Manuka Resources Interview: Where cash flows and blue sky potential come together

We have two precious metals projects in New South Wales, Australia. Both are located in the Cobar Basin, one of Australia’s oldest and best-known mining regions. The Mt Boppy Gold Project was previously one of the richest gold mines in Australia when originally in production between 1895 and 1925. During that time, 500,000 ounces of gold were mined at an average grade of half an ounce per ton of ore, a number almost unheard of today. When we went public in 2020, we brought Mt Boppy back into production with the initial goal of producing 24,000 ounces of gold. We have exceeded that target by a factor of two, but that is only part of the success story at Mt Boppy so far. As we have operated the mine we have continued to gain insights into the Project’s exploration potential,. Now, leveraging those learnings with some well targeted exploration, the Project now has a larger gold JORC resource than when we started back in 2020. Internally we expect the resource to significantly grow the deeper we mine.

Our second Cobar Basin Project is the Wonawinta Silver Project. It is currently in production, processing the 515,000t stockpile located on the ROM pad adjacent to the plant. We anticipate a return to mining at Wonawinta as soon as the silver price improves. To date, we have reported a mineral resource at Wonawinta of 38.8 million tonnes at 41.3g/t silver and 0.54% lead. By Australian JORC standards, this equates to >51 million ounces of silver and >200,000t of lead. The beauty of our Wonawinta Project is that it is fully approved, and as soon as the silver price improves, profitable mining can commence without the need for any further approvals. In that sense Wonawinta is a very valuable call option on the silver price. Furthermore, the exploration potential at Wonawinta is exceptional. The Cobar Basin is known as a very deep basin and many mines in the Basin have reached depths of 1.5 km or more and continue to produce, whilst we are currently operating at a depth of just 60 meters at Wonawinta.

The current plan for silver production is two-fold. Firstly, we are currently processing the stockpiles as a test program prior to commencing full scale mining of our existing resources. This is to ensure that laboratory scale metallurgical optimization could be achieved in the plant in a large-scale mining and processing environment. We do expect the price of silver to rise in the short to medium term, and with this process experience gained, we can move quickly into the second phase, if you will, and produce silver from our existing 50moz silver resource.

We have a comprehensive permit to mine silver at Wonawinta. Our goal for the Wonawinta Silver Project is to replicate the success we enjoyed at Mt Boppy i.e. positively surprise our shareholders with the Project’s size. Other geological features could also play a role, which will have to be investigated more closely in perspective.

The Wonawinta Silver Project also hosts gold. From every ton of ore which we extract silver, we also extract gold. We need to get to the bottom of this gold and better understand the prevailing mineral structures which exist at Wonawinta, and the role gold plays within these structures.

We are in the unique situation of having two great projects in an exceptional mining province, both of which are fully permitted for mining and production. We can mine gold or silver, process both in our own plant and generate cash flows. At the same time, the Company has very real potential for additional exploration success at both Wonawinta and Mt Boppy. We have clearly demonstrated the economics of the Mt Boppy Gold Project - that the mine is profitable. It has also yielded more gold than planned whilst still increasing the resource net of depletion. Now we look to repeat that success at Wonawinta.

We have a single processing plant at Wonawinta which has been constructed to allow it to process either gold or silver. However, is important to also note that we have production approval at Mt Boppy and therefore can add a dedicated gold processing facility at the mine when our resource inventory demands it. In addition, all other infrastructure already exists at Mt Boppy, including electricity, tailings dam, mine camp and administrative offices. These two factors mean that, once sufficient resources are identified, we would only need months rather than years to transition back to processing gold at Mt Boppy. At that point, we would be producing both silver and gold simultaneously from two operations.

We plan to release a mine plan on Mt Boppy in the December Quarter and expect to be in a position to resume producing gold. That is the advantage of having two fully permitted projects, we can transition from one to the other as the ratio of gold and silver prices dictate. We believe in the potential of both projects and therefore it would not make sense to put one project entirely on the back burner or even sell it at this stage. I continually point to the ‘resource potential at-depth’ in the Cobar Basin, and the fact that our projects are so shallow in a region known for very deep systems. Furthermore, and as outlined above, a dedicated processing plant can be built at Mt Boppy when needed. Electricity, a mining camp and also water are already on site. Since permitting processes for mines and processing plants usually take years, both projects are important strategic assets for us for this reason as well. Once Mt Boppy can show a resource of ~100,000 ounces of gold, planning for a dedicated processing plant would begin. We anticipate the resource estimate could be significantly more extensive. We will know more in the second half of 2023. Then decisions relating to the construction of a dedicated plant can be considered.

The STB Project, located off New Zealand’s west coast, is a VTM (vanadium titano magnetite) iron sands project. A preliminary feasibility study has already been completed on the project with more than USD$50m invested to date. The project has a granted mining licence and an extraordinarily large 3.8 billion ton JORC resource. It has the potential to set a number of benchmarks in its quest to become one of the most environmentally responsible and sustainable mining projects in the world. Current forecasts have it in the lowest cost quartile for the production of iron ore, as well as the lowest quartile carbon emitter per ton of ore produced. Furthermore, the STB concentrate contains meaningful vanadium of 0.5%/t expressed as vanadium pentoxide or V2O5. At this grade and based on early estimates of annual mining rates for the STB Project, estimated annual production of vanadium would be ~55 million lb. That could make us the third largest miner of vanadium after China and Russia, producing 15% of the world's supply annually - and in the safe jurisdiction of New Zealand.

