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Heavy Minerals Ltd

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- Heavy Minerals Ltd
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Investment Memo:

Heavy Minerals Ltd (ASX:HVY)


Opened: 14-Jul-2023

Shares Held at Open: 3,750,000

What does HVY do?

Heavy Minerals (ASX:HVY) is a “mineral sands” developer with three projects. The most advanced project is a garnet-rich deposit located in WA, very close proximity to two other garnet producers.

What is the macro theme?

Garnet is an important industrial material, specifically used in abrasive sand-blasting to treat and prevent rust on ship hulls, bridges and other large metal structures.

It is also used in “abrasive water-jet cutting” of metals, glass and other materials in the automotive, aerospace and electronics industries.

Major shipbuilding companies and infrastructure maintenance companies use garnet to safely reduce corrosion and extend the life of surfaces that are prone to rust.

The world has a major rust problem - ageing ship fleets and big infrastructure projects like bridges are falling apart. Particularly in the US, which we see as an important target market for HVY’s garnet products.

The most recent study on corrosion in 2013, placed the costs of corrosion at roughly 3-4% of global GDP.

Garnet is eco-friendly compared to alternative industrial abrasives like dirty coal slag or carcinogenic copper slag.

As the world focuses on becoming environmentally friendly we expect the shift towards industrial garnet to further accelerate.

Why did we invest in HVY?

Tiny market cap after lots of progress

When we initially Invested in HVY it was capped at just $6M with a scoping study already completed for its project.

Tight structure low shares on issue (SOI)

When we initially Invested HVY had ~55 million shares and ~18 million options on issue. Prior to our Investment, the top 5 shareholders held ~75% of these shares.

Management skin in game

Before our Investment, HVY directors held ~11.6% of the company, with chairman Adam Schofield holding 7.7% himself.

Garnet is an important niche material

Garnet is leveraged to big industries like the maritime and aerospace industries to allow for rust removal, industrial cutting and anti-corrosive paint to be applied to surfaces. It cannot be easily replaced.

Favourable long-term pricing environment for garnet

Supply side is decreasing with Indian garnet production being banned. On the demand side bans are being considered for garnet alternatives (copper slag/silica) due to ESG concerns. We expect to see demand outstrip supply in the coming years leading to higher prices.

US is spending ~US$40BN on upgrading old rusty bridges

The US has budgeted US$40BN of new funding for bridge repair, replacement, and rehabilitation. We expect this to increase demand for garnet as a sandblasting product.

Quick, viable pathway to becoming key garnet supplier

HVY’s project has an established JORC resource, a completed scoping study and is just about to start a pre-feasibility study. HVY is targeting first production in 2026.

Close proximity to two producing garnet projects

HVY’s projects sits next door to the GMA mine which supplies ~35% of the world’s almandine Garnet and Resource and Development Group’s newly constructed mine.

Neighbour RDG trading at a ~$220M enterprise value

Resource and Development Group next door is capped at ~$150M and has an enterprise value close to ~$220M. RDG is also ~65% owned by $13BN Mineral Resources.

Project economics stack up, plenty of room for upside

HVY’s scoping study shows an after-tax project Net Present Value (NPV) of $253M, a payback period of 4.2 years, and an after tax Internal Rate of Return (IRR) of 33%. The project CAPEX is also relatively modest at $110M.

Upside to increase garnet resource

HVY could double its existing JORC resource with more drilling to the north/south of its existing JORC resource and at its Red Hill project where it has a 90-150Mt (4.1 to 5.4% THM) exploration target.

Project financing support from Dutch Export Credit Agency

HVY recently received a “Letter of Support” for project funding from Atradius - the Dutch Export Credit Agency.

What do we expect HVY to deliver?

Objective #1: Secure project financing

We’d like to see HVY secure project financing - the HVY scoping study outlined a CAPEX of $110M. HVY has received a “Letter of Support” for project funding from Atradius - the Dutch Export Credit Agency (ECA). We would be looking for HVY to further this relationship, and engage with the Australian Export Credit Agency, Export Finance Australia.


not done Secure Dutch ECA cover for Port Gregory

not done Engage with Australian ECA

not done Institutional investor

not done Debt or equity financing agreement

Objective #2: Progress feasibility studies

We want to see HVY complete a pre feasibility study for its main garnet project (Port Gregory). After completing the PFS, we want to see HVY move quickly to start its bankable feasibility study (BFS) for its main garnet project (Port Gregory).


complete Comence PFS

not done Complete PFS

not done Comence BFS

not done Bonus: Complete BFS

Objective #3: Blue sky exploration potential

HVY could double its existing JORC resource with more drilling to the north/south of its existing JORC resource and at its Red Hill project where it has a 90-150Mt (4.1 to 5.4% THM) exploration target.


not done Drilling

not done Increase total JORC resource across Port Gregory and Red Hill projects

What could go wrong?

Funding risk

The small cap funding environment is particularly difficult, and it is possible that HVY cannot secure the funding it needs through royalty agreements or otherwise to continue its operations.

Small caps need money to grow, and capital raises are often needed, which can cause dilution to shareholders and these raises can be conducted at a discount to market prices.

Commodity pricing risk

There’s a risk that garnet prices decrease, hurting the economics of HVY’s project.

Development delay risk

Development studies such as pre feasibility studies and bankable feasibility studies can take longer than expected and any delay here could hurt the pace of HVY’s newsflow and sentiment around the company.

Sales/offtake risk

It is possible that sales and marketing activities do not progress as planned and agreements for future supply (offtakes) take a long time to be signed or do not happen.

Competition risk

There is a risk that other garnet companies come into production, making HVY’s product less viable in the market.

Market risk

There is a general market collapse/financial crisis. In this scenario, HVY’s share price could be impacted by broader market forces.

Financing risk

Due to a combination of any or all of the above risks, financing for the project is hard to come by or unavailable, and the project does not become operational.

What is our investment plan?

We are Invested here for garnet dividends.

Our Investment Plan for HVY is to hold on to the majority of our position to see the company execute on its business strategy over the next five to seven years and move into production.

If the company’s share price materially re-rates in the medium term due to the results of the PFS, a macro triggering event or any other unknown reason, we may look to sell up to ~20% of our holding to “Top Slice” our Investment, as is our standard Investment strategy.

Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,750,000 HVY shares at the time of publishing this article. The Company has been engaged by HVY to share our commentary on the progress of our Investment in HVY over time.

Our Investment Summary

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Inital Entry Price


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