King Island Scheelite Limited (ASX:KIS)

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THE KING OF TUNGSTEN
King Island Scheelite Limited (“KIS” or “the Company”) is close to development ready on the
100% owned high grade Dolphin Tungsten Project (“Dolphin”, or “the Project”), located on King
Island, in Bass Strait between Tasmania and mainland Australia.
The Project is targeting the redevelopment of the historically operated Dolphin Mine, which
produced some 9.7 Mt @ 0.64% WO3 from both open cut and underground operations in a
number of phases from 1917 until its closure in 1990. KIS is looking at an initial eight year,
400,000 tpa open cut operation to produce an average of 195,095 mtu per annum of WO3, with
Reserves of 3.16 Mt @ 0.73% WO3, the highest grade of any tungsten development project
globally. These are included in the open cut Indicated Resources of 4.12 Mt at 0.74% WO3, and
in addition there are underground Indicated Resources of 4.16 Mt @ 1.20% WO3, providing
significant upside to any future operation.
The proposed mine, which is fully permitted, presents a low capex, robust operation, with the
current Feasibility Study (“FS”) expected to be completed in October, and with offtake and
financing planned to be completed in the December 2018 or March 2019 Quarter. Successful
financing should allow construction to proceed through 2019, with first production in 2020.
Given the quality and status of the Project, the Company is in an ideal position to take advantage
of the current, and forecast continuing upturn in tungsten markets.
KEY POINTS
Permitted, near shovel ready: With the FS expected to be completed in early October, the
Project, dependent upon offtake and financing, is near development ready, with all required
permits in place; the only permitting activities that may be required will relate to any changes
to approved operations.
High grade: The high grade of the Resources and Reserves results in an economically viable
and robust project at current metal prices, and one which can absorb reasonable adverse
movements in key inputs.
Well understood mineralogy and metallurgy: By virtue of the historic production, the
scheelite mineralisation of The Dolphin Project is well understood, and will be able to be
processed to a concentrate using a tried and tested flow-sheet; in the initial three years of
operation the project also benefits from a relatively low strip ratio of 6.1:1.
Well recognised, stable jurisdiction: Tasmania has a long history of mining, and a well
established mining regime and law.
Regular transport: King Island is served by regular air and sea services, with the main seaport
being at Grassy, within 1.0 km of the processing plant.
Experienced personnel: Company personnel have extensive and successful experience in
the junior resources industry, and have significant shareholdings in the Company, thus aligning
their interests with other shareholders.
Active work programme: The next few months should see major milestones being met, thus
leading to material news flow.
PROJECT VALUATION
As part of our research we have completed a high level Project valuation for Dolphin, with
a pre-tax, unfunded and unrisked NPV8 of ~A$121 million, with upside for any extension of
operations, including underground. The Project is reasonably robust, and is most sensitive, as
expected, to changes in revenue inputs, including metal prices. The base case valuation has
been calculated using an AUD:USD exchange rate of 0.72.
Our view is that initial capital requirements are expected to be in the order of A$60 million
(including 90 days working capital), with a further A$10 million during the life of mine with the
latter being funded out of cash flow. Our estimated AISC is A$176/mtu, which provides for a
good margin over forecast revenue of A$353/mtu, based on an APT price going forward of
US$335/mtu and metallurgical recoveries of 67.5% to a 60% concentrate.
We note however, given that this is unfunded, it should not be used to calculate a per share
valuation for the Project or the Company - any such valuation would need to take into account
any funding structure (including dilution) and risk multipliers amongst others.