SCOPING STUDY FOR ARAPU�� FERTILIZER PROJECT

10 August 2016

Harvest Minerals Limited

("Harvest" or the "Company")

 

SCOPING STUDY FOR ARAPUÁ FERTILIZER PROJECT CONFIRMS LOW COST PRODUCTION OF DIRECT APPLICATION NATURAL FERTILISER AT MAXIMUS TARGET

 

Harvest Minerals Limited (AIM:HMI) is pleased to announce that that an independent Scoping Study (the "Study") has been completed for its Maximus Direct Application Natural Fertilizer (DANF) Project, highlighting the robust economics of the project and the simple low cost mining and processing required to support the initial trial mining permit. Maximus is part of the Arapua Fertilizer Project and is located in the Brazilian state of Minas Gerais.

 

The Study was conducted by consultants GE21 Consultoria Mineral (GE21) and includes pit optimization and design, mine scheduling, capital expenditure (CAPEX), operational expenditure (OPEX) estimates and a preliminary economic assessment based on the current initial resource, which represents only ~3% of the estimated mineralisation.

 

The study highlights are:

·    Production of 100ktpa for 7 years, based on initial 883Kt Indicated JORC (2012) resource

·    Open pit with very low strip ratio of 0.38:1 and amenable to contract mining

·    Very simple dry processing, including only crushing and milling

·    Low operating costs of US$4.77/t mined and processed and US$ 7.34/t including selling costs and general and administrative expenses (G&A)

·    Initial Capital expenditure of US$800k for own equipment

·    Scenarios with sales prices of US$50/t and US$65/t generated NPV's of US$15.0m and US$21.0m post tax, with a 10% WACC, and IRRs of 408.8% and 562.8% respectively

·    Pricing scenarios between US$15/t to US$120/t generated NPVs of between US$1.1m to US$42.8m with IRRs of between 44% and 1,129% demonstrating the economic robustness of the project when stress tested

·    Entire project can be funded from existing cash reserves, with first production expected later this year.

 

Commenting on the scoping study, Executive Chairman of Harvest, Brian McMaster stated: 

"Completion of this study demonstrates the robust economics of the project and brings us one step closer to our objective of designing a simple and efficient project that delivers significant value for Harvest and its shareholders. There is significant upside to the project both in terms of the current resource and potential to expand the planned initial production with the project ideally located in the prime agricultural Cerrado region where fertilizer demand is high. We expect to be able to refine and improve on the numbers presented in the scoping study and we are in the process of appointing contractors to carry out the mining and processing, which could significantly reduce the initial CAPEX requirements and potentially reduce these already low OPEX costs even further. We are busy working towards first production later this year and whilst our trial mining permit application is being processed, our technical team and consultants continue to conduct further test work including an agronomic study, the initial results of which we expect to receive during the current quarter."

 

Enquiries:

Harvest Minerals Limited	Brian McMaster, Chairman	Tel: +61 8 9200 1847
Strand Hanson Limited (Nominated & Financial Adviser)	Rory Murphy James Spinney Ritchie Balmer	Tel: +44 20 7409 3494
Mirabaud Securities LLP (Broker)   Beaufort Securities Ltd (Joint Broker)   Buchanan (Financial PR)	Rory Scott     Jon Bellis     Bobby Morse Anna Michniewicz	Tel: + 44 20 7878 3360     Tel: + 44 20 73828300     Tel: +44 20 7466 5000

 

Background

The Arapua Fertilizer Project is strategically located in the Brazilian Cerrado, 360km NW from Belo Horizonte, the capital of Minas Gerais State. The project consists of seven granted exploration licences covering a total area of 12,997.6 hectares, divided across both the Arapuá and Maximus targets.

Previous geological mapping at Maximus has identified a continuous kamafugite rock layer containing both phosphate and potassium, over an area of approximately 1.691 km².

The initial resource estimate, based on an air core drilling programme of only the weathered kamafugite over only ~3% of the estimated mineralisation, identified a JORC (2012) compliant total Indicated resource of 883Kt at 4.21% K₂O and 3.53% P₂O₅ at a 3.5% K₂O cut-off, with additional exploration potential within the drilled area of between 3.0 to 3.5Mt with average grades from 2.7 to 3.5% K₂O at a 1% cut-off.

In addition to the phosphate and potassium oxide mineralization, grades of CaO (ranging from 0.80% to 15.60%), MgO (ranging from 3.21% to 17.90%), MnO (ranging from 0.18% to 0.55%) and silicon dioxide (SiO₂) (ranging from 27.70% to 41.00%) were detected in the kamafugite weathered rocks. The kamafugite is therefore being studied as a multi-nutrient silicate agro-mineral which could produce a direct application natural fertilizer (DANF) and/ or soil conditioner.

 

Infrastructure

The project benefits greatly from being located in the Brazilian Cerrado, the most robust and expanding agricultural region in Brazil. Combined with good existing infrastructure at and in the vicinity of the Project, including easy road access to established regional towns of Patos de Minas, São Gotardo, Araxá and Uberlândia, transportation costs for the product are significantly reduced.

