Bluejay Mining : Hannam and Partners Equity Research

Bluejay Mining | Equity Research

24th May 2021

Dundas Ilmenite Project

Bluejay continues to focus on development of the world's highest-grade and permitted mineral sands ilmenite project, with a JORC resource of 117Mt at 6.1% ilmenite in situ and an exploration target of 300Mt - 530 Mt at 0.4 - 4.8% ilmenite. Completion of a Bankable Feasibility Study ("BFS") and delivery of project funding are key deliverables expected in the medium term. The 42,000t bulk sample extracted in 2019 is at Bluejay's pilot processing plant to undergo refinement of up to 10,000t of heavy mineral concentrate. The portion assigned to Rio Tinto Iron and Titanium Canada Inc for testing at their Sorel-Tracy Plant in Quebec is expected to be reduced from that originally envisaged to facilitate trials at other customers.

Bank debt funding packages to cover the full capex bill are likely to require completion of a full BFS, which we believe Bluejay should be able to achieve over the next 12 months. We have modelled first production from 2024, subject to Governmental sign-off of the exploitation and closure plan by the end of 2022, as stipulated in the Exploitation Licence announced December 2020.

Development timeline of the Dundas Project

Source: Company

First signs of potential funding options

Bluejay continues to explore financing arrangements for Dundas and a letter of interest has been received from the Export-Import Bank of the United States ("EXIM") for the provision of ~US$208m in debt funding to develop the Dundas Ilmenite Project - fully covering our DCF estimated ~US$200m initial capex budget (US$245m in 2019 PFS). This in combination with European Export Credit Agencies and other traditional commercial lenders will ensure favourable commercial terms for the development of Dundas on the back of a received Exploitation Licence and sucessful Offtake deal. Bluejay's membership of the European Raw Material Alliance ("ERMA") and titanium's inclusion on the EU's 2020 Critical Raw Materials list, along with a commitment to boosting local employment and supportive comments from various official bodies, could help

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Bluejay Mining | Equity Research

24th May 2021

the company's efforts to access low-cost,government-backed funding options, in our view.

If quasi-governmental funding is available to JAY in the near-term, we believe this could cover the cost of a BFS and may negate the need to release an optimised Preliminary Feasibility Study ("PFS") as had previously been outlined by the Company. Meanwhile, we note JAY is considering the installation of renewable power capacity; while we believe this may involve additional capital, it could also attract very low cost state-backed loans or grants, whilst reducing energy costs. JAY's ability to find innovative project synergies has been demonstrated through its Research & Development tax credit rebate of £265k for eligible expenses incurred during the 2018 and 2019 years.

Offtake agreement a key step

The signing of a Master Distribution Agreement ("MDA") with a major, long- established Asian conglomerate with global interests in metals and mining emphasises the demand for, and quality of, Dundas' product. The offtake deal secures sales of a minimum of 250ktpa of ilmenite from Dundas, up to a maximum of 340ktpa, a 70% increase on the original MOU of 200ktpa. The upper limit would equate to ~77% of the planned 440ktpa output. The MDA is commercially sensitive so JAY's offtake partner is not being named at this stage. JAY is confident that further agreements can be reached in due course to cover the remaining 100ktpa of planned output, aided by additional pilot material available for trails at other customers. The MDA covers a minimum of five years from the start of commercial production and can be renewed every 12 months. The price per tonne of the ilmenite will depend on independent industry benchmarks at the time of acceptance (e.g. from TZMI). While there will be a handling commission, presumably to cover the trading firm's freight costs, selling on an FOB basis from the port at Dundas will simplify operations from JAY's perspective, and remove the need for JAY to rehandle material at another site.

Valuation: target increased to GBp24 with sensitivity to price upside

We upgrade our Dec'21 target price to 24p per share, implying 173% upside from

the current price. Our long-term ilmenite price is increased to US$210/t (FOB) from US$200/t. This remains more conservative than the PFS input of US$232/t and current spot prices of ~US$330/t. We also update our corporate tax rate to 25%, with deductions in the calculation of royalties due. Based on the potential size of the Resource, we continue to model 17 years of production beyond the 9- year PFS Reserve. On this basis we reach an NPV of US$305m for Dundas, using an 8% WACC with production starting in 2024, to which we apply a 0.8x multiple. We then add a further US$60m in nominal value for JAYs earlier-stage but equally attractive exploration assets. Adjusting for working capital and G&A, we derive a total Dec'21E risked SOTP of ~US$307m (24p/sh). Furthermore, we note for every US$10/t delta in ilmenite we would see a ~US$42m change (~14%) in our Dundas NPV, equivalent to a ~2.7p change in SOTP; marking-to-marketfor current ilmenite spot prices of ~US$330/t, this would imply ~133% further upside to our PT to GBp56/sh.

We also note the project's sensitivity to WACC and therefore the implications of a low interest rate from EXIM. Indeed, Ironbark Zinc Ltd received a proposed rate of 1.46% for up to US$216m of funding (vs. JAY US$208m) for its Citronen Zn-Pb project in the north of Greenland. Even if a WACC of 6% were achieved, our target price would jump to GBp32/sh.

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Bluejay Mining | Equity Research

24th May 2021

Ilmenite price strength continues in 2021 (US$/t)

440

390

340

290

240

190

140

China Domestic Ilmenite Spot

China Ilmenite Conc 50% TiO2 in Ports

China Ilmenite Conc 55-58% TiO2 Aus CIF

China Ilmenite Conc 52% TiO2 Mozambique

Source: Bloomberg

Finnish Assets

Bluejay and FinnAust, a wholly owned Finnish subsidiary, hold three large scale project areas in east Finland - a country with a strong mining tradition and rich in battery metals to meet the green revolution. The polymetallic assets are in areas of past production:

• Enonkoski Ni-Cu-Co-PGE project - historically produced 6.7Mt at 0.78% nickel and 0.22% copper from 1984 - 1994.
• Hammaslahti Cu-Zn-Au-Ag project - historically produced 10Mt at 1.16% Cu, 1.55% Zn, 0.59 g/t Au and 5.2 g/t silver from 1973 - 1986.
• Outokumpu Cu-Co-Au-Ag project - historically produced 57Mt at 3.1% Cu with polymetallic credits from 1908 - 1988.

Rio Tinto have signed a Joint Venture Agreement on the Enonkoski project, where they may acquire 75% interest by completing US$20m of expenditure over three stages. JAY received Rio Tinto's notification of satisfaction for the joint- venture and earn-in agreement on 8th January 2021. This partnership will allow JAY to accelerate their phased approach to exploration in Finland.

Enonkoski covers over 2,300 Ha of mafic - ultramafic noritic rocks (prospective for Ni-Cu-PGE magmatic sulphide deposits) between and along 15km of strike from the historical, state owned Enonkoski and Hälvälä mines. In addition to the Enonkoski (Laukunkangas) mine, historic intercepts of the massive ore include 32.9m at 4.09% Ni, 0.56% Cu, 0.17% Co and 19.7m at 6.12% Ni, 1.94% Cu, 0.29% Co.

The drilling and field programme, operated under strict Covid-19 protocols, will include 3km of first phase diamond drilling to test several geophysical targets in the Tevanjoki and Laukunsuo areas within Enonkoski for mineralisation, supported by base of till nickel anomalies and historical observations of mineralised noritic outcrops (up to 1.1% Ni). All targets are within a 3km radius of the past producing Enonkoski Ci-Cu-Co mine. Magnetic data from the detailed 160-line-kilometer UAV survey conducted in mid-April is currently being processed and interpreted and additional exploration activities are planned for the summer and autumn of this year.

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