Wednesday, September 27th 2023

Capital Metals PLC

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Time, at last, for Capital Metals to shine


“…Capital is seeking to join a relatively narrow group of mineral sands producers. The three main suppliers, Rio Tinto, Tronox and Iluka Resources, produce some two thirds of the world’s zircon, ilmenite and rutile, most of it mined in Australia and South Africa…”


Ethereal as they may seem, mineral sands such as zircon, rutile, ilmenite, and garnet form a substantial part of the backbone of the world’s infrastructure. And as governments and companies ramp up spending to meet net zero commitments and demand from developing nations, the world needs more of them. Prospective mineral sands producer Capital Metals (AIM:CMET) wants to help address a looming shortfall.

Capital is focused on the development of the Eastern Minerals Project, a strip of shoreline on Sri Lanka’s eastern seaboard some 220km east of capital city Colombo and 30km from the commercial port of Oluvil. The 84km2 licence area has a JORC Resource of 17.2 million tonnes (Mt), with an average grade of 17.6pc Total Heavy Minerals (THM) from surface down to a depth of three metres, making it one of the highest-grade deposits in its peer group.

The company expects operating costs to be low given the presence of near-surface high grade minerals, which can be accessed without blasting or chemicals. And it believes the Project has considerable further potential: less than 10pc of the licence area has so far been explored, and the limited drilling that has probed depths below three metres indicates grades of up to 26pc THM. Applications have been submitted for nine additional exploration licenses covering a further 623km2.

As we reported when we last wrote about Capital the company’s primary focus this year has been to pass an Environmental Impact Assessment (EIA) to pave the way for the granting of an Industrial Mining License (IML). In anticipation of getting the green light the company has discussed field access arrangements with local land owners, and commissioned a development study and economic analysis intended to delineate the path to a mining operation targeting yearly production of an estimated 1.65Mt. Once the IML is secured Capital plans to reach agreements with potential offtake partners that involve some form of prepayment or financing arrangement. The company will seek fresh funding for the estimated $35m cost of constructing onsite facilities capable of processing around 1.65Mt per annum. Capital expects funding for the plants to comprise a mixture of debt finance, equity and advance payments from off-take customers. The company received a cash infusion for its current activities when it was the subject of a reverse takeover – confirmed in January – by Equatorial Palm Oil, an AIM-listed company that had previously focused on palm oil development and production in Liberia. The £15.84m acquisition was funded through a share issue and supported by a £2m placing.

Capital gets its EIA


Capital got the breakthrough it has been working towards with the approval of its EIA late last month by the Sri Lankan Geographical Survey and Mines Bureau (GSMB). The EIA was granted on condition of the company’s commitment to an environmentally sensitive mining procedure that will minimise its operational footprint. Mineral sands exploration has become an increasingly sensitive environmental issue. Sand is now second only to water in terms of the volume of natural resources that are extracted and traded globally: exploitation of lakes, rivers and coastal areas has reduced biodiversity, disrupted fishing communities, lowered water tables, and increased flood risk. Capital’s procedure will integrate land rehabilitation into the mining process. The shallow depth of the Project’s mineral sands deposits will allow them to be mined using relatively unobtrusive surface mining methods, and topsoil, subsoil and clay will be removed, stockpiled, and relayered after mining.

The granting of the EIA has allowed Capital to advance third-party offtake discussions, engineering design and project finance plans, and to revise its Project timelines. Discussions with the GSMB will now be focused on obtaining the IML in Q1 2022. A development plan refining the Project’s strategy, currently being undertaken on behalf of the company by heavy minerals consultancy firm IHC Mining, is now expected to report ‘in 8-10 weeks’ time’. The company expects to begin ‘commencing commercial production in less than 12 months’ time’.

Capital has also begun exploring the full scope of the Project’s potential resource. This autumn the company commissioned the GSMB to undertake a drilling programme at the Project’s southern exploration license EL199 to identify promising locations for future mining license applications. Drill samples from some 500 auger holes are currently being analysed with initial results expected next month. Progress on the ground has been assisted by the easing of Covid restrictions in Sri Lanka, giving operations teams greater freedom of movement and access to a wider range of local support services.

