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Ann: Export Acid Sales MOU with Mitsubishi, page-4

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McHale

1,771 Posts.

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06/08/18

14:16

Post #: 34749216
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Originally posted by speccy ↑

Good question about acid sales revenue, Ozzy. However, unfortunately this ann was BS! It would be highly unusual to sell acid internationally as it is a dangerous product with very high shipping costs.

The better question perhaps is what progress has been made since the AML ann on producing much higher value phosphoric acid (at circa A$820/ton)?

There is abundant and cheap phosphate rock in the vicinity of Walford Creek.

By adding the sulphuric acid to the phosphate we produce very high value fertilizer of which there is a world-wide shortage.

This AML presentation details the fertilizer opportunity: http://www.aeonmetals.com.au/assets...un-15-Walford-Creek-Presentation-Jun-2017.pdf

However this was 14 months ago.

This opportunity is an extremely profitable one. At A$820/ton the economics look something like this:

1.3Mt/pa Sulphuric acid + 1.9Mt/pa phosphate = 470kt/pa Phosphoric Acid x A$820/ton =A$385 Million/year for the fertilizer alone!!!

Plus, (allowing that these are back of the envelope calculations), we had (just in the Vardy/Marley subsction of Walford Creek) 43,500t of Cobalt and 224,000t of Cu.

Now at the current, greatly reduced, Trump trade war, prices of A$90,000/t Co & A$8,100/t Cu = A$3.9 Billion Co + A$1.81 Billion Cu = A$5.7 Billion (just of Cobalt and Copper in Vardy/Marley).

Now, very roughly estimating the total resource, based on current drilling, of 3 x Vardy/Marley gives us a ball park estimate of A$17 Billion of Co and Cu (only) as a contained metal estimate. We then need to add in Zn, Pb and maybe silver.

PLUS the A$385 Million/yr from the Phosphoric acid.

This is assuming that mgmt have actually done anything in the last 14 months to progress this which, unfortunately, we doubt! (particularly based on the recent ann regarding the non-binding MOU to supposedly sell sulphuric acid (only) overseas – which again, we regard as BS!)

SH should be asking mgmt “WHAT HAVE YOU DONE TO PROGRESS THE PHOSPHORIC ACID PRODUCTION WHICH YOU PRESENTED OVER A YEAR AGO”?

If mgmt were serious about doing a realistic future offtake agreement, they would have done one for cobalt when prices were 40% higher a few months ago as just about every other Australian cobalt company took the opportunity to do (and it’s not as if AML management didn’t have the offers at the time).

Finally, of course, the missing piece of the future profit equation is cost.

This is where we all really need good mgmt.

As already highlighted, mgmt’s one attempt at doing production costings was laughable imo.

Indeed, the PEA really did use the highest production costs in the world and, what’s more, for the shallow Vardy Marley section which is open-pittable, scoop and truck.

To give some perspective, the initial JORC resource was about 1.4% CuEq. The production cost estimate that mgmt somehow put together and published equated to 1.2% CuEq i.e. wrongly rendering the resource uneconomic.

Now this again represents staggering incompetence imo. 1.2% CuEq costs for an open-pit shallow deposit?

Princeton University published a comprehensive world wide mining analysis ( “Resources and Technology”).

In this it reports that the average grade of Cu being mined around the world is 0.79%Cu. If the high grade underground mines are removed the porphyry average becomes 0.5% Cu.

We know that over 90% of the world’s copper mines are making a profit.

For example, the US has an average grade of 0.53% Cu, Canada 0.5% Cu, South Africa 0.65% Cu etc…

Yet, somehow AML mgmt came up with a production cost of CuEq 1.2%!

Mind boggling isn’t it?

It is not just a misstep, it is also unbelievable. If this were even vaguely accurate it would mean that copper mining around the world would stop as it would no longer be profitable.

1.2% CuEq is far higher than the cost of deep underground mining let alone a shallow resource like Vardy/Marley.

The other major issue with the PEA was that it used a Cobalt recovery of 48%!

Compare this to all other Australian companies who have published recovery rates of 90% +….

Again, this is even worse than at first blush because Walford Creek is a sulphide deposit and a lot of the Australian peers are laterite!

SH were told 8 months ago that ore had been sent overseas for more accurate testing of Cobalt recovery including roasting (which SH have been trying to get mgmt to do for many years now).

Yet somehow, according to the recent quarterly this testing still hasn’t been finished?

What is going on?

We badly need mgmt to do their jobs and to meet their legal responsibilities to SH.

We have now lost the magnificent opportunity to acquire the Century plant (and all its assets) which was just 100km down the road.

Is it too much to ask for some vaguely competent production costs and recovery rates in a DFS?

Again, we have a magnificent, world class resource which imo, is being held back by very poor mgmt. If it weren’t, the SP would be well north of $1, yet somehow the market is penalising SH for AML’s mgmt deficiencies by hundreds of millions of $.

Contained metal approaching A$20 billion at average grades of circa 2% CuEq (i.e. or around 2.5 x the world average grade) plus fertiliser revenue of A$320m/yr with a market cap of, currently, A$200m – seriously?

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Great post speccy, do your (or your group) maintain any direct communication to AML management

Your research is compelling, so I would have thought that if you are confident in your research you might convey to mngm't your thinking and reasoning on the subject

Do you mind if other posters here sent this research to management ??

AML Price at posting: 35.0¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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