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Zacks Small Cap Research

BLSTF: Blackstone Minerals PFS on Integrated (both upstream & downstream portions) Ta Khoa Project Completed reflecting management's vertically integrated strategy.

By Steven Ralston, CFA

OTC:BLSTF | ASX:BSX

READ THE FULL BLSTF RESEARCH REPORT

Blackstone Minerals (OTC:BLSTF) (ASX:BSX) is pursuing the development of the district-scale Ta Khoa Nickel Project through a vertically integrated strategy which entails an upstream project (Ta Khoa Nickel Project aka TKNP) and a downstream project (Ta Khoa Refinery Project aka TKR), along with arrangements to secure further upstream supply for the refinery and to develop a distribution/sales network for the refinery's projected NCM Precursor products.

The upstream project involves the exploration and advancement of several nickel prospects, foremost the Ban Phuc disseminated sulfide (DSS) deposit, but also the underground massive sulfide vein (MSV) deposits at Ban Chang and King Snake. The key objective of the upstream project is to provide a reliable supply of feedstock for Blackstone's planned refinery. A beneficiation plant is expected to receive ore not only from Ban Phuc but also from the underground MSV deposits at Ban Chang and King Snake. Initially, an existing 450,000 tpa concentrator plant is planned to be utilized until a new 8 million tpa facility is constructed as presented in the PFS.

The downstream project is comprised of the development of a refinery capable of refining nickel-cobalt concentrate into high-value NCM (nickel-cobalt-manganese) Precursor products. Feedstock from the upstream project is expected to satisfy about half the refinery's capacity with the remainder being sourced from third parties, some of which are expected to be found through an arrangement with Trafigura, a significant global trader of physical commodities, including nickel, copper, cobalt, zinc and lead.

Blackstone's partnership model should facilitate management's integrated approach. Strategic investments, agreements and arrangements are being made to help secure nickel concentrate feed for the refinery from third parties (front-end) and to help build solid relationships with Asian manufacturers of cathodes, batteries and EVs so that the company's NCM Precursor products can be sold readily (back-end).

Developmental Milestones

Blackstone Minerals has achieved two very significant milestones for the Ta Khoa Project, namely the release of the PFS for the upstream project (TKNP) & the integrated project in late-February 2022 and a Mineral Resource upgrade in late-December 2021. Previously, in July 2021, a PFS for the downstream refinery (TKR) was completed that concerned the construction of a refining facility with the capacity to process 400,000 tpa of nickel concentrate feedstock into battery-grade NCM Precursor products.

In addition, Blackstone Minerals has embarked on a pilot plant testing program to fine-tune the process of manufacturing NCM Precursor products, which entails laterally mining approximately 1,000m through the Ban Phuc DSS ore body for bulk sample material. This underground mine development commenced in early-December 2021.

Also, strategic investments were made in NICO Resources Limited and Corazon Mining Limited to help ensure the supply for nickel concentrate for the Ta Khoa Refinery Project.

On February 28, 2022, Blackstone Minerals announced the completion of a Pre-Feasibility Study (PFS) for the upstream portion of the Ta Khoa Nickel Project, which also integrated the results of the PFS for the downstream project.

To better understand the PFS, First we will examine the economics of the upstream PFS and then the PFS on the integrated Ta Khoa Nickel Project.

PFS for Upstream Mining Project


The February 2022 PFS enlarged the magnitude of the mining project, including the construction of an 8Mtpa processing facility, instead of the 4Mtpa base case in the October 2020 Scoping Study. Consequently, the pre-production capex increases 15.6% from $314 million to $363 million resulting in ore feedstock to rise 104% to 64.5 MT from 31.6 Mt. Though the expected recovery rate declines from 65.9% to 57.0%, the expected production of nickel expands 39.5% to 151kt from 108kt in the Scoping Study. The capital payback period contracts from 2.5 to 1.8 years.

Also, a portion of the Indicated Resource at Ban Phuc was deemed economically mineable and hence upgraded to a Probable Reserve of 47.7Mt grading at 0.43% Ni.

PFS for Integrated Ta Khoa Project

The February 2022 Integrated PFS vertically integrates the Ta Khoa upstream and downstream projects and greatly expands upon the Scoping Study of October 2020. The company's mining operations are expected to provide approximately half the feed to the refinery. Versus the Scoping Study, nickel production from the Ban Phuc DSS deposit increases 39.5%. Furthermore, the anticipated NCM production expands 327% to 909kt from 213kt in the Scoping Study as the life of Refinery operation expands to 10.3 years.

