Been watching threads occasionally from sidelines, looks like the circular arguments have ended and some progressive dialogue happening (from both ends) so I'll chip in my bit.
Firstly thanks
@Deboss for summarising the AGM notes for us that couldn't attend. My thoughts and update over last couple months;
1. I don't know if I'm alone here but I actually don't mind the suspension and feel it's worked in shareholders favours for three reasons.
- Gave everyone time to really understand the deal and scrutinise it to their hearts content. Also gave management to lay down all the brickwork before listing. I've spent last couple months researching every inch of the company I could.
- The long period of suspension was due to ASX's intense nit picking of the deal and going forward activities of WFE. Which imo is good, means they'll have gone through all the parties involved, covered all documentation and if WFE lodges that prospectus they've passed a significantly higher regulation framework than your default ASX questioning. This likely means they've actually got something solid rather than fluff statements. It also gave time for ASX to check through the JV entities to ensure we dont get a HDY scenario here for Shareholder protection. Without getting into a soap opera and drama side of things (and avoid moderation), HDY basically raised cash, used cash to buy a tenure, gave consideration shares to JV owner (related party), JV owner transferred shares back to HDY management, ASX pulled them up.
Jason himself has confirmed there is 0 conflict of interest, no related parties of his involved in the JV ownership. I've done my own digging and the guy that owns the plant since construction from my research is the CEO of one of Congo's top 3 largest banks. Although I haven't got my hands on documents of who funded the $80M construction, but I'd assume it came from his own or the banks pocket. The CEO also owns a bunch of other Cobalt projects across Katanga.
As for who owns the "advanced tenures" that WFE will be acquiring? The announcement says Muya Resources. My research gives me ownership by Muya SARL which is owned by #822 on Forbes Richlist Feng Hailiang.
The tenures owned by Muya resources is directly southwest of tenures run by Katanga Mining.
- If I had to imagine what would occur if we were allowed to trade immediately, it would probably be a solid pop and short lived rally with a bleed off into darkness like 90% of ASX spec stocks have gone through lately with the market fall. Would've been great for flippers and quick traders to profit off the initial pop, but for someone like me who's a bit slower and holds a bit longer to watch company tick off milestones likely not as great.
On top of that the entire cobalt sentiment has been tarnished with each company running into trouble one by one, CLA (very vague scoping study), COB (2year DFS delay for exploration), AUZ/CLQ ($1.3B+ high capex), FCC (requiring third party feed of 8% Cobalt Ore). Hopefully WFE prospectus is good enough as one of the few remaining "potential" feasible cobalt plays with a genuine chance of producing - although its early to tell until we see that prospectus.
2. I think the biggest takeaway from the AGM notes was Jason mentioning installation of a SO2 reducing Scrubber.
What it tells is there is SO2 being released somewhere during the processing.The only stage this occurs is during roasting.
So copper cobalt bearing minerals Carrollite (common across DRC) CuCo2S4 will react with with oxygen (O2) in a roaster to produce an acid soluble oxide and release SO2 as a by product. Hence why introduction of SO2 Scrubber (flue gas desulphurization).
My original assumption was they will be only processing Oxide Ore since I couldn't spot a roaster within the plant at all angles I've looked. Given the lingo in the AGM it sounds like there is a roaster in there. So goes to show there's still pieces and details of this deal we are yet to see, and also that our assumptions (such as mine) can be wrong until we do see the prospectus.
So what does having a roaster mean? Few things, they'll be able to process both oxides and sulphide ore's which really opens up their high grade options. Sulphides have poor reactivity to acid leaching so they'll have to be roasted first to oxide solubles before leaching.
Having a roaster (and assuming a small scale froth floatation) will also increase processing costs, approximately by $5/tonne in DRC. The recovery will also drop from 90% (oxides) to about 86% due to loss in roaster and assuming floatation prior too. They'll be able to produce their desired target of cobalt even with this lower recovery but it means the initial feed will have to increase from 1.07% Oxide to 1.12% Oxide + Sulphide.
Another takeaway from AGM notes provided is the mention of payment on basis of grade provided and also magnesium or penalty metal content. Good to see they've taken this detail into consideration as it was a concern for me - if they were getting cheap high grade ore but with high contaminants the reagent consumption will drastically increase and profitability will be stunted. They're considering the lifecycle processing for feed, so likely Jason is after low Mg and Fe content written within the supply contract.
