Saturday, September 23rd 2023

Sunrise Resources PLC

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Onwards and upwards for Sunrise


“…The construction industry is returning to pozzolan as it attempts to square the circle of satisfying insatiable global demand for concrete with the environmental and political imperative of reducing its carbon footprint…”


When we think of the energy transition we tend to think of electric vehicles, solar panels, wind farms, and the complexities of winding down the fossil fuels industry. The construction sector tends to fly under the radar. But it is one of the most important, and toughest, industries to green. The production of traditional Portland cement – a compound of limestone, chalk, clay and shale – is responsible for up to 8pc of global carbon emissions. With no let up in the unrelenting global demand for concrete something is going to have to give.

Sunrise Resources (AIM:SRES) wants to contribute to one promising solution. The company, which also has interests in gold, silver and other minerals, is seeking to establish itself as a leading supplier of pozzolan and perlite, materials sourced from naturally occurring volcanic ash and pumice that can be used as major elements in cement mix, and which have a much lower carbon footprint than traditional constituents. SRES continues to work to move its flagship venture, the CS Pozzolan-Perlite Project in Nevada, to production, with a view to serving a US construction sector under increasing political pressure to reduce its emissions.

The rediscovery of pozzolan


Pozzolan is one of a range of ‘Supplementary Cementitious Materials’ (SCMs) that can partially replace Portland in cement and concrete mixes. The resultant mix is not only greener, but stronger, promising longer lasting structures. Indeed pozzolan was the standard concrete constituent for centuries: often referred to as the ‘Roman’ cement, it was mixed with lime to construct the infrastructure of the classical world, its durability evidenced by the roads, ports, viaducts, bridges, bath houses and temples still admired today. It was only displaced by Portland cement in the early 20th century.

Whereas pozzolan is ideal for heavy infrastructure, perlite is a low density glassy volcanic raw material suitable for household and industrial applications, including garden pots that aid water retention and aeration, insulation and fire proofing, paint texturing, plaster and concrete fillers, and industrial cryogenic storage vessels.

The construction industry is returning to pozzolan as it attempts to square the circle of satisfying insatiable global demand for concrete with the environmental and political imperative of reducing its carbon footprint. Remarkably, over the past few decades China has poured more cement every two years than the US did in the entire 20th century. And American demand is surging following the passing of President Biden’s $1tn Infrastructure Bill. US builders are running against time to find materials that can replace fly ash, the supply of which is rapidly declining with the phase out of coal-fired power plants. The conditions for a shift to pozzolan are particularly favourable in south-western states, where California has passed legislation directly targeting greenhouse gas emissions associated with the cement industry. The US Portland Cement Association recently set out a carbon neutrality road map applicable to all states recommending increased use of SCMs such as pozzolan.

Pushing the CS Project into production


SRES is trying to push the CS Project into production to take advantage. The infrastructure is well advanced: drill holes and trenches have been completed; extensive analysis of a range of samples has confirmed their commercial quality; an environmental assessment has been completed; and the necessary permits – for the production of 500,000 tons per year of pozzolan and 100,000 tons per year of perlite – have been secured from the US Bureau of Land Management. The site can be adapted to client demands, allowing for direct use of run-of-mine or crushed ore and by-product perlite by cement companies in their own grinding facilities, or construction of a fixed process plant to grind crushed natural pozzolan for sale to cement and ready-mix concrete (CRMC) companies.

In late 2020 SRES entered into discussion regarding the joint development of the Project with an international CRMC interested in using natural pozzolan as a replacement for the large volumes of coal power fly ash it has traditionally used. Through last year the signs seemed promising. The Project’s pozzolan passed all of the CRMC’s testing programmes, including large scale grinding tests on a 500-ton bulk sample: the concrete tested in the two tests achieved exceptionally high 105pc and 113pc target strengths.

But frustration as the negotiations dragged on turned to disappointment last month when SRES announced that ‘the Company has now terminated further negotiations with the CRMC as the already extended discussions have failed to reach a satisfactory conclusion.’ Executive Chairman Patrick Cheetham said directors remained ‘confident that a suitable partner will be secured for development of the CS Project, and … will now concentrate on discussions with other parties currently testing samples and reviewing data on the project.’ The Project’s key permits remain in place, and the Board remains confident that ‘the testwork carried out by the CRMC on CS natural pozzolan has materially increased the value of the project to the Company and other interested parties.’