The integrated project requires pre-production capital of US$854 million, up from US$314 for the mine alone in the Scoping Study, but the payback period declines to 1.8 years from 2.5 years. The maximum cash drawdown is US$771 million. The internal rate of return (IRR) expands to 47% from 45%. The base case uses and average nickel metal price of US$20,000/t and a NCM 811 Precursor price of US$17,670/t, both of which are well below current spot prices.

The integrated Ta Khoa Project estimates that concentrate production from the refinery would commence in 2025 and then ramp to nameplate capacity of 8.0Mtpa in 2027. The life-of-operation for the refinery is 10.3 years. A fully electrified haulage fleet is planned for the operation of the open-pit mine. Management plans to fund the integrated project by a combination of equity and debt.

Mineral Resource Upgrade

On December 23, 2021, Blackstone Minerals announced that the Ta Khoa Mineral Resource had been updated. As a result of two years of wide-ranging exploration programs (including geochemical & geophysical surveys and drilling campaigns, the estimated Mineral Resource for the Ban Phuc DDS deposit was upgraded, increasing 62% from 29kt Ni to 452kt Ni as the Indicated Resource expanded 67% to 383kt Ni.

Also, a NiEq Mineral Resource was provided: 123Mt grading 0.43% for 523kt NiEq with an Indicated Resource of 102Mt grading 0.44% for 446kt NiEq.

There were also Maiden Inferred Resources for Ban Chang MSV, King Snake MSV & Ban Khoa DSS deposits (see table below for NiEq estimates).

Concerning the Ban Khoa DSS deposit, preliminary studies indicate the potential for open pit mining. Drilling continues at Ban Khoa.

The higher grade MSV deposits at Ban Chang and King Snake contain by-product credits for copper, cobalt, gold, palladium and platinum. These resources could be developed as underground mines in order provide supplementary feed (being blended into the DSS feed) for the planned 8 Mtpa concentrator. Drilling also continues at Ban Chang and King Snake.

The Combined Total Estimated Mineral Resource for the Ta Khoa Project increased 73% to 485kt Ni (130 Mt grading 0.37% Ni). Adding by-product credits, the Combined Total Estimated Mineral Resource is 510kt NiEq (130 Mt grading 0.44% NiEq).

Pilot Plant Project

On October 19, 2021, Blackstone Minerals announced the appointment of Wood (a leading E&C firm) and ALS Metallurgy Services to perform critical consulting roles in delivery of Definitive Feasibility Study and Pilot Plant test work for the Ta Khoa Refinery Project.

Wood is responsible for project management of the plant design for the Ta Khoa Refinery, including project controls, engineering, auxiliary services, cost estimating and utilities, along with execution planning services. Importantly, Wood has a specialized hydrometallurgical group with extensive experience in pressure oxidation (POX) projects and has offices in Vietnam.

ALS Metallurgy Services is responsible for performing the test work in Phase 1 of the Pilot Plant Project. ALS Metallurgy will verify the process flow sheet from the PFS, conduct bench-scale confirmatory test work and perform a hydrometallurgical test work, all of which will help generate the engineering specifications for the refinery's design. Phase 1 includes the development of a design that will process nickel concentrate feed at a rate of 20kg per hour in order to produce NCM products at approximately 1.75kg per hour.

Utilizing its facilities with state-of-the-art laboratories and equipment in Perth Western Australia, ALS Metallurgy Services will deliver a continuous pilot plant that produces a MHP intermediate product from blended concentrate (Campaign 1), and deliver a continuous pilot plant that produces battery-grade NCM811 from MHP intermediate product (Campaign 2). Blackstone will provide concentrate samples for the two campaigns from both the Ban Phuc mine and third parties.

In early December 2021, Blackstone Minerals commenced underground mining at Ta Khoa after being granted approval to perform bulk sampling work related to pilot plant testing. Roughly 1,000m of lateral development through the middle of the Ban Phuc disseminated sulfide (DSS) ore body is planned. The mining activities will provide bulk sample ore for the recently re-commissioned Ban Phuc concentrator (450ktpa) at Ban Phuc, which will be operated at a de-rated capacity. The crushing circuit was re-commissioned in November 2021, and the mill and flotation circuit will be commissioned in 2022.

