Sheffield Resources : Quarterly Activities Report

About this update from Sheffield Resources Limited

19 April 2017 ASX Code: SFX Directors: Mr Will Burbury Non-Executive Chairman Mr Bruce McFadzean Managing Director Mr Bruce McQuitty Non-Executive Director Mr David Archer Technical Director Registered Office : Level 2, 41-47 Colin Street West Perth WA 6005 Share Registry : Link Market Services Level 4, Central Park 152 St Georges Terrace Perth WA 6000 Capital Structure: Ordinary Shares: 181.0M Unlisted Options: 14.9M Market Capitalisation: A$103 million Cash Reserves: A$11.0 million Investor Relations : Mr Bruce McFadzean T: +61 8 6555 8777 E: [email protected] Mr John Gardner Citadel-MAGNUS T: +61 413 355 997 E: [email protected] QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDED 31 MARCH 2017 HIGHLIGHTS Thunderbird Mineral Sands Project High quality BFS delivered in March 2017 and includes: Pre-tax NPV 10 of A$676 million and an IRR of 25% EBITDA of A$5.1 billion over Life of Mine Stage 1 capital of A$324 million plus A$24 million contingency Long mine life of 42 years, offering leverage to multiple pricing cycles Ore Reserve updated to 680.5 million tonnes @ 11.3% heavy mineral (HM) (Proved + Probable) Three non-binding offtake MOU's signed for Premium Zircon Environmental permitting on track following conclusion of Public Environmental Review process Native Title process continues on schedule Corporate Activities Cash position of A$11.0 million as at 31 March 2017 Advancing offtake and financing following completion of BFS Figure 1: Location of Thunderbird Mineral Sands Project OPERATIONAL SUMMARY During the March quarter Sheffield Resources Limited ("Sheffield" or "the Company") continued its operational focus on its world class Thunderbird Mineral Sands Project (Thunderbird), located in the Canning Basin in northern Western Australia (Figure 1), culminating with the completion of the Bankable Feasibility Study (BFS) for Thunderbird, delivering financially robust metrics. Key results of the BFS include: Pre-tax NPV 10 of A$676 million, IRR of 25% Long mine life of 42 years, offering leverage to multiple pricing cycles Stage 1 capital of A$324 million plus A$24 million contingency (A$348m, US$261m) EBITDA of A$5.1 billion over Life of Mine (LOM), averaging A$123 million per annum Ore Reserve totalling 680.5 million tonnes @ 11.3% heavy mineral (HM) (Proved and Probable), including 235.8 million tonnes @ 13.3% HM as Proved Ore Reserve. Almost all of the first 10 years of scheduled production (97%) is from the highest confidence Proved Ore Reserve category. 100% owned and located in one of the world's best mining jurisdictions. Further details of the Thunderbird BFS are detailed below, and in the ASX announcement dated 24 March 2017. In conjunction with the BFS process, permitting activities continued to advance throughout the quarter. The environmental approval process for Thunderbird is well advanced following completion of a Public Environmental Review in February 2017 and conclusion of environmental permitting expected in mid- 2017. The Native Title process is also well advanced with an outcome anticipated before mid-2017. Sheffield continues to advance offtake and funding opportunities. Interest in both funding and offtake has been strong and following conclusion of the BFS in late March 2017, Sheffield announced the signing of three non-binding memorandums of understanding (MOUs) for the future sale of Premium Zircon with high quality industry counterparties (see ASX announcement dated 4 April 2017 and 10 April 2017). Negotiations are progressing toward binding offtake agreements with these counterparties whilst discussions continue with other counterparties interested in securing commercial agreement for Sheffield's high quality zircon and ilmenite products. Exploration and evaluation expenditure including BFS activities totalled A$3.0m for the quarter. Cash reserves of A$11.0 million (unaudited) remain as at 31 March 2017. THUNDERBIRD MINERAL SANDS PROJECT Located in the Canning Basin in northern Western Australia, the Thunderbird Mineral Sands Project, wholly owned by ASX-listed Sheffield Resources Limited, is situated midway between the port towns of Derby and Broome. Thunderbird, by virtue of its location, size and quality of product has the potential to become a globally significant mineral sands operation. The significance of the Project is supported by the "Lead Agency" project status afforded by the Department of Mines and Petroleum in Western Australia. Zircon is the key value driver of the Project making up almost 62% of forecast revenue, with the remainder generated from substantial amounts of high grade sulphate ilmenite and "Hi-Ti88" leucoxene. The high proportion of zircon sets Thunderbird apart from many of the world's operating and undeveloped mineral sands projects which are dominated by lower value ilmenite. Current Mineral Resources at Thunderbird comprise 1.05 billion tonnes @ 12.2% HM at a 7.5% HM cut- off (Measured, Indicated and Inferred) containing 9.7Mt of zircon, 3.0Mt of high-titanium leucoxene and 35Mt of ilmenite. This places Thunderbird in the top tier of mineral sands deposits globally, including those currently in production. In conjunction with delivery of the BFS, an updated Ore Reserve comprising 680.5Mt @ 11.3% HM was finalised during the quarter. The March 2017 Ore Reserve is based on the BFS supports a 42 year mine life for the Project with a very low life-of-mine strip ratio (waste:ore) of 0.78:1 and includes a Proved Ore Reserve category of 235.8Mt @ 13.3% HM (see ASX announcements dated 16 March 2017 and 24 March 2017; and refer to Appendix 1). Figure 2: Location of Sheffield Resources Projects in Western Australia Thunderbird Bankable Feasibility Study (BFS) The BFS is based on a conventional dozer trap mineral sands mining and processing operation involving an initial 8.5 million tonnes per annum (Mtpa) throughput (single mining unit), doubling to 17Mtpa in Year 5 via the addition of a second mining unit and processing stream. The BFS has demonstrated a low risk, technically strong project with robust financial metrics as summarised in Table 3 below. The financial analysis is based upon capital, cost and revenue assumptions derived from market contract and supply tenders, industry expert product pricing, consensus foreign exchange rates and a real discount rate of 10%. The forecast EBITDA of A$5.1 billion generated over a 42 year mine life underpins the strategic value of the Thunderbird Project. The pre-tax NPV 10 of A$676 million and significant pre-tax IRR of 25% support the Project's viability and provide a compelling case for financing and development. The estimated initial development capital of A$348 million including A$24 million of contingency (7.5%) required over the first two years to facilitate Stage 1 development is based on an Engineering, Procurement and Construction (EPC) approach to the major process plant capital components. The Stage 2 expansion to approximately 17Mtpa throughput, expected to commence in 2022, is estimated at A$195 million ($US146 million) (excluding contingency) and Sheffield's current expectation is that this will be predominantly funded from cash flows. $A million The mine schedule has been optimised to provide strong and consistent cash flows over the 42 year mine life. Figure 3 illustrates a consistent cost profile over the mine life with benefits of high grade, near surface ore in early production years, resulting in superior financial metrics. $550 $450 $350 $250 $150 $50 -$50 -$150 -$250 -$350 Revenue Royalties Capex Opex EBITDA FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37 LT Figure 3: Annual EBITDA (real 2017 prices) and Cash Flows

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