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Capital Metals PLC

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Quiet progress for Capital Metals


“…The Company continues to work towards securing the off-take agreement that would really set a light under Capital Metal’s value. They have taken significant steps in that direction over the past year, securing EIA approval and its first IMLs, plus publishing economic figures confirming the Project’s potential…”


Capital Metals (AIM:CMET) continues to close in on turning a highly prospective mineral sands project in Sri Lanka into reality, publishing mining analyses and economic projections confirming the resource’s potential, and securing all important licences crucial for securing a breakthrough off-take agreement.

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. CMET is focused on the development of the Eastern Minerals Project, a strip of shoreline on Sri Lanka’s eastern seaboard some 220 km east of capital city Colombo and 30 km from the commercial port of Oluvil. The 84 km2 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 world’s highest-grade deposits.

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 drilling undertaken so far has indicated grades of up to 26pc, despite probing no more than three metres deep. Applications have been submitted for nine additional exploration licenses covering a further 623 km2, the latest granted earlier this year.

CMET is in discussion 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.

Progress towards production


The company achieved a major breakthrough last year with the approval of an Environmental Impact Assessment (EIA) undertaken by the Sri Lankan Geographical Survey and Mines Bureau (GSMB). The EIA was granted on condition of CMET’s commitment to an environmentally sensitive mining procedure that will minimise its operational footprint, integrating 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.

CMET has reported a series of significant developments this spring and summer. Results from an auger drilling programme carried out last autumn have underlined the Project’s potential. The first set of results reported an average grade of 19.94pc THM from 352 drill results, indicating that Eastern Minerals has a higher grade than the 17.6pc stated in the existing JORC Resource. 63 of the results recorded more than 30pc THM, at an average depth of 1.5 metres from surface, with the highest returning 86.1pc. The second set of results reported an average grade of 19.37pc for the full 560 holes. CMET’s geologists are preparing an air core drilling campaign for later this year to test lateral and depth extensions that, in light of this summer’s results, is expected to increase the current JORC Resource.

There was another positive development in May when the results of a Development Study and Preliminary Economic Assessment undertaken by independent analyst IHC Mining indicated ‘exceptional economics resulting in a high margin operation, enabling a short payback period’. The report’s base case scenario projected total revenues of $645m, operating cashflows of$391m and net profit of $262m over an initial 10-year project life, and an ungeared post tax internal rate of return (IRR) of 56pc and a Net Present Value (NPV) of $155m, with an upside price case IRR of 73pc and NPV of $235m. The report assumed a conservative 3.5 year, four-stage development with production expansion funded through operations, and 3.7 year payback period. This staged development would allow the project to pay for itself after reaching an initial funding threshold of $37.3m, much less than if the full development capex of $81m was to be required from the outset. The report indicated the project would generate more than 300 local jobs, and more than $100m in government royalties and taxes. Furthermore, CMET said the base case scenario is conservative, using long-term price assumptions below current prices, and taking into account only the 10pc of the Project area that has been drilled so far, at shallow depths of no more than three metres.

The company secured another significant breakthrough earlier this month, reporting that the GSMB had granted the Project’s first two Industrial Mining Licences, crucial milestones to pave the way for the conclusion of discussions with offtakers, debt providers and other strategic funding parties. The IMLs, granted for an initial 10 years and covering 16 hectares, include some of the Project’s highest-grade resources with grades up to 25pc Total Heavy Minerals, and cover areas of the Project which have already been approved by the Coast Conservation and Coastal Resources Management Department in Sri Lanka following completion of the EIA process in November 2021. And they make it likely that further licences will be granted. CMET said: ‘Given the grant of these IMLs has now been successfully completed, the Board is confident in the timely issue of any further IMLs as they are submitted for approval.’

Another update this summer stated that the company was continuing to define the resource, and to engage in discussions with potential off-takers. Analysts IHC Mining are developing a Metallurgical Process Test Work Study to enable the confirmation and refining of process flowsheets defined in the IHC Development Study, and which will provide updated product specifications to assist with ongoing discussions with off-takers. The GSMB is currently analysing the mineral assemblage of the THM from the 2021 drilling programme which will provide specific details on ilmenite, zircon, rutile, and garnet percentages and grade. It will also provide further data on mineral assemblage to complement the Metallurgical Process Test Work Study results. CMET said the company continues ‘to have positive discussions with prospective off-takers who are interested in our products, with the objective that such parties will form a significant part of the future capex funding package.’

The global mineral sands market


CMET is aiming 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.

Zircon, formed 4.4 billion years ago, making it the oldest terrestrial material on Earth, 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.

CMET is seeking to join a relatively narrow group of mineral sands producers serving an industry with something of a structural supply deficit. 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. Major minerals sands operations in South Africa and Sierra Leone have been producing less, and new mines are not being brought into production to replace supply losses and meet increased demand.

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.

Weathering Sri Lanka’s political storm


CMET’s progress has been secured in the teeth of the political and economic storms that have engulfed Sri Lanka this year. The global surge in fuel and food prices following Russia’s invasion of Ukraine, and the supply shortages generated by the pandemic, have hit the country particularly hard. Sri Lanka defaulted on its foreign debt of more than $50bn in May – the first Asia-Pacific country to do so in more than two decades – after effectively running out of foreign reserves. The shortage of foreign currency for imports has triggered crippling shortages of everything from fuel to medicine, hitting living standards hard. Protests forced long-time president Gotabaya Rajapaksa to flee the country, leaving successor Ranil Wickremesinghe to enter into negotiations with the IMF over the terms of a $3bn bailout package, and seek further assistance from the Asian Development Bank and allies such as India and China. Sri Lanka’s central bank expects the government will be forced to push through tough austerity measures, including higher taxes, spending cuts and the restructuring of several state-owned enterprises. 

CMET says the crisis has not affected the company’s current programme or its future plans. A comment in a project update this summer said: ‘The Board and local management team are monitoring the economic and political developments in Sri Lanka. The Board expects that recent political changes should enable change to occur more rapidly with increased international cooperation and an overriding requirement to encourage foreign investment and job creation in the country.’ The company believes Sri Lanka’s financial problems highlight the importance to the country of securing international investment in initiatives such as the Eastern Minerals Project.



CMET’s run of good news this summer has begun to spark new life into a share price that drifted down for the first part of the year, perhaps reflecting the drawn-out nature of the process necessary to secure regulatory approval for a project of the scope the company is proposing. Its stock fell from nearly 13p a year ago to less than 5p at the end of July, before picking up again somewhat after the IML announcement. The company’s market cap currently stands at just under £10m.

CMET continues to work towards securing the off-take agreement that would really set a light under the company’s value. But it has taken significant steps in that direction over the past year, securing EIA approval and its first IMLs, and publishing economic figures confirming the Project’s potential. The company is funded for its current work, having undertaken a $1.25m placing in February. It expects a future off-take partner to fund the bulk of capital requirements to first production. CMET is not there yet, but is continuing to make quiet progress towards accessing one of the world’s most vibrant commodity markets.


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