Capital Metals - Unlocking Value in High-Grade Mineral Sands

• Capital Metals' Eastern Minerals Project in Sri Lanka is described as one of the highest-grade undeveloped mineral sands projects globally.
• A planned deal with Sheffield Resources fell through due to Sheffield's market cap decline, forcing Capital Metals to pursue alternative strategies.
• The company now plans to develop the project independently, with a focus on doubling the resource and moving into initial production.
• Capital Metals has $2.8 million USD in cash and is planning an exploration program costing under $200,000 to potentially expand the resource.
• The company aims to demonstrate project viability, obtain permits, and begin production to strengthen its position for potential future partnerships or standalone development.

About Capital Metals

Capital Metals, an emerging player in the mineral sands sector, is poised to capitalize on its Eastern Minerals Project in Sri Lanka, touted as one of the highest-grade undeveloped projects globally. Despite recent setbacks in securing a strategic partnership, the company is forging ahead with a revised strategy to unlock the project's value independently.

The Eastern Minerals Project is centered on industrial minerals, including ilmenite, rutile, zircon, and garnet.

Interview with Executive Chairman, Greg Martyr

Project Overview & Recent Developments

The Eastern Minerals Project, located in eastern Sri Lanka, stands out in the mineral sands landscape due to its exceptional grade. Executive Chairman Greg Martyr emphasizes this point, stating:

"If you look at our grade chart compared to our peers, we really stand out as being the highest grade project in the world."

This high-grade nature potentially translates to lower production costs and improved project economics, a crucial factor for investors to consider.

Recent developments have seen Capital Metals pivot from a planned partnership strategy to an independent development approach. A proposed deal with Sheffield Resources, which would have provided operational expertise and financial backing, fell through due to market conditions affecting Sheffield's valuation. Martyr explains:

"Sheffield was our plan B. I was pretty confident we weren't going to need a plan C. But, you know, this is what happens."

This setback, while disappointing, has led Capital Metals to reassess its strategy and focus on demonstrating the project's standalone viability. The company now aims to leverage its existing cash position of $2.8 million USD to advance the project through key development milestones.

Revised Development Strategy

Capital Metals is now pursuing a multi-pronged approach to advance the Eastern Minerals Project:

Resource Expansion

A key focus for the company is expanding the project's resource base. The current resource estimate, dating from 2016, is based on relatively shallow drilling to an average depth of 1.6 meters. Capital Metals plans to conduct a new drilling program using Aircore and Sonic drilling techniques to depths of 10-14 meters, potentially uncovering significant additional mineralization.

Martyr outlines the potential impact:

"Our target, and it's a fairly short-term target, is to double the resource."

This ambitious goal, if achieved, could significantly enhance the project's attractiveness to potential partners or financiers.

Staged Development Approach

Rather than pursuing a large-scale development from the outset, Capital Metals is considering a staged approach. The initial focus would be on producing 550,000 tonnes per year of heavy mineral concentrate, which represents the simplest part of the project to implement.

This strategy aligns with current market trends, as Martyr notes, "Our original plan was to do 550,000 tonnes per year of heavy mineral concentrate. That's the easiest part of the project. We can do that ourselves."

Financing Options

To fund the initial development phase, Capital Metals is exploring several financing avenues:

1. Vendor Finance: The company has engaged with equipment suppliers such as Mineral Technologies and IHC, who have shown interest in providing vendor financing.
2. Offtake Financing: Discussions with potential offtake partners, including previous interested party LB, are ongoing.
3. Equity Financing: While the company aims to minimize dilution, some equity raising may be necessary to fully fund the project.

Martyr believes this combination of financing options could significantly reduce the need for traditional project debt, stating: "I don't think we'd need a huge amount of equity to get into that first stage of production."

Operational Expertise

Recognizing the need for specialized mineral sands expertise, Capital Metals is in discussions with industry professionals to strengthen its operational team. Martyr reveals, "We were obviously talking to people that were going to run the project for the joint venture. I'm still talking to those people."