Importantly, the incremental investment to process vanadium required by a steel producer consuming the Project’s iron ore product is quite low as it attaches to the slag in most blast or basic oxygen furnaces and can be recovered at that point. Furthermore, we have currently committed to a metallurgical analysis aiming at optimizing recoveries as we can see that vanadium payables will become extremely valuable in the near term.

Vanadium has been deemed a critical mineral by Governments in the USA, the EU and Australia, and demand is set to increase materially. Some forecasts suggest it could double by 2026. It is thus at the forefront of the green energy economy and we are very pleased that we have reached binding terms to purchase STB in this context. In our view, the Project’s scale, its minimal environmental footprint and impact, as well as the contained vanadium make it a genuinely unique opportunity for the Company wit enormous potential.

Good question! I have been involved in financing and physical commodity trading for over 25 years and the first time the STB project caught my eye was in 2009. The Project’s management team at the time were rightly convinced of the Project’s potential and they targeted first production by 2014. I assisted by hosting them on marketing trips to Chinese steel mills as well as introducing them to strategic investors and potential buyers, sharing market relevant information with them and making our offshore office network available to them. Even though their Mining License was granted in 2014, they encountered a number of unanticipated delays, the last of which was only resolved in May 2022. These delays have placed an enormous burden on a private company that lacks the access to public capital markets. As I mentioned earlier, more than USD$50 million has been spent to date on the project which is a significant commitment. Our shareholders are thus the beneficiaries of the various delays encountered to date. The merits of the STB project are obvious and we are extremely excited about its potential. We aim to start production in late 2026. Before that, however, we need to complete the transaction and finish the BFS in the coming year.

We listed on the ASX in 2020 with debt of AUD 25 million. Today, that number has more than halved to AUD 11 million. Our improving balance sheet highlights the robustness of our precious metals mines and their cash flows. We are profitable in FY 2021 / 2022. We have also established a rock solid relationship with our Hong Kong financier, Trans Asia Private Capital (“TA”) and have demonstrated repeated flexibility with respect to our lending facilities. TA shares our vision and believes in our projects and is a material shareholder in our company. Incidentally, the current management team of Manuka Resources are also substantial shareholders, owning ~34% of the Company and this will increase to ~ 40% once the STB transaction is completed. We expect future financing requirements for the STB project are likely to be met by a combination of strategic investors, vendor finance and traditional debt. Our anticipated 100% ownership gives flexibility to sell down equity at the Porject level, while the anticipated cashflows mean the Project would be very attractive to lenders and Project financiers.

That is a fair question! But I can reassure you, each of the three projects are well under control. The two precious metals projects are in very good hands, as evidenced by the progress over the past two years and the ongoing management team are stable and experienced with substantial skin in the game as I outlined earlier. Alan Eggers and John Seton have led the STB project to date and have made the Project what it is today with their decades of experience, drive and tenacity. On completion of the acquisition both Alan and John will join our management team and become fellow Manuka shareholders. For us, these personnel decisions were obvious: no one else knows STB as well as they do. Thanks to our prior exposure to the Project, we already had extensive personal interaction with Alan and John. They are highly successful and respected mining executives who, amongst other initiatives, grew Summit Resources from scratch to become an aspiring uranum producer before it was ultimately was sold to Paladin Resources Ltd for A$ 1.2 billion dollars. The purchase of STB clearly strengthens the management team at Manuka, and we are well positioned to move all three projects forward, and share any risks with our fellow shareholders.

While we haven’t finalised our marketing plan, we do see proximity to Asia as an advantage. Asia is obviously much more than just China, and likely purchasers of our STB concentrate will include South Korea and Japan. This is not to say that we haven’t considered potential European or American customers. We see a likely sales framework being limited to a maximum of 4 – 5 customers and possibly just a couple. With respect to the rapidly expanding green energy economy, an Australian company with a New Zealand domiciled project certainly brings very strong ESG credibility. The provenance of a commodity is of increasing importance to its consumers. Gaining approvals to mine in both jurisdictions requires a very responsible and considered approach to process, safety and the environment. Ultimately, production costs, quality and ESG frameworks will determine our success. Manuka sees the STB project as well positioned in these three areas.

We will release a new mine plan for Mt Boppy and finalize the STB project transaction in the December Quarter. After that, we will complete the STB Project’s BFS. There will also be an update on silver production from Wonawinta, specifically on the stockpiles. Fundamentally, all three of our projects have the potential to transform Manuka Resources. Even before the purchase of the STB project, our shares were undervalued - a corresponding analysis saw a fair valuation of AUD 0.97 at the end of 2021 - today, our shares are trading at AUD 0.14. STB being added to the portfolio offers the promise a long life asset with extremely strong economics. But the most important aspect is vanadium, which we can produce on a very large scale. Thanks to our long experience and existing business relationships, we have been able to acquire the project on good terms. The market, however, is yet to recognize the transforming potential of this transaction. our shares. Once the purchase of STB is complete the market can assess with more certainty the new trajectory of the Company. We expect it to be a big catalyst. As a management team and shareholders, we are looking forward to the following months and years.