up meant that the sale and shipping of three months of HMC production inventory in only six weeks was a real challenge.
“Every new mining operation has its challenges during the early stages of transitioning to an active mining company; Image’s challenge was not adequately planning for its own success of realising much higher ore grades and production than expected based on the Ore Reserve,” Mr Mutz said.
“Consequently, our off-take partners were not prepared to take as much HMC product as we produced so quickly.
“When you’re successful and you don’t plan for that success, sometimes your own offtakers get caught short.”
Luckily the company’s off-take partners put their hands up to quickly acquire the excess product inventory.
“The way we accomplished this was due to our solid relationships with our trucking and shipping contractors, and careful planning and organising the transfer and loading of this significant amount of material in a very compressed period of time,” Mr Mutz said.
“The credit for accomplishing this task goes to all parties involved – this is the mark of a successful company.”
Image has off-take agreements for 100pc of its production for the life of the mine, and the off-takers have quickly adjusted to the company’s higher than planned production levels.
“We expect that will continue for the remainder of 2019 and beyond, despite the fact that it remains to be determined whether Image will increase its guidance for 2019, and if so, to what level,” Mr Mutz said.
“We have to wait until the second quarter results have been published, however if results from the first quarter are similar, it is clear production is well ahead of the current guidance.”
Drilling and analysis is underway to update Image’s mineral resources and ore reserves and Mr Mutz expects drilling to be completed, and the mineral resources and ore reserve updated in late September.
“Based on the first quarter results, the HM ore grade could increase substantially,” he said.
“However it is not possible to estimate just how much the ore grade may increase until the new ore reserve estimate is completed.”
Mr Mutz said the company had gone from a $50m market cap to $270m in less than a year– which is just the beginning for the company.
“There’s still room to grow,” he said.
“We’re a company that delivers on what we said we were going to do, on time and on budget.
“We ramped up to full production in the second month of operation which is very rare.”
Over the long-term
With the long term outlook of zircon anticipated to be one of tightening supply out until 2022, Image has placed itself well to leverage the sudden increase in production.
“Image launched the Boonanarring project at the bottom of the mineral sands commodity market (mid-2016),” Mr Mutz said.
“However Image’s plan was to position the company to be in production and therefore in a position to benefit from a recovery of commodity prices.
“In hindsight, it appears Image choose wisely, as the zircon market in particular has increase substantially since mid-2016, and now that Image is an active mining company (since December 2018), we learn of a fundamental shortage of supply of zircon that currently is estimated to continue to at least the end of 2022.”
This bodes well for Image, with predictions of strong zircon prices at current levels (or higher) for the foreseeable future and the company currently supplying up to 7pc of global supply into the market – with zircon representing up to 84pc of total revenue in the first quarter.
“A general shortage of supply of zircon will almost certainly keep upward pressure on zircon prices through this period,” Mr Mutz said.
Reflecting on the newly found head grade, Mr Mutz said the zircon it contained was richer than anticipated by about 30 pc, which could see some exciting developments for the company in the second quarter and beyond.
“That’s an anomaly,” he said. “That’s a value-adding quality.”
“What we are learning now is that we underestimated the grade, we underestimated the zircon content so it’s going to get better as we get a new ore reserve sometime in September.”
