We have had a positive few months with interest in our project including, China, the Middle East and Australia with enquiries about specific mineral sand specifications and our company.
Previously we wrote about economic development and benefits to a community. We touched on sustainability, mine life, rehabilitation, new industry development and the employer multiplier effect. This newsletter follows this to the next level with an external article that draws attention to a Social Licence to Operate (SLO).
The internal article shows how development of resources is also a financial benefit to the government and why participation with the private sector is an advantage in order to mitigate potential risk.
News over the past three months is brief. On the world stage our quarterly review of the market shows positive news and positive investment into the exploration and development arena.
General Manager Bangladesh
January to March news...
Premier had positive meetings with the BAEC Chairman to upgrade the Gravity Separation Facilities of BSMEC through the installation of the new spirals. BAEC Chairman has suggested to visit BSMEC and finalise the site within the pilot plant complex. Premiers Air Core drill will be deployed at site for maintenance and training purposes.
A discussion meeting and dinner was held at Brisbane with the State Minister of Power, Energy and Mineral Resources, People’s Republic of Bangladesh and Premier; where the CEO & Chairman of Premier gave the overview of the mineral sand exploration activities and the status of the mining lease and exploration license applications. The Honorable Minister expressed positive views with regard to the development activities for mineral sand resources.
Premier’s array of reports and information of our work is now available through access to our data room. We have opened this to interested parties to analyse our data and hope this will assist in discussions.
In the upcoming months we are expecting a site visit to Bangladesh and hope to be able to introduce all key stakeholders to our guests and hold discussions.
Market review of mineral sands
Every quarter we bring you an update of the general market conditions of popular minerals that can be derived from mineral sands. The above graph indicates market conditions for the raw material we can process from the sands of Bangladesh.
Industry sources estimate that global demand is now growing at 4-6% per year although the last three months has shown some further discounting.
Technological advancements are major emerging trends in the Zircon market. Zircon being an opacifier in glazes the metal Zirconium can be derived from Zircon. This may be used to build nuclear grade zirconium material and develop a wide variety of components for water-cooled nuclear power projects.
Iluka Resources has posted an after tax loss of $62 million in its full year profit results. That is compared to the previous year's $18.5 million profit. Iluka said the figures were partly due to a decline in mineral sands' prices and international demand. Iluka has, however reduced its net debt to a quarter of the 2013 level, now down to $59 million.
Mineral sands miner Sierra Rutile saw its production and revenue drop in 2014 as a result of the Ebola outbreak in Sierra Leone and lower product prices. The company reported a 5% decrease in rutile production to 114,163 tonnes in 2014 owing to Ebola-related challenges throughout the yea
Strandline Resources Limited (Strandline) has reported it has received 13 mineral assemblage and characterisation test results from 4 holes completed at prospects in southern Tanzania. Follow up drilling is planned for Q2 2015
Whilst it is early days, the results to date are very positive with the identification of some key parameters including shallow high grade zones with high VHM contents, low trash and low slimes.
Other industry news suggests Chinese companies will invest extensively in exploration of mineral sands in the southern region of Mozambique and expect to extract around one million tons of ilmenite (iron titanium oxide) over 25 years.
Internal Article – Financial Benefit to the Government of Bangladesh
From time to time we are asked if Bangladesh should develop the mineral resources of Bangladesh itself.
Exploration and the extraction and processing of minerals are generally carried out by private sector companies, despite the public ownership of mineral resources. Technically, development of mineral resources involves a holistic approach which includes detailed reserve calculation over many years, flow sheet determination based on particle size and mineral characteristics; careful selection of mining and mineral processing equipment and production of individual minerals as per customer demands.
Integration of all these chain activities are needed to address for the successful implementation of the mineral resource development project. Controlling costs, increasing productivity, sustainability, reducing risks & facing uncertainties are major challenges in this sector.
Companies are often exposed to significant financial risks that flow from the substantial capital investments required and the long exploration and pre-production periods during which no revenue is generated. In addition the long life of mining projects, the volatility of commodity markets over time and other technical and environmental uncertainties remains a risk for all mining projects.
There are three areas that a government will benefit financially.
