"The only reason BDO Kalkaroo NPV was close to the RPM NPV was that BDO used a higher copper price. The RPM numbers are also quite old i.e December 2017 and there have been significant price increases such as in diesel and steel. "
The BDO Kalkaroo post-tax NPV10% of $294.6 million# was actually 14.2% higher than the RPM Kalkaroo post-tax NPV10% of $258.0 million##. Not "close", not a "lower valuation", but $36.6 million or 14% higher.
# See BDO Independent Expert's Report ('IER') dated 30 July 2019 (page 40)
## See Kalkaroo Project Pre-feasibility Study ('PFS') released on 18 June 2019 (page 10)
The difference of $36.6 million is because of higher consensus copper [and gold] prices used by BDO; albeit partially off-set by the doubling of G&A costs in the inputs provided by AMC to BDO (see next section below). As the BDO IER was the later of the 2 reports, presumably AMC factored in any relevant price increases in diesel and/or steel for BDO to use.
Each report has to be considered as an independent assessment of the Kalkaroo Project by an 'expert'. BDO and RPM just had different opinions on commodity and cost inputs etc. Which is also why the IER and Kalkaroo PFS both provided sensitivities to key inputs.
Havilah has said it is updating the Kalkaroo PFS. Going forward, it will be interesting to see how much RPM increases its US$2.89/lb copper and US$1,200/oz gold inputs; and what changes (if any) it makes to CAPEX (which may include changes to steel prices), operating costs (which may include changes to diesel prices) and G&A costs in the RPM NPV model.
It should be recognised, adopting renewable energy alternatives (in concert with Tesla batteries) and/or Electric Vehicles at the Kalkaroo Project would help offset any uncertainty with energy and future diesel costs.
As you correctly pointed out, what really provides Havilah shareholders with significant leverage for the Kalkaroo Project is the copper price [and gold price], as demonstrated in the BDO Kalkaroo Project post-tax NPV10% of $294.6 million#.
As pointed out recently in Post #: 42371698 Roskill's forecast LME copper cash nominal price for the years 2025-2035 are astronomical.
"BDO identified areas where RPM had understated operating costs by a significant margin and adjusted the costs higher"
AMC's 'opinion' was General and Administration ('G&A') unit cost was low when compared to comparable remote mining operations, and so it provided BDO with adjusted G&A costs for inclusion in its Model. This increase in G&A costs also accounted for community and native title obligations. Native title payments were not included in RPM's economic model (see page 9 of the Kalkaroo PFS released on 18 June 2019).
The relevant conclusions from AMC's Independent Technical Expert Report (see 'Assessment of the Project's key technical parameters' on page 3, opening letter) were:
"1. The mine plan is supported by the PFS and the total tonnage and grade of the ore mined matched the Ore Reserve. AMC considers that the mine plan is achievable and is based on reasonable grounds. AMC notes that gold production shown in the spreadsheet model is approximately 29 koz of gold less than is reported in the detailed processing schedule. AMC has included this additional contained metal in the production schedules provided to BDO.
2. The plans for processing ore together with the estimates of copper and gold recovery to concentrates are supported by testwork carried out as part of the PFS, and in AMC’s opinion are based on reasonable grounds.
3. Capital costs included in the spreadsheet model are based on work carried out at during the PFS. AMC considers them to be based on reasonable grounds.
4. In AMC’s opinion, the operating costs estimates for mining and G&A are achievable but optimistic when benchmarked against comparable open pit operations. AMC has doubled the G&A costs in the inputs provided to BDO.AMC believes that the adjustments and the resulting operating costs provided to BDO are based on reasonable grounds." [My emphasis added]
"One of the reasons is that the project is technically challenging:
1. The Kalkaroo ore body sits under an unstable thick clay zone. Whilst, the geotechnical issues this throws up can be managed as it was at Portia by laying back the pit walls, it adds considerably to both pre-production and operating costs. Portia was only a short term pit so the risks of wall failure in the longer term cannot be ignored. 2. The project has significant metallurgical challenges. It has multiple ore types sapolite gold ore, native copper and sulphide copper ore. This results in higher capital as the plant has to be designed to treat multiple ore types. It also adds to operating costs and increases its risk profile"
The above is probably also why it took previous management so long to release the 18 June 2019 Kalkaroo PFS to shareholders.
All mineral projects have their own technical challenges and complexities.
With regards the Geotechnical aspects of the Kalkaroo Project, AMC said in Section 2.7.1 of its report (page 14 ) "The deeply weathered rock has significant implications for open pit slope design. Experience with mining at Havilah’s Portia Gold Mine has informed the slope design criteria in the Namba Formation and the saprolite. Overall slopes of 25 degrees are designed in the Namba Formation. Overall slopes in the saprolite are 43 degrees, and in the fresh rock are up to 55 degrees.
The geotechnical performance of the Namba Formation and the underlying saprolite is a key area of uncertainty. Weathering is to a significant and variable depth across the deposit. The geotechnical properties of the Namba Formation, combined with a depth of up to 80 m, require shallow overall slopes compared to most conventional open pit mines, and this contributes to a significant increase in waste mining." [My emphasis added]
In its Independent Technical Report (Section 2.15 on pages 28 & 29), AMR specifically identified 'Risks and Opportunities' in relation to the Kalkaroo Project. If you have not already read it, I recommend you do.
Furthermore, RPM identified a number of opportunities to increase either the Mineral Resource, increase product output and add value to the Project, which you would expect will be fully reflected in the updated Kalkaroo PFS to benefit Havilah shareholders.
Cheers
These are only my thoughts and it does not constitute investment advice. Before acting on any information you read and before making any financial or investment decisions, you should always consult your advisor(s) or other relevant professional experts.
HAV Price at posting:
12.5¢ Sentiment: Hold Disclosure: Held
(20min delay)