Ann: Outstanding PFS for the Goongarrie Nickel Cobalt Project, page-114

This post is very long but is very important because I think the PFS is misleading. I want to have a go at explaining it and am happy for anyone to correct me or make comments. I believe that the question raised by HAC30 and xGenesis about the way things have been calculated in the PSF may have pin-pointed a misleading part of the PFS.

1. According to Table 8-1 on page 30, the processing cost is the major component of C1. Before cobalt credits, the costs are A$5.17 per lb and A$4.02 per lb for the 1.0 Mtpa and 1.5 Mtpa operations, respectively. Cobalt credits lower the total C1 costs to about A$0.50 per lb. As pointed out by others, these values are high and it woud seem that without cobalt credits, ARL's operation is not profitable. But please note that these values are based on the contained metal. To be clear, check the following quote (page 30) about the values in Table 8-1:

"After allowing for cobalt credits, the PFS assessed the C1 cash operating cost for nickel metal equivalent
at an average of US$0.42/lb (A$0.53/lb) which is presented in Table 8-1."

Now if we go to the earlier part of the report and look at Table 1-1, we see those C1 costs are now in US$ per lb. That is, C1 costs before cobalt credits are now given as US$5.59 per lb and US$5.32 per lb (for the two types of operatsions). After cobalt credits the C1 costs are now US$0.42 per lb and US$0.45 per lb. Notice that there has been a change from A$ to US$. But that is a small issue.

2. There is a bigger trap for us. Look at Table 1-1 the sale price is quoted in terms of metal sulfate (i.e., nickel sulfate and cobalt sulfate), and not metal equivalent. This point is very important because nickel sulfate is 4.5 times more massive than nickel metal equivalent, and cobalt sulfate is 5.0 times more massive than cobalt metal equivalent. In other words, by ARL producing the metal sulfate for EV industry, the mass is about 5 times more than the metal content mined by the company (sulfate adds the extra mass). You can check this ratio by looking at the values for 'Production LOM average' at the top of Table 1-1. It shows for example, the ratio of nickel sulfate to contained nickel is equal to 41,500 to 9,300, which is equal to about 4.5 (and cobalt's ratio is 5.0).

So when you look at Table 1-1 you may be easily misled by reading that the nickel sulfate price is US$8.84 per lb while the C1 cash cost is US$5.59 per lb, which implies a difference between price and cost of only about US$3 per lb. That reading suggests the costs are too high and the operation would not be economic, but the reading is wrong. We are misled because ARL will produce 4.5 times more nickel sulfate than the contained metal it mines (i.e., the process of adding sulfate gives this extra mass to each nickel atom). To make Table 1-1 clearer we need to compare like with like. So we need to compare price per lb of nickel metal with cost per lb of nickel metal, or price per lb of nickel sulfate with cost per lb of nickel sulfate. The price per lb of nickel metal is 4.5 times the price per lb of nickel sulfate (as explained in the paragraph above). After we do that conversion, the price for nickel sulfate in terms of nickel metal is really 4.5 x US$8.84 per lb = US$35 per lb nickel. Alternatively, in terms of nickel sulfate, the C1 cost per lb in Table 1-1 should be divided by 4.5. So for the 1 Mtpa operation, the C1 cash cost of nickel (in terms of nickel sulfate produced) is US$5.59 divided by 4.5 = US$1.20 per lb nickel sulfate. As a result Table 1-1 misleading gives a comparison of price to cost which appears to be 4.5 more unfavourable than it actually is. For our example, in terms of nickel metal, the C1 cost is US$5.59 per lb and the price is US$35 per lb. Or put in terms of nickel sulfate, the C1 cost is US$1.20 per lb and the price is US$8.84 per lb. These comparisons now give the correct ratio of price to C1 cost of about 8:1. And that's without cobalt credits (you can do those sums). I short, it means that ARL's operation will be very, very profitable.

Sorry for the length of the explanation, but big bucks are at stake for us all, and we need to understand the PFS properly. Good luck to everyone.