Capital continues discussions with the Sri Lankan Port Authority regarding the use of the Oluvil port for its operations. The company hopes to construct a dry mineral separation plant at the port where the mineral concentrate will be separated into commercial minerals before shipping. Oluvil, which is currently being used by the regional fishing industry, offers essential infrastructure and shipping capacity of 8,000 to 10,000 tonnes.

The growing global mineral sands market


Capital hopes to participate in a growing global mineral sands market. A finer grade of sand than aggregates such as crushed rock and gravel used by the construction industry, mineral sands were originally formed as crystals in igneous rocks such as granite or basalt. After millions of years of erosion by wind, rain and rivers the resulting grains were washed down to the sea to become part of the coastal sands of ancient beaches. Tidal movements washed away the lighter mineral sand grains – the quartz sands now mined in coastal waters – leaving the heavier mineral sands to accumulate on shorelines. The primary minerals so far identified at the Eastern Minerals Project are zircon, the titanium ores rutile and ilmenite, and garnet. Capital estimates 35pc of the resource can be classified as higher value zircon and rutile, and 50pc as ilmenite.

Zircon, which has been dated as the oldest terrestrial material on Earth, forming nearly 4.4 billion years ago, is a key resource for the ceramic industry, used for glazes and as an opacifier for kitchen and bathroom tiles, dinnerware, and decorative ceramics. It is in increasing demand for use in catalytic converters to control motor vehicle emissions. Rutile and ilmenite produce titanium dioxide, a non-toxic white pigment with the capacity to reflect light, used in commercial paints and for the manufacture of plastics, paper, sunscreens, foodstuffs, cosmetics and toothpaste. Titanium metal is a light, inert and strong metal with a high melting point used in heart pacemakers, artificial limbs and joints, spectacle frames and watches. As strong as steel but half its weight, the metal has been used for the construction of space shuttles and the International Space Station, and for military and commercial aircraft. When formed into an alloy with metals such as iron, manganese and aluminium it can be used in power stations, paper mills, oil refineries and desalination plants. Garnet sand is a tough abrasive, a cost-effective replacement for silica sand in sand blasting, and commonly used in water jets to cut steel and other materials.

Capital is seeking to join a relatively narrow group of mineral sands producers. The three main suppliers, Rio Tinto, Tronox and Iluka Resources, produce some two thirds of the world’s zircon, ilmenite and rutile, most of it mined in Australia and South Africa. The company is encouraged by ’a strengthening in the global metals market’. It estimates that Zircon has risen 14pc to $1,630 per tonne since March, and rutile prices by 40pc to $1,753 per tonne since last October. Reports indicate prices for ilmenite are trading around $340-400 per tonne, up some 45pc over the past 12 months.

As with other commodities, demand for mineral sands is being powered by global GDP growth, stimulus programmes and inventory restocking. The industry is also experiencing a structural supply deficit. There have been significant decreases in production from major minerals sands operations in South Africa and Sierra Leone, and new mines are not being brought into production to replace supply losses and meet increased demand. This is the opportunity Capital hopes to exploit.

Target markets include the global paints and coatings sector, which was valued at $146.2bn in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 4.3pc from 2020 to 2027, driven by the increasing product consumption in the construction, automotive, and general industries application sectors. The global ceramics market was valued at $229.1bn in 2018 and is projected to grow at a CAGR of 8.6pc from 2019 to 2025 as governments and construction companies ramp up infrastructure spending. The global abrasives market size is projected to grow from $46.4bn in 2020 to $58bn by 2025, at a CAGR of 4.5pc from 2020 to 2025, spurred by growth in the automotive, metal fabrication, machinery, electronics, electrical, medical, and construction industries.



Capital Metals has some way to go before it can begin to access these vibrant markets. The company’s paper roadmap must be turned into built infrastructure, steady production and ready customers. But with the granting of the EIA the way ahead is now visible.

The company’s share price spiked up to around 20p at the start of the year when commodities stocks were booming, but has fallen back to just under 10p at the time of writing. Capital has to convince a sceptical market that it can indeed begin ‘commercial production in less than 12 months’. But if it can obtain its IML early next year, and publish a development plan setting out a convincing strategy, then it would seem well placed to secure the customers and attendant funding it needs to build out its infrastructure. With its price currently subdued we continue to suggest Capital Metals might be one to watch.