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Element 25 (ASX:E25) tumbles on latest PFS update

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The Element 25 Ltd (ASX: E25) share price crashed even as it posted an upbeat update on the ASX.

Shares in the emerging manganese miner tanked over 10% to $1.31 in the last hour of trade. The sell-off comes despite this being a positive day for miners.

ASX miners leading the S&P/ASX 200 Index (Index:^AXJO) higher today as a surge in the iron ore price and the impending approval of a COVID‐19 vaccine is lifting the sector.

Element 25 share price takes a hit

Element 25 provided an update to its Pre-Feasibility Study (PFS) that was released in May. The miner added “expansion case options” which indicated that its Butcherbird project could be worth as much as $1.1 billion on a pre-tax basis.

This compares to its base case net present value estimate of $583 million (pre-tax) with a mine life of 40 years and an internal rate of return of 337%.

What’s more, management highlighted the low capital requirement for the project of $17 million plus another $3.2 million for working capital.

Fast payback and cashflow

The average operating cash flow from Butcherbird is estimated to be $39.6 million a year in the first five years of production under the base case.

This gives the project a simple payback period of six months from first production. That’s a very short payback period.

“Beneficial production is scheduled to commence in Q1 2021,” said the miner in its ASX statement.

“The base case involves the annual production and sale of 364,000tpa (Yr 1-5 range 300,000-390,000) of lump manganese ore grading 30-35% Mn.

“Mining requires no drill and blast, utilising dozer ripping and mining with loaders or excavators.”

No upgrade to Butcherbird resources

However, management made no changes to its reserve estimates. Proven and probable ore reserve still stands at 50.55 million tonnes (Mt) at 10.3% manganese (Mn) containing 5.22Mt Mn.

While the project’s Native Vegetation Clearing Permit (NVCP) and Project Management Plan (PMP) have been approved, Element 25 is still waiting for its mining proposal, works approval and water abstraction approvals.

Element 25 share price still near record highs

The big drop in the Element 25 share price may look alarming, but it should be taken into context. The E25 share price surged by nearly 700% since the start of calendar 2020 even with today’s loss.

It’s unlikely that shareholders would be too worried, especially given the outlook for electric vehicles. Element 25’s manganese is meant to be used in batteries.

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Returns as of 6th October 2020

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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