3. Just on a small note, these guys have increased the raise from $8M to $10M which is a significant accomplishment in this market. They've also removed the broker which is a 6% fee, so an extra $600K in the kitty so looks Jason and direct management will be handling it himself and don't need a middleman (broker) to find buyers for the raise, also combined with Airguide is taking almost $2M and Jason himself putting $500K down from his own pocket - first time I've seen him put this many chips on the table himself. Reads very good to me.
4.. In terms of the deal itself it originally read very similar to COBC and CFE deals. I implore others to do due diligence on both deals, CFE shows how these things can fall apart and risks involved. It's always important to understand the high risk nature of specs and always best to critically break down a company, look at the positives but be aware of the risks too.
CFE also attempted a near term cobalt production plant with JB on board, a deal very similarly structured to WFE where CFE owns 50% of a "near term production plant" which was built in 2014, and acquires 3 advanced tenures followed by a strategic advisor for offtake agreement. All reads familiar to WFE..however the upgrade costs came upto $41M USD (excl. 35% contingency) so somewhere like $55M CAPEX. The advisor couldn't get offtakes. The details remained vague and the tenures were too small and difficult to develop. JB left at start of the engineering study before CAPEX figures came out highlighting extensive work before they could reach production.
Likely due to the fact CFE costed $20M construction and 70,000m2 while WFE costs $80M and 125,000m2 facility. The tenures WFE are looking to get their hands on are also about 150times larger than CFE. Other issue was CFE plant had a crusher, floatation cells, storage and tailings conveyor, which is why the upgrade costs came to where they are. WFE far more advanced but the CFE deal does show how costs can still overblow and things can still go wrong. It does highlight the risks of these kind of deals. Image comparison below:
COBC (Canadian Company) also had a very similar deal structure with Traxy's. A 50ktpa plant, buying third party 3% ore feed for processing. I've made contact with them and clarified some terms of the deal essentially COBC will be playing the role KUMI consulting is for WFE, keeping track of the ore feed and processing on a blockchain ledger. Traxy's estimates getting their 3% feed for $60/tonne. Traxy's is a huge company with $6B revenue, they own the plant which is nothing for them but if they can get $60/tonne artisanal I'll be happy if WFE can get around that price. COBC/Traxy's have begun their feasibility study for their upgrade begun about a month ago. WFE have theirs at $0.5M so far but we will likely get further detail on this early next year.
5. In terms of cost and profitability;
The figures are fairly conservative imo. I've studied through CAPEX/OPEX of 10 different plants across DRC most are processing well under the prices I've used. Although there are many assumptions (or risks) and variables which I will note below before posting image of profitability.
- The announcement says initially with full 250ktpa feed they'll be producing 8ktpa hdyroxide. After full upgrades, 250ktpa feed will produce 12ktpa hydroxide. The announcement also stated they're contracting a third party company to provide 10kt/month. With annualizes to 120ktpa, so using a pro-rata of their initial 250ktpa feed = 8ktpa hydoxide, i've assumed in scenario 2 with 120ktpa feed they'll make initially 3840tonnes hdyroxide. However the lingo from the AGM suggests they're now in contact with multiple third party companies so they might just get the entire feed of 250ktpa, which means the profit will pretty much double for scenario 2. Scenario 1 assumes 1 party of 10kt/month while rest is from mining out WFE's own tenures - basically the end game full capacity. Now in the case WFE doesn't mine out its own tenures and decides to get full third party at full capacity profits will drop by about $5Million.
- Ore feed initial is 120ktpa at 1.12% Co with 86% recovery. Ore feed to satisfy the final requirements will be 250ktpa at 1.67% Co with 86% recovery. Question on everyone's mind is can Jason get these grades? He sounds fairly confident he can.
As for deposits >1% Cobalt there is about 12 deposits I know of from my research in Katanga with those grades. 7 of those deposits are of proximity to Luapula.
Luiswishi - 1hour 27mins
Tilwezembe (high grade section 1.2% Co) - 2hour 24mins
Big Hill tailings - 1hour 58mins
Etoile DMS Feed (1.2% Co) - I know it says DMS but the CHEMAF technical report considers this ROM feed. I wonder if WFE's definition of ROM is the same, if they do decide to include DMS there are endless sources in DRC. 2hours distance.
Usoke Plant - Grabs their feed from Etoile and a third party at 1.5% Co, 2hour distance.
Mutanda - 1hour 50mins
Mukondo - 1hour 23min
Kabankola - 1hour 23min
Not insinuating any of these companies will supply to WFE at all, most of these guys are too big to care, but just highlighting it is possible to find these deposits. And thats just what a mug like me can find. So JB likely will have far more connections available. Really securing this feed is the one of the largest risks that remain in this deal and at the same time will be a key milestone if they can secure the right feed (low mg, >1.12% Co, 120-250ktpa)
- Assume's binding offtake done by airguide for 100% of hydroxide produced. This is another risk/milestone.
