(Financial Press - Oct 30, 2013) - Eight years since starting its Swamp Point North Aggregate Project, Highbank Resources Ltd. [TSX.V: HBK] is in the right place at the right time. Poised to complete the journey from junior explorer to a producer with positive cash flow, the company is pleased to report that with the filing of its Notice of Work Application, it is on track to directly benefit from the development at the nearby Port of Prince Rupert, B.C., Canada, which is set for giant infrastructure upgrades.
Recent announcements regarding investment for the LNG facility at the Port of Prince Rupert, only 72 miles away from the company’s tidewater deposit, have ramped up interest in the region. Malaysian petroleum titan Petronas, recently declared a commitment to inject $36 billion into British Columbia LNG. The construction of Petronas’ LNG facility upgrades at the port is estimated at $18 billion. Overall, the “announced” projects stand at a staggering $60 billion in total in North West British Columbia.
Highbank’s timing is near perfect to derive direct benefit. As billions of dollars will be pouring into the port’s upgrades, it appears that it’ll be Highbank’s valuable concrete-making aggregates that will be poured into the facility’s foundation.
“The filing of this Notice of Work application is a major milestone for us and the approval of the application will mean we have overcome a major hurdle towards the development of this project,” says Victor N. Bryant, President and CEO of Highbank Resources Ltd. To this point, Highbank has already incurred over $2.5 million in developing its Swamp Point North project. Now that their intentions to develop for production have been officially submitted with regulators, an additional $3 million will be required to bring the project into production.
But the key to the deal is in the conservative cash flow calculations that are set to ensue once production commences.
“We have a NI 43-101 compliant resource indicating we have 72 million tonnes of aggregate. With initial off-take commitments at $22.50 per tonne, many investors have commented to me the significant value of our deposit,” says Bryant.
Firstly, gravel is endemic to society. Each high rise is essentially built from gravel. When you add cement to it, you get concrete, which is all around us. In fact, the average Canadian uses the equivalent of 17 tonnes worth of aggregate per year.
The importance of aggregates in the construction of the society we live in is often overlooked. In the Province of British Columbia alone, production of aggregates was 38 million tonnes in 2010, valued at $322 million. A study in 2012 by the USGS (United States Geological Survey) of all mining industries in the US indicated that the value of all of the gold mined in the US is 40% less than the value of all aggregates mined. However, aggregate mining is becoming rarer, thanks to urban sprawl and a lack of acceptance for having a quarry near one’s backyard.
The decline of available area for aggregate mining has led to a price increase over recent years. Prices currently range for the commodity between $20-$32.50 per tonne. Highbank already has an early sales commitment for 100,000 tones at $22.50 per tonne, and have expressions of interest for further significant tonnage at rates exceeding $25.00 per tonne.
Unlike many other mineral resources, aggregates require little in terms of preparation before market. Other than washing, screening and loading, the commodity is relatively simple and cost effective to produce.
Highbank already has 100,000 tonnes in sales commitments, and believes that there are plenty more to come with the ramping up of construction in the Port of Prince Rupert and at the proposed Grassy Point LNG site (Exxon, CNOOC), which lies approximately 38 miles from the company’s deposit.
Initial production is expected to be around 235,000 tonnes per year in stage one. Stage two (between months 12-24) the company will work toward completion of an Environmental Assessment Report to enable filing of an application for full scale production and will see the company bring production up to 1.5 million annual tonnes by year four. Years 3-20 are expected to see the projects largest scale of mining and export sales.
The difference between the 1 million and 3.3 million production allotments means a lot for the company’s cash flow projections. Taken with the conservative price points of the first sales commitments, Highbank expects to generate $12.150 million per year in revenue for years 3 and 4, with $1.6 million per year in operating profit.
Once in full-scale production (expected for 2017), the company projects to produce 1.5 million tonnes per annum with $33.75 million per year in revenue and $4.425 million per year in operating profit.
The massive construction plans for Port of Prince Rupert’s and LNG facilities will be ongoing as Highbank builds towards increased production. The latest announcements of the company’s NoW application moves Highbank to its closest point since starting the project in 2005. Now all that’s required is last-stage financing and pre-production start-up to bring the Swamp Point North into cash flow, and the reward to investors that have helped build the operation up to this point.
Legal Disclaimer/Disclosure:
A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. Financial Press makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the author’s only and are subject to change without notice. Financial Press assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.