• The Phase 1 case of three million tonnes a year shows a pre-tax NPV of $1,290 million, a 36% pre-tax internal rate of return and a 25-year mine life.
  • Phase 1 Capital Expenditure is estimated at $443.5 million including a 15% contingency, with project financing not yet secured.
  • The definitive feasibility study is targeted for the third quarter of calendar 2028, with a final Investment decision targeted for the fourth quarter of 2028.

What the study covers

Diatreme Resources Limited (ASX:DRX) has released a pre-feasibility study (PFS) for the Northern Silica Project (NSP), a proposed silica sand mine in Far North Queensland. The study looks at a first phase producing three million tonnes a year and a combined first and second phase reaching five million tonnes a year from Year 3. All figures are in Australian dollars and pre-tax unless stated, and the company describes the study as preliminary in nature.

For Phase 1, the company reports a pre-tax net present value of $1,290 million and an internal rate of return of 36%, with a post-tax net present value of $867 million and a post-tax return of 29%. Payback is four years and mine life is 25 years. The combined Phase 1 and 2 case shows a pre-tax net present value of $2,419 million, a pre-tax return of 46%, a post-tax value of $1,661 million and a post-tax return of 38%.

Key assumptions and costs

Phase 1 capital expenditure is estimated at $443.5 million including a 15% contingency. Phase 2 adds $38.5 million, bringing cumulative capital to $482.0 million. Diatreme reports a C1 cash cost, free on board and excluding sustaining capital and royalties, of $25 per tonne for Phase 1 and $18 per tonne for the combined case.

The model assumes a silica sand price of US$55 per tonne free on board, which the company converts to $80.9 per tonne at an Exchange Rate of 0.68 US dollars to the Australian dollar. It compares this with a Wood Mackenzie base case of about US$60 per tonne by 2040 in real terms. The discount rate is 8% real, and recovery is 80%. Capital and operating cost estimates are AACE Class 4, a lower level of confidence than a definitive study.

Reserves and ownership

The study is underpinned by a Si2 Ore Reserve of 151.25 million tonnes at 99.25% silica, all classified as Probable. It is derived from Measured and Indicated Resources, with no Inferred Resources in the production target. The Si2 Mineral Resource is 301.5 million tonnes at 99.20% silica, and total silica sand resources across the portfolio are 632.9 million tonnes at 99.19% silica.

Sibelco Asia Pacific holds about 27% of the joint venture, with Diatreme at about 73%. Sibelco has a right to offtake in proportion to its share, subject to agreed terms, but pricing has not been agreed.

Conditions and risks

Project financing is not secured. The PFS assumes Phase 1 capital is funded through an Equity placement, although the company says final funding may combine debt, equity and government sources such as the Northern Australia Infrastructure Facility and Export Finance Australia. The announcement is not consistent on Phase 2, stating in one place that it is expected to be funded from Phase 1 Cash Flow and in another that the model treats it as an equity placement.

Port access is a central uncertainty. Diatreme plans to use spare capacity at the Port of Cape Flattery, with an estimated utilisation of about 32% of roughly 8.4 million tonnes a year of capacity, but no commercial agreement is in place with Ports North or Cape Flattery Silica Mines. Other risks include Mining leases, native title and mining agreements, environmental approvals, water licences, silica prices, exchange rates, offtake and financing. A definitive feasibility study, approvals, agreements and financing are required before a final investment decision.

Next steps

Diatreme says its Environmental Impact Statement is well advanced under the bilateral Queensland and Commonwealth process, and that negotiations on a Traditional Owner mining agreement are progressing. Port commercial arrangements remain pending. The definitive feasibility study, which will focus on optimising Phase 1 as a standalone case, is targeted for the third quarter of calendar 2028, with final approvals and a final investment decision targeted for the fourth quarter of 2028. The company says the timetable is subject to change.