Market Position & Competitive Advantage

The mineral sands sector is characterized by a limited number of high-quality development opportunities. Capital Metals believes its Eastern Minerals Project stands out due to its grade and potential scale. Martyr emphasizes this point:

"The dynamic also in the global mineral sand space is there aren't that many good quality business development opportunities. And we know that."

By advancing the project independently, Capital Metals aims to strengthen its market position and create optionality for future partnerships or standalone development. The company believes that demonstrating operational capability and resource growth will make it a more attractive partner or acquisition target in the future.

Key Milestones & Catalysts

Investors should watch for several key milestones that could serve as catalysts for Capital Metals' valuation:

1. Results from the planned exploration program
2. Appointment of key operational personnel
3. Updated development plan and financial projections
4. Permitting progress
5. Offtake or financing agreements

Martyr highlights the importance of these steps:

"Hiring a really decent person, right? And then coming out in that six to eight weeks with the plan, that's a compelling plan - it won't be financed - but it'll have a finance plan and people will say, okay, they're not gonna blow up the cash they have. They know what they're doing."

Conclusion

Capital Metals' Eastern Minerals Project represents a unique opportunity in the mineral sands sector. Despite recent setbacks in securing a strategic partnership, the company's revised strategy focuses on demonstrating the project's standalone value through resource expansion and staged development.

The project's high-grade nature, combined with the potential for resource growth and a phased development approach, positions Capital Metals as an intriguing prospect for investors interested in the mineral sands sector. While risks remain, successful execution of the company's strategy could unlock significant value for shareholders.

As Greg Martyr summarizes, "We can do this ourselves. And I am dead, dead confident that we can." The coming months will be crucial as Capital Metals works to turn this confidence into tangible progress, potentially rewarding investors who recognize the opportunity at this pivotal juncture.

The Investment Thesis for Capital Metals

• High-Grade Asset: One of the highest-grade undeveloped mineral sands projects globally, potentially leading to favorable economics.
• Resource Expansion Potential: Planned drilling program could significantly increase the resource base, enhancing project value.
• Staged Development Approach: Focus on initial production of heavy mineral concentrate reduces upfront capital requirements and technical risk.
• Multiple Financing Options: Combination of vendor finance, offtake agreements, and targeted equity raises could minimize dilution.
• Strong Market Position: Limited high-quality mineral sands opportunities globally enhance the project's strategic value.
• Experienced Management: Plans to bring in industry experts to strengthen the operational team.
• Near-term Catalysts: Several milestones expected in the coming months could drive revaluation.

Macro Thematic Analysis

The mineral sands industry plays a crucial role in supplying raw materials for a wide range of applications, including pigments, ceramics, electronics, and renewable energy technologies. The sector is influenced by several macro trends:

1. Urbanization and Infrastructure Development: Continued global urbanization drives demand for titanium dioxide pigments used in paints, coatings, and plastics.
2. Technological Advancements: Growing demand for electronic devices and renewable energy technologies increases the need for rare earth elements and other mineral sands products.
3. Supply Constraints: Limited new high-grade discoveries and increasing production costs at existing operations create opportunities for new, efficient projects.
4. Environmental Considerations: Increasing focus on sustainable mining practices and product traceability affects project development and operational strategies.
5. Geopolitical Factors: Efforts to secure supply chains for critical minerals could benefit projects in stable jurisdictions.
6. Economic Cycles: Mineral sands demand is linked to global economic growth, particularly in construction and manufacturing sectors.
7. Currency Fluctuations: As a US dollar-denominated commodity, mineral sands prices are affected by currency movements, impacting project economics.

In this context, Capital Metals' high-grade Eastern Minerals Project in Sri Lanka represents an opportunity to bring new supply to the market from a potentially low-cost operation. The project's location provides access to key Asian markets, while its grade profile could offer resilience against price fluctuations.

The company's focus on staged development aligns with the industry trend towards more flexible, scalable operations that can adapt to market conditions. This approach, combined with the potential for resource expansion, positions Capital Metals to capitalize on the growing demand for mineral sands products across various industries.