The total infrastructure capital costs at Maximus are estimated to be US$85.7k to support 100ktpa production and include an administration office, maintenance workshops, refectory, weighing scale for trucks, area for ore stockpiles, fences and ordinance.

Mining and Processing

The kamafugite will be extracted from an open pit at a proposed rate of 100ktpa run-of-mine (ROM). In order to reduce ore loss and reduce the transport distance for ROM ore, the open pit shell was optimized using strategic mine planning software,        Geovia Whittle 4.3 and has a life of mine strip ratio of just 0.38. The final pit design for 100ktpa is shown in figure 1.

 

FOR FIG. 1 CLICK HERE: http://www.rns-pdf.londonstockexchange.com/rns/7252G_1-2016-8-9.pdf

 

Mined ore will be trucked to the stockpile area where a loader will be used to feed the processing plant. The processing plant will work on a dry basis and include a primary crusher and a hammer or ball mill which should produce no tailings.

Capital Costs

The capital cost estimate of US$800k for the 100 ktpa process plant and associated site infrastructure includes the purchase of mining equipment including a loader and bulldozer. The estimated cost of the mining equipment was US$428k with the remaining US$372k being for the processing plant, stockpile area, environmental licensing and general infrastructure.

 

Table 1 - CAPEX Summary
Description	Cost
	US$k
Mining	428.6
Processing	142.9
Stockpile	57.1
Environmental Licensing	85.7
Infrastructure	85.7
Total	800.0

 

Operating Costs

The operating costs were estimated based on the cost of similar projects in the GE21 database. The operating costs include mining, processing, labour, general and administrative expenses (G&A) and selling cost. The total operating cost (OPEX) for producing 1 tonne of product is US$7.34/t. This includes G&A and marketing/ selling costs as shown in table 2.

 

 

Table 2 - OPEX Summary
Description	Cost
	US$/t ROM
Mining	1.79
Processing	1.29
Labour	1.69
G&A	1.43
Selling Cost	1.14
Total	7.34

 

Project Economics

The financial assessment of the project was based on 100ktpa production over a 7 year mine life. For the Maximus project, GE21 based the product price on the market price of chemically concentrated potash fertilizers. As the price estimate for DANF is based on the overall efficiency of the product, which will require further test work, GE21 produced an economic assessment stress testing the project against a product sales price ranging from US$15/t to US$120/t and specifically for prices of US$50/t and US$65/t.

 

Table 3: Economic Assessment of the project (post tax and 10% WACC)
Price (US$/t)	NPV 10% (US$m)	IRR (%)	Payback (Years)
15	1.050	44.0	2.3
120	42.808	1,129.0	0.1
50	14.971	408.4	0.3
65	20.936	562.8	0.2

 

At the lowest price estimate of US$15/t, a post-tax IRR is 44% with an NPV_10% of US$1.05m, whereas at the US$120/t price point the IRR rose to 1,129% with an NPV_10% of US$42.8m. Given the wide spread of prices, the results demonstrate the inherent robustness of the project and gives the Company a lot of flexibility over how it develops the project and product(s).

 

 

Next steps

The Company has already applied for the trial mining permit and is in discussions with the landowner over leasing the property covered by the planned mine and associated infrastructure. Meanwhile the Company has already contracted Campo Agricultural and Environmental Analyses in Paracatu to conduct the initial chemical and physical tests, following the Brazilian Ministry of Agriculture, Livestock and Food Supply (MAPA) guidelines. This will be followed by an agronomic study as part of the process of registering the product as a "stonemeal soil conditioner" fertilizer with MAPA.

 

 

COMPETENT PERSON STATEMENT

The information in this statement which relates to the Mineral Resource and Exploration Target is based on information compiled by Mr. Bernardo H C Viana, a geologist and full time director and owner of GE21 and is registered as Competent Person in the AIG (Australian Institute of Geoscientists). Mr. Bernardo Viana has sufficient relevant experience to the style of mineralization to qualify as a Competent Person as defined in the JORC Code (2012). Mr. Viana also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies.

The information in this statement which relates to the Scoping Study is based on information compiled by Mr. Porfirio Cabaleiro Rodriguez, a Mining Engineer and full time director and owner of GE21 and is registered as Competent Person in the AIG (Australian Institute of Geoscientists). Mr. Rodriguez has sufficient relevant experience to the style of mineralization to qualify as a Competent Person as defined in the JORC Code (2012). Mr. Rodriguez also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies.

CAUTIONARY STATEMENTS

The Company's Exploration Target includes potential quantity and grade and is conceptual in nature. There has been insufficient exploration to define these mineral resources and it is uncertain if further exploration will result in the determination of mineral resources.

The reader is cautioned that a Mineral Resource is an estimate only and not a precise and completely accurate calculation, being dependent on the interpretation of limited information on the location, shape, and continuity of the occurrence and on the available sampling results. Actual mineralisation can be more or less than estimated depending upon actual geological conditions. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. No Mineral Reserves are being stated.

The Scoping Study referred to in this announcement is based on low-level technical and economic assessments, and is insufficient to support estimation of Ore Reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the Scoping Study will be realised.