The below comes from someone with years of knowledge and expertise in the mining game. This was originally posted months and after you digest it all, just think of the truth in the last sentence.
Remember, this was all being assembled by AUZ, together with the water rights, off takes etc etc, a damn long time ago. Putting the jigsaw together has been a lot of fun for the longer term holders and I am sure if you have not got a copy of the below, do it. Just read the notes and the explanations involved and when you finish, you may say they are the writings of a mad man, or a spruiker for AUZ.
All I say is I have dug deep thru my records looking for some of the more informative views and when you put your money where your mouth is, and dangle your goolies on the line just as Ben bell has with the overseas soires, you may appreciate the story here a little better.
Sure you can scream from the rafters saying what a croc all of this is and that is your prerogative, but for those with a few free minutes, in the words of IAN the man with the hat, Just Indulge Daily. Do yourself a favour.
Day to day share meanderings mean nothing to me. For me I look forward to the 366day holding tax implications saving 50% of a gain. According to some, there will not be. Some of my friends have sold are are free carried. Supurb. Each to their own strategy.
Good luck to the holders ONLY.
So let me begin the copy and paste, you grab a coffee and taste. Spit this out if it tastes bitter.
I am intrigued by the potential that Flemington offers shareholders on a number of fronts.
The elephant in the room, IMO, is whether or not RF will absorb AUZ into the CLQ portfolio to control the entire ore body.
As discussed, on a resources basis, AUZ is valued at a fraction of CLQ and any script deal would be accretive to CLQ shareholders in resources terms even if a generous premium was attached.
But why would CLQ do this?
The premise, IMO, largely lies in the potential for Sc to become more widely used in the manufacture and fabrication industries to produce lightweight but high strength products for various industries, but in particular the automotive and aerospace industries where light weight structures/ components have important range and energy efficiency outcomes.
That part we know about. It is a speculation about what the future may hold for Sc. The fact that Co-Ni sulphates improve project economics significantly is also excellent and adds to the project's attractiveness.
I have been informed, reliably, that acid consumption is going to be a major issue for most Australian Ni-Co laterite ore bodies in that the cost and quantity, including logistics to transport it to remote locations, are going to be deal breakers for most projects.
Importantly for Flemingston (and Syerston) is that the ore body is free digging and research from CSIRO suggests that the acid consumption and recovery rates are favourable:
The next part of the puzzle is the size and scale of the Flemington project on a stand alone basis.
The Scoping Study, IMO, was very well thought out - Develop a small project with low capex and simple processes to demonstrate a solid NPV (A$250m), long LOM, conventional technology, and excellent IRR (37%).
However, the potential is much larger than that. The recent drilling has doubled the Co resource and tripled the Sc footprint. Do note, however, that it appears part of the Sc increase has been achieved by lowering the cut off for Sc from 200ppm to 100ppm after SRK highlighted that anything above 50ppm would be economic.
From that drilling and continued expansion of the ore body AUZ have stated that it appears the resource is much larger than originally anticipated and samples show a significant continuation immediately adjacent to the known ore body, including an historic Ni-Co mine.
So, to me the
probability that the Flemington resource is going to increase in size and provide a maiden Co resource to JORC standard could change the Scoping Study outcomes materially.
It also increases the
probability that the Flemington resource will grow to a comparable size to Syerston, at least enough to attract the interest of third parties.
The next matter relates to the project boundary and the regulations that prevent both CLQ and AUZ from starting their Open Pits within 50m of the boundary. AUZ, via its Scoping Study is using a 30 degree pit wall angle with a final pit depth of 40-50m.
The following diagram shows how much economic ore, from the middle of the ore body, is lost for both companies as as result of this requirement. Assuming that the ore body is c. 350m wide at the tenement boundary and the specific gravity is 2.85, then there is c. 13mt of ore that is lost, combined assuming mineralization is from surface.
Given that AUZ's Scoping Study assumes less than 2mt of ore is mined, this is a material amount of ore, especially if the grade is good; it's also material for CLQ.
This, to me suggests that CLQ and AUZ will work cooperatively to either:
(1) Develop a single large open pit across their tenement boundary to capture all this ore with each party taking the ore on their side of the tenement boundary.
(2) CLQ will simply buy AUZ for this deposit, especially now that it looks like it is of comparable size and still open
The key, of course, is will there be a sizable Sc market in the future?
That is pure speculation at this stage, however, given that CLQ is has an EV of c. $400m (+$90m cash) and significant investors including the Australian Super Fund, Pengxin Mining and Robert Friedland it would suggest that some deep pockets think so.
Finally, I like the way that AUZ has shown it can develop a small sized, but robust project that is possible to finance. This will supply 50t of Sc into the market annually along with Co-Ni by products. There is scope, IMO, now that the Co resource is known to be much larger than previously modelled, to include a Ni-Co sulphate just as CLQ is doing:
This reduces the risk to the project from the uncertain/ unproven Sc resource now that we know there is a material amount of Co on the Flemingston side of the tenement boundary. The CLQ Scoping Study shows that a Ni-Co project is possibly viable even without the Sc.
If, over time, Sc demand increases as stable supply can be demonstrated, in turn allowing manufacturers to increase Sc usage, then AUZ can ramp up their project to produce more end product.
All in all, I think that the disparity between AUZ and CLQ's EV is not sustainable and will, at some point, be remedied - one way or another.
(20min delay)