SRES’ most recent set of annual results, published in December, noted that a ‘second major building materials producer’ had been testing CS pozzolan, although discussions were ‘at an earlier stage’ than that with the CRMC. The report also said that although the company’s primary focus remains on the highly promising concrete markets in southern California and southern Nevada, it is also monitoring similar opportunities for the supply of natural pozzolan that ‘exist in all of the major population centres in the western USA’. And SRES continues to market the Project’s potential for perlite as well as pozzolan. Processed perlite from the site has been sent to a number of potential customers for testing. One potential customer recently advised that ‘they were able to produce expanded horticultural perlite at very low target densities with good production rates and a good-looking product’.

Other opportunities


SRES has identified a number of other Nevada sites beyond the Project that it considers prospective for pozzolan and perlite. Initial tests at the Hazen Pozzolan Project have shown 7 and 28-day strength results very similar to the pozzolan at CS: the site’s material is very lightweight and will also be evaluated for its potential as a lightweight aggregate for use in lightweight concrete blocks and facing stones. A drill permit is in place at the Newperl Perlite Project, where surface samples have shown promising expandability results for horticultural grades of perlite. The Jackson Wash Perlite Project is earmarked for horticultural grade perlite, with potential to be suitable as a future feed for the CS Project. And while researching pozzolan opportunities SRES identified an opportunity to produce the rare industrial mineral sepiolite near Pioche, also in Nevada. Sepiolite is a clay used as a viscosity modifier in a number of industrial materials, as well as an absorbent, and occurs rarely in commercial sized deposits. Claims have been staked and positive initial tests have been undertaken by a European industrial minerals producer.

SRES also has a cluster of fledging projects prospective for other minerals, which it is seeking to valorise through sale or joint ventures (two such projects were sold last year to Power Metal Resources). Most of them are also in Nevada. The Clayton Silver-Gold Project, is at the south end of the Clayton Valley, a major centre of lithium brine production, and close to the major historic mining centre of Goldfield, where a number of large gold-silver deposits are currently under development. Drilling so far indicates encouraging silver mineralisation that has attracted a number of joint venture enquiries. A drilling permit has also been secured for the Newark Gold Project, located at the southern end of the Battle Mountain-Eureka gold trend, for which the company is seeking a joint venture partner. Samples with values of up to 168 ppb gold have been found at the Sundance Gold Project, where work undertaken to date has highlighted the presence of another prospect, the Myrtle Mine, which also has encouraging gold and silver values.

SRES also has an interest in the Baker’s Gold Project, located 25 km southeast of Meekatharra in the Murchison Goldfield of Western Australia. The prospect lies on the eastern limb of the Meekatharra Greenstone Belt which has yielded over 5.5 million ounces of gold and contains a number of present and past producing gold mines. Mapping and sampling and three rounds of soil sampling at Baker’s between 2014 and 2018 generated a number of gold-in-soil anomalies which, together with historical exploration results, defined drill testing targets, one of which encountered a 500 metre long zone of gold-in-soil anomalies, where intersections have included 2 metres grading 14.4 g/t gold and 1 metre grading 26.5 g/t gold. Further drilling is planned to determine the orientation and extent of this mineralisation.

Looking for a breakthrough


SRES’s value has been hit by the collapse of the potential CS Project deal, falling from a habitual level of between 0.2 and 0.25p to around 0.11p at the time of writing. The company faces the challenge of once again highlighting the potential of its strategic position in Nevada, with everything seemingly in place to capitalise on the construction sector’s efforts to work towards higher environmental standards. And it needs finance to sustain those efforts. The company’s costs are modest: it reported a loss of £335,252 for 2021 (2020: £302,902), though with a cash position of £371,740 at year end it seems likely it will have to go back to fund continued progress.

But SRES’s fortunes could change, quickly. It has a clear strategy to help meet an increasingly urgent problem, offering ready supply of an element that will be critical for the mass production of green concrete. The company is particularly well positioned to take advantage of the conditions that apply in the western US construction sector, where fly ash supplies are under severe pressure. SRES has several irons in the fire: it needs just one lead to come good to get the opportunity to turn a well developed infrastructure into productive use. SRES has had a tough few weeks, but at this price investors looking for a slightly different angle on the energy transition megatrend might want to take a close look at the company.