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Arrowhead published an Equity Research Report on Sheffield Resources Limited
September 14, 2023


Sheffield Resources Limited (ASX: SFX) Research Initiation


  • Arrowhead is initiating coverage on Sheffield Resources Limited with a fair value bracket of AUD 2.4 to AUD 2.7 per share (share price on September 14, 2023: AUD 0.46) based on the Blended Valuation (Relative Valuation and Discounted Cash Flow) method.
  • Sheffield Resources Limited (Sheffield or SFX) is a well-established Australian mineral exploration and development company founded in 2007. The company aims to create a diverse portfolio of mineral sand assets globally to enhance stakeholder wealth.
  • The company’s primary focus is its flagship project – the Thunderbird Mineral Sands Project, the world’s largest undeveloped Zircon-rich mineral sand deposit in the Kimberley region in northern Western Australia on the Dampier Peninsula.
  • Kimberley Mineral Sands Pty Limited (KMS), which oversees the development and construction activities of the Thunderbird Project, is SFX’s 50:50 Joint Venture (JV) with YGH Australia Investment Pty Limited (Yansteel), a subsidiary of Tangshan Yanshan Iron & Steel Co. Limited.
  • The project is being developed in stages – Stages 1 and 2, to decrease upfront capital requirements, minimize construction risk, and streamline operational risk, where the initial phase (Stage 1) of the Thunderbird Project will entail the construction of a plant with a capacity to produce c. 1,100 Kilotonnes per annum (ktpa) of Zircon and Ilmenite concentrates.
  • KMS has secured financing of AUD 483.7 mn to fund its planned capex, including AUD 311.5 mn in debt financing and AUD 172.2 mn in equity.
  • The Bankable Feasibility Study (BFS), completed by KMS in March 2023, shows robust and attractive economics with low risk. The study estimates a post-tax net present value of c. AUD 1.39 bn (discount rate of 8.0%), with an estimated Internal Rate of Return of 26.6%, with a payback period of c. 5.0 years (capex payback including Stages 1 & 2). The BFS flowsheet forecasts the production of Non-Magnetic Concentrate (NMC), Magnetic Concentrate (MC) and Paramagnetic Concentrate (PMC) for the Thunderbird Project.
  • KMS has secured a binding agreement with Yansteel for 100% of its ilmenite-containing MC production from Stage 1. Additionally, KMS has secured binding agreements with three major customer groups for their NMC, specifically the Zircon product, with each group representing around 25% of the volume. With the assurance of almost 80% of revenue coming through take or pay-offtake agreements, we believe KMS is poised for steady growth in the coming years.
  • Currently, the construction of the Thunderbird project is c. 95% complete, and commissioning has commenced, with production on schedule to begin in Q4 2023 and the first customer delivery planned in Q1 2024.
  • Besides Thunderbird, SFX has undertaken two other projects – Night Train Prospect and South Atlantic Project.
  • Night Train Prospect, located 20km south of the Thunderbird Mineral Sands deposit, is rich in Zircon. Stretching 120 km of the long, highly mineralized trend extending from Cisco in the north to Runaway in the south, exploration activities have identified 14 significant mineralization zones, inclusive of the Thunderbird and the Night Train deposits. The Inferred MRE of Night Train Prospect stands at 130 Mt @ 3.3% Heavy Minerals (HM) containing 3.6Mt of VHM with a 1.2% cut-off and is inclusive of 50 Mt @ 5.9% HM having 2.6Mt of VHM with 2.0% cut-off. This high-grade component of the Inferred Resource has high in-situ grades of 0.82% Zircon, 0.33% High-Titanium Leucoxene and Rutile, 2.9% Leucoxene and 1.06% Ilmenite for a total of 5.11% VHM.
  • The South Atlantic Project, located within the southernmost state of Brazil, Rio Grande do Sul, has four main deposits within the tenements held by Rio Grande Mineração S/A (RGM) – Retiro, Estreito, Capao do Meio and Bujuru – with exploration targets developed for the Retiro and Bujuru deposits. A drilling program of up to 10,000m at this project is planned to commence in Q4 2023.
  • Retiro Deposit’s exploration target is estimated at 250-380 Mt @ 3-3.9% of HM for 10-12 Mt of total contained estimate of HM tonnes with a cut-off grade between 1-2% HM while Bujuru Deposit’s exploration target is estimated at 250-340 Mt @ 3.3-4.0% of HM for 10-11 Mt of total contained estimate of HM tonnes with a cut-off grade between 1-2% HM.
  • With the largest Zircon mine, Jacinth-Ambrosia, operated by Iluka, approaching the end of its mine life (by 2030), supply-side constraints are expected to increase. With low inventory levels and superior project economics, combined with full offtake agreements, the Thunderbird Project is well-placed to become one of the largest and highest-grade mineral sand operations worldwide, potentially producing up to 1.8 mtpa of mineral sand concentrate. The 754 Mt of Ore Reserve can support production equivalent to 6.5% of the world’s Zircon needs and 3.5% of Titanium feedstock requirements over a 36-year mine life, with attractive economics.
  • Sheffield Resources Limited is publicly listed on the Australian Securities Exchange Limited (ASX) under the ticker “SFX.”
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