Hi Paul,
I know you didn't tag me but in my perusal of stocks i saw my name and thanks for the kind reference.
I'll start off by saying that PM8 look's like quite a decent prospect and until it had delisted i had an interest in buying it - So holders please rest assured i'm just here for balanced discussion and i have done with paul on the OVL threads. Also, would like to say
@Paul7890 has often been met with some resistance on the OVL threads from some holders - which i quashed and thanked him. I found yours/his posts quite informative and only seeking to have balanced discussion and not to downramp - I'm hoping that the same mutual respect can be shown here.
Ok, so I disagree with the hypothesis (and i know you said it was purely speculative) that extrapolating 35% concentrate to 100% concentrate linearly in regards to opex, and i'll explain why.
For people who would like more detail they can refer to Post #:
42181843.
Current longongo opex is $1.32/kg @ 35% concentrate and i recall you used a figure of approximately $2.2kg Post #:
41695117 and handy margin of .90/kg.
In our conversations at one point you had applied a 100% pricing which was linear also this was $6.28/kg for 100% basis of longonjo. Although this is irrelevant - I actually disagreed with you suggesting that the higher the concentrate produced the higher this concentrate attracts. (Much like a higher IO % gets a better $ value in comparison to its grade). Post #:
42181843 explains this.
Which means i felt you were conservation with this assumption and it should actually be higher. But for the purposes of the exercise we will use your lower cost which should even further validate my point.
Case 1:
35% concentrate
opex is $1.3/kg
sale price $2.2/kg
Margin = $.9/kg
Case 2 (your assumptions):
100% concentrate
opex = $3.77/kg
sale price = $6.28/kg
Margin = $2.51/kg
So as you can see if it was a linear relationship in terms of opex to concentrate grade it would be almost 3 times more profitable to operate in that manner. So why hasn't PM8 went that direction? As if your margin is higher you are 3 times more profitable for every kg that you produce.
Potentially one may rebuttal - that such a plant might produce 3 times as slow so your annual throughput (albeit a better margin) would be less tonnes annually. That's is a logical argument but then that's where an increased capex would be used to increase throughput and optimise the best IRR and NPV. This all of course is dependent on the sensitivity analysis which i have no transparency on.
Anyways, i think my point is clear a bigger margin would be better. So if it were linear they would do it? I assume that was is proposed by PM8 is the most optimum arrangement hence the point in doing a PFS so i'm not denying that at all. So i think we can assume that 35% at the stated opex is what's best for PM8
My assumption, as is the case in most refining/processing circuits, is that it becomes exponentially more expensive to produce a higher grade concentrate. I imagine in the PFS/DFS (sorry not sure which one was done here) was that the 35% concentrate provided PM8 which an optimal operating margin. So i don't think it's as simple as saying at 100% we would produce this.
From our discussions on OVL you had applied a reasonable basket case premium to longonjo of approximately 50% (as OVL has slightly more HREO). Now whilst i disagree with your 100% pricing mechanism we will still use that for the purpose of simplicity and to not confuse other people. (if i was to use my assumptions the results would be even more in my favour so we will use yours for conservatism)
With 1.5 x premium to longonjo's (theoretical 100%) of $6.23 = OVL 100% concentrate (your assumption) = $9.24
View attachment 1979344As cited above - Ionic clays in china had opex costs of $3-5 = $4.24 - $6.24 margin. Now obviously the concentrate grade won't be 100% but 90% was target and Biolantanidos in fact achieve 95% in their feasibility study with a grade half that of OVL. So i think 90-95% is quite achievable.
So I do agree that it may be misleading for myself and the company to say 'OVL or ionic clays has the lowest opex'. As i don't think it would be possible to produce at less than $1.5/kg.
But due to a premium basket pricing and higher concentrate OVL should produce at a superior margin. Obviously I am using some assumption for OVL's concentrate cost and opex cost as these currently don't exist. But using cited information from china and also the concentrate pricing longonjo and applied the same assumptions you had. Then if that holds OVL is more profitable/kg.
Now for those who think that is just total hogwash Post #:
42815788 has a extract which contains information from Biolantanidos which is a ionic clay rare earth to which OVL is compared to. Note they have an opex cost of 6USD/kg which is closer to $10aud. However their lathanide oxide long term pricing was $50usd/kg (which i think is a very bold and overly optimistic statement). However their current price in 2017 was 15usd/kg for their concentrate (94%). I believe their PFS was based off that. So even my calculations above are super conservative for concentrate price.
View attachment 1979341So as you can see paul - this is why i don't agree with using concentrate pricing which is linearly extrapolated (~$6/kg for 100% longonjo or ~$9/kg for OVL 100%) as we have a PFS from biolantanidos which claims their concentrate is worth $15/kg (94%) at 100% maybe $16. This is worth almost 3 times as much as longonjo and the basket pricing is not 3 times as much. It could be worth more or less now i'm not sure.
So with that - i think you might be able to agree that either;
a) longonjo didn't get as good a pricing deal and biol (i don't think this is the case)
b) that concentrate pricing increases on a logarithmic scale as concentrate grade increases.
For those who want the detail to this explanation refer to Post #:
42181843In summary
I think PM8 is a very astute investment and as previously stated had they not de-listed i would probably be an investor. They have a very low opex and a healthy margin to operate. I also read a lot and it looks very sound and wish everyone the best here i think you will do well.
OVL will still need to prove it's opex cost's but with some assumptions applied i think they can produce a product similar to biolantanidos which would be (95% concentrate and selling at +$10usd/kg).
I also believe that with a superior grade product they will be able to do so at an opex cheaper or at worst at parity -6usd/kg. If that is achieved they will have a very healthy margin, IMO slightly better. We do agree that the capex cost will be lower - which can often be the hardest part in going from explorer to producer. Getting the dollar to build the darn plants. For those 2 reason that is why i have invested there and not here.
Apologies to everyone for the long winded post but i tend to post longer responses on stocks i don't hold so i can flesh out all my information. I quite pro rare earth's and PM8 and OVL are the only decent prospect's i found on the ASX. This post is only intended to clarify that post regarding concentrate pricing as it's still a bit of a dark art.
also
@ChinaSyndrome you suggested some things in Post #:
42795184 can you provide a link which suggest that the opex costs in biolantanidos or in the china ionic clay deposit do not include environmental costs. i had this statement - but i'm not sure if it's accurate from an Alkane presentation.
View attachment 1979347can you also provide a link/evidence that china is shutting down mines due to environmental concerns. (I'm not saying that it's not occurring i'd just like to read that information for my own due diligence). It is my understanding that the waste product is captured in the tailings dams. I imagine that environmental approvals would require the necessary construction, control and disposal to have a license to operate. Whilst it wouldn't surprise me that china is cutting corners - i don't think this would be occuring in chile (biol). Perhaps this is part of the reason why Biol costs are 6usd and not 3usd. Also Biol was recently bought by hothschild which is a reputable listed canadian organisation. I do not believe they would be able to cut environmental corners. If you can show evidence otherwise i would be very happy to read it.
View attachment 1979350Thanks for everyone's patience - hopefully some people got some value out of it.
SF2TH