Receipt of fees, taxes and royalties.
A majority of operating costs (OPEX) is spent on local businesses, employees, environmental rehabilitation and social causes.
Capital expenditure (CAPEX) supports local businesses, employs people and builds infrastructure.
With the above in mind governments receives a positive cash flow from the start of the project. The cost of the risk is not taken by governments. No public money is spent in speculation. Governments generally take partners and develop resources through a public sharing contract or maintain benefits to the country through a range of legal, regulatory and compliance licences.
In this newsletter we will look at the perceived income to governments through taxes and royalties.
Premier has modelled various expansion scenarios. The below information is summarised very simply for the purposes of this newsletter. Under a modest plan for development and modest demand for minerals Premier sees a one third equal share between the Government of Bangladesh and Operational Expences (OPEX) used in Bangladesh. Under this model it may take 15 years to reach this equilibrium.
Distribution of Income - Profit, Operational Expenditure and Government Receipts
23% (Blue) - Premier - total income less cost of investment
46% (Brown)- Operating expenditure in Bangladesh
31% - (Green) Expected Total taxes, fees and Royalties to the Government of Bangladesh
37% (Blue) - Premier - total income less cost of investment
27% (Brown)- Operating expenditure in Bangladesh
36% - (Green) Expected Total taxes, fees and Royalties to the Government of Bangladesh
*This indication of benefit to the government does not include the added benefit of capital investment (CAPEX) for the project.
Annual Operating Expenditure and distribution. Return on Investment scenario
Grey – Annual Profit to Premier
Yellow – Annual receipts of taxes, fees and royalties
Brown – Operating expenses
Green - indicates the accumulative cash flow to the Government of Bangladesh.
Blue - indicates the Return on Investment to Premier after deducting capital expenditure (CAPEX). It is clear there is substantial negative cash flow and it takes more than 10 years to equal the cash benefit of the government. A breakeven point may take 7 or 8 years for the operating company yet other beneficiaries would be well compensated by this time.
Only once the operation and infrastructure grow to a reasonable scale will benefit start to evenly match the government’s portion. At this stage huge benefit would be achieved through economic development of the country through expenditure. Government benefit will eventually plateau around 25%. Royalties are in fact 15% of gross sales. Other taxes such as VAT, Employee TDS, Corporate Taxes and mining fees are payable. Royalties being a tax on sales is charged regardless of profit.
The government can expect a risk free source of income from the start in the form of royalties and other taxes plus see immediate benefit to community through CAPEX and OPEX spending.
Public sharing contracts are common where the operator may pay back capital expenditure first and then profits are shared evenly over the long term. This may decrease exposure to the developer and allow for a long term stable relationship.
The government works too. It is required to monitor activities and its technical and research departments work with the developer and help develop approaches to the challenges involved. It facilitates dialogue with stakeholders.
This illustration shows development intervals 3 years apart, depending on many factors it could be a quicker scenario. Perhaps by 2031 other variables will exist. Premier believes a public sharing contract from the beginning or at the earlier stages is the most viable option towards developing what could be a world class resource and a benefit for all.
External Article - (SLO) Social Licence to Operate
SLO refers to the level of acceptance or approval by local communities and stakeholders of mining companies and their operations. It is based on the idea that mining companies need not only government permission but also “social permission” to conduct their business.
An SLO is based “on the degree to which a corporation and its activities meet the expectations of local communities, the wider society, and various constituent groups -
SLO’s require mining companies to be sensitive to local cultural norms, create realistic expectations, develop fair conflict resolution mechanisms, and to be consistent and predictable regarding their behaviour.
The advantages to the mining company are that obtaining an SLO is essential for reducing the risks of public criticism, social conflicts, and, in general, damage to a company’s reputation.
The SLO is dynamic because stakeholders’ perceptions can change over time for different reasons including the success of CSR programs, (dis)satisfaction with the fulfilment of promises and obligations, unforeseen environmental damages, and the release of new information.
I have found a published article from KPMG named the “The Community Investment Dividend” which is about measuring the investment to support your Social Licence to Operate. It is a 36 page report that gives an insight into the challenges and considerations for resource companies when valuing community investments.