Northern Australia fund kicks in $150m for mineral sands mine

The federal government will provide $150 million in financial backing for a new mineral sands mine in Western Australia that includes secondary rare earths capacity, as it continues to focus on developing critical minerals supply chains (reports The AFR)
26th June 2020
Resources Rising Stars

The federal government will provide $150 million in financial backing for a new mineral sands mine in Western Australia that includes secondary rare earths capacity, as it continues to focus on developing critical minerals supply chains (reports The Australian Financial Review).

The concession loan package for the Strandline Resources project will come from the Northern Australia Infrastructure Facility, which is accelerating allocations from its $5 billion funding pool.

NAIF said its backing for the $300 million Strandline project near Shark Bay, which only just scrapes into the area defined as northern Australia, provided a boost for the government’s critical minerals agenda.

It is also considering backing for Arafura Resources and its $1.1 billion rare earths project, and across the wider resources sector has helped finance projects in iron ore, bauxite and potash.

NAIF concession loan allocations have reached $2.1 billion after a slow start, with $1.2 billion in allocations over the past 12 months.

Strandline chief executive Luke Graham said the company was now set to finalise talks with commercial lenders on additional funding for the Coburn mine, which will take about 18 months to build.

It is weighing up a component of equity funding and hasn’t ruled out bringing in a project partner.

The Strandline share price jumped almost 14 per cent to 24.5¢ on the back of the funding breakthrough.

Coburn is expected to deliver annual production of 34,000 tonnes of premium zircon, 54,000 tonnes of zircon concentrate, 110,000 tonnes of chloride ilmenite, and 24,000 tonnes of rutile over a multi-decade mine life.

NAIF said its loan would be used for key infrastructure, including a processing plant and equipment.

It expects the mine to generate up to $922 million of net public benefit to WA's mid-west over 25 years and create up to 315 jobs during construction and up to 190 jobs during operations.

In April, Strandline announced three binding off-take agreements covering about two-thirds of its projected revenue for the first five to seven years of production.

The off-take agreements included one with Italian-based Industrie Bitossi, one of the world’s largest zircon consumers and producer for the high-end European ceramics market.

Another will see the Chemours Company in the United States buy 100 per cent of the chloride ilmenite, a titanium feedstock, produced in the first five years at Coburn.

Chinese company Sanxiang Advanced Materials has snapped up 100 per cent of zircon concentrate, which contains rare earths material monazite, for the first seven years.

Mr Graham said it would have been difficult to advance Coburn without the long-term NAIF support and gearing advantages that came with the loan package.

"As a small mining company that isn't in production, it is not easy to commercialise a major project," he said.

"What NAIF are doing is providing a very long-term loan in 15½ years. That is a bit unheard of in financing.

"One of the key elements is that the NAIF tranche gets amortised second to the commercial lending tranche.

"So even though the debt gearing might be up in the order of 70 per cent in total because NAIF gets paid back second, you are only ever paying back one of the tranches, so from a debt service point of view the project is really healthy."

NAIF chief executive Chris Wade said the funding would boost jobs and investment at a critical time for the economy in northern Australia.

"The mineral sands sector offers exciting potential for northern Australia and we are delighted to support that with approval of investment towards what is considered one of the world’s largest and capital-efficient mineral sands projects,” he said.

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