- Price I've assumed is taken from Metal Bulletin contracts 30/10/18 with a 10% discount, I've cross checked these prices with sales contracts of 4 cobalt producers (glencore, vale, katanga, CNMC). I've applied a further 30% discount for hydroxide pay-ability, which imo is fair given Katanga sells their cobalt hydroxide at 16-22% discount of Metal Bulletin contract prices. However the lingo in the AGM is Jason is measuring pay-ability to LME price which suggests to me the end buyers will likely be trading firms. The 80% payability of LME gives the same price I've assumed using my contract method.
- Government Royalties at 3.5%, Tax of 35% and average vendor royalty of 2% all included. Conversion of 1USD = 1.36AUD. Processing costs include Magnesium Oxide as key reagent to precipitate cobalt hydroxide. Lime slurry assumed to precipitate Iron and Aluminium contaminants. Magnesium oxide cost at $1,700 per tonne cobalt produced. Power costs have also been included from multiple sources across DRC included KGE.
- Ore feed at $40/tonne which is cross-referenced (and pro-rata'd for grade consideration) with a nearby plant, Shituru and Traxy's.
- Admin fees have been scaled down from Katanga's Luilu facility Technical Report which includes both general expenses and administration expenses. Katanga Luilu facility has Admin of $4.89/Tonne ore processed, and General expense of $4.03/Tonne ore processed. This was also cross referenced with 8 other plants and considered within average.
- Since copper will not be produced in cathode a 50% discount has been applied for pay-ability which is considered fair as Katanga sold Copper in hydroxide before commencement of operations of luilu at 40% discount to market price. Electrowinning costs have been excluded as copper will be contained in hydroxide.
- Doesn't include miscellaneous expenses and CAPEX/OPEX of mining development expenses.
- Prcoessing operating expenses eventuate to $4.39/pound finished cobalt. In comparison, Glencore averages $2.93/pound finished cobalt for their processing expenses across DRC. So processing costs applied is 50% above benchmark.
- Biggest risks/assumptions remain as to what price the ore feed will be and if they can secure >1.12% Co. Offtakes being signed and more details on the CAPEX in the end (although AGM suggests they're still sticking close to their $0.5M target).
The summary of costs/profitability here:
6. Some side notes
- Will be great for markets to see this one run. Spec end has been far too quiet, hopefully the prospectus and follow up comes up with goods and we can get back to the days of big rallies.
- Cobalt could fire up during 2019, another shell company I hold (at loss) also evaluating some DRC high grade cobalt projects and likely will have their eyes here to see how this one goes. To avoid any cross promotion just a screenshot of my thoughts of the relevant section below:
- General background on the Luapula plant, constructed in 2014 from $80M to produce only copper. In Q4 2016 the owners cease production of copper to begin an feasibility study to add processing of cobalt. Looking at the commodity charts of copper and cobalt you can see why. One was falling to all time lows while the other began its rally. Assuming a 3month decommissioning and 9month feasibility for upgrades meant the plant was ready to JV between Q4 2017 to Q1 2018. Likely Jason grabbed it during that small window.
- Closer look and clearer/more recent image of the plant than what was given in the announcements of all 125,000m2 for those curious.
- Capital structure and corresponding enterprise value situations.
In the end we have been given little detail to play with which is probably the only thing about this company which has been frustrating, cause it meant I had to research 10times harder to come to a sound conclusion of what things should look like. Even then I'm still approaching this with an open mind and learning new developments with everyone else...only found out from AGM notes we have a roaster somewhere hidden within the plant.
I try my best to stick to facts and not move into speculation, although once again given the lack of details its been difficult. No-one can say with certainty their opinion is correct (from either side) until that prospectus comes out, anyone that does is kidding themselves. I will wait patiently for that prospectus and only then will really be able to gauge where this company is heading.
Regardless Jason has done well to date for shareholders and has actually tried pull off a deal that might actually move towards production.
Everyone should always pursue to look at all the facts/details (with an open mind) and understand the risk present not just in WFE but all spec stocks before making any decision to buy or sell. My general principle is to not hold anything over 2years, and please take my post with a grain of salt and double check everything (especially cause I get many wrong)
Hopefully this one provides good returns sometime during 2019, will wait until something new develops - likely when the prospectus comes out next year, till then all the best guys.