The produced nickel concentrate will serve as feedstock for the pilot plant testing in Perth Australia by ALS Laboratories (Phase 1) and later in Son La Vietnam at yet-to-be constructed pilot plant (Phase 2) in order to generate Mixed Hydroxide Precipitate (MHP) and Nickel-Cobalt-Manganese (NCM) Precursor products. In the first Campaign, Ban Phuc concentrate will be blended with third-party concentrate in different portions for use in four trials: 25% Ban Phuc / 75% third-party, 50%/50%, 75%/25% and a to-be-determined optimum blend. The second Campaign consists of two trials which are expected to produce 1t of MHP and 1.5t of NCM811. For Phase 2, the company is in early discussions for development of the 1:25 scale pilot plant (PP2) with the capacity to process 1t per hour of concentrate.

Strategic Investments

Part of Blackstone's development strategy for the Ta Khoa Refinery is to using third party feed to supplement the nickel concentrate supply expected from the upstream Ta Khoa Project, including feed from the Ban Phuc, King Snake and Ban Chang mines. The company has already announced an arrangement with Trafigura Pte Ltd, which was signed in January 2021and a CAD$2.975 million strategic equity investment in Flying Nickel, which holds 100% of the Minago Nickel Sulfide Project, an advanced stage, district-scale, undeveloped, disseminated nickel sulfide deposit located in Manitoba, Canada.

NICO Resources Limited

On January 18, 2022, Blackstone Minerals announced a AUD$2.75 million strategic investment in NICO Resources Limited (ASX: NC1) for the purpose of securing a long-term supply option for the feedstock required for the downstream Ta Khoa Refinery Project. NICO holds exploration licenses for the Australian Central Musgrave Project, which currently has JORC-compliant Mineral Resource of 1.95Mt Ni (see table below).

The AUD$2.75 million investment gives Blackstone a 15.11% equity interest in NICO Resources.

Corazon Mining

On March 4, 2022, Blackstone Minerals made a AUD$2.0 million strategic investment in Corazon Mining Limited (ASX: CZN) or the purpose of securing a long-term supply option for the feedstock required for the downstream Ta Khoa Refinery Project. Corazon holds 100% of Ni-Cu-Co Lynn Lake Project. Located in Manitoba, Lynn Lake has a Mineral Resource of 168.0kt Ni, 81.7kt Cu and 7.9kt Co (see table below). There is a development-ready underground mine which operated for 24 years up until the 1970s. In early 2019, Corazon completed metallurgical test work, which produced nickel concentrate grading 26% NI with recoveries of 71% using modern flotation processing techniques.

The AUD$2 million investment gives Blackstone a 14.32% equity interest (51,016,778 shares) in Corazon Mining.

Financings

On November 1, 2021, Blackstone Minerals announced firm commitments for a Private Placement of 94,827,587 fully paid ordinary shares (at an issue price of AUD$0.58 per share) had been received. With the shares being issued at a price well above book value, the private placement is accretive to book value, benefiting both existing shareholders as well providing management with significant funds to invest in the development of the Ta Khoa Project. The shares were issued in two tranches.

The first tranche consisted of 38,134,805 shares, which were issued around November 10th. Gross proceeds were AUD$22,118,187. The second tranche of 56,692,782 shares provided gross proceeds of AUD$ 32,881,814. The lead investment managers are Shaw & Partners Limited, Evolution Capital Partners LLC and PAC Partners.

In addition, the company offered certain eligible existing shareholders the opportunity to participate in a Share Purchase Plan (SPP) of 8,620,690 shares at the same price. The oversubscribed SPP closed on November 19th with 9,137,788 shares being issued on November 26th. The gross proceeds were AUD$5,299,917 from the SPP.

The three equity issuances provided net proceeds of AUD$56.8 million while the conversion of options provided AUD$904,300 for the Development of the Ta Khoa Nickel Project

Valuation

The P/B valuation range for comparable, well-funded junior nickel development companies is between 23.66 and 8.10. Utilizing comparable analysis, the target price for Blackstone Minerals (BLSTF) is $1.06 per share, which is based on mid-first quartile P/B ratio.

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