Ann: Share Purchase Plan Results, page-40

Wolfgang

For many months I have been trying to get a a feel for what WAK's management plans to do in respect to: a) growing volume; and b) pursuing the goal of breaking into the paper-grade-kaolin market. Management has never stopped pursuing the paper-grade dream, and Andrew Sorensen has made side comments of “a million tonnes a year”. Also, Breakaway has reflected that line of thinking by mentioning Stage 3 and Stage 4 as being wet-processing plants of 250k tpa capacity each, which would expand capacity to .9m tpa. I assume that Breakaway has access to information that supports its thinking.

Breakaway suggested 250k tpa plants, but I am inclined to think 300k tpa plants is just as likely. The pilot plant had one 25k tpa module. Each K99 plant for Stage 1 and Stage 2 has two 1k tpa modules. If a plant can have one module, or two, then it could, perhaps, have three modules, and it makes sense to standardise all modules at 100k tpa, so Stage 3 and Stage 4, could be 300k tpa each, which would bring the total to the 1m tpa that Andrew mentioned. An alternative is to have five 200k tpa plants. I would not die in a ditch to defend these comments.

Anyhow, the reality that Management has Stages 3 and 4 in mind, irrespective of size (200k tpa, 250k tpa or 300k tpa) seems to be supported by WAK's application to the Shire of Wickepin to amend the then-current Works Approval, mainly to cover the later-than planned start for Stage 2 by adding 180 days to the expiry date. That application mentioned “four stages”, and the infrastructure at Wedin, including the slurry pipeline as the follow-up that Management had in mind. The Shire Council approved the extension to 23/08/2023, and the changes to reflect the dry-blow technology now applicable. Follow-up work at Wedin, and the pipeline to Wedin must be supported by a new Works Approval application.

The 7/06/2022 document at https://www.der.wa.gov.au/images/W5443-2013-1_AR.pdf includes the following words (the underlining and bold print is mine):

“Currently, the Works Approval Holder intends to construct the infrastructure at the Premises in
Works Approval: W5443/2013/1
“IR-T15 Amendment report template v3.0 (May 2021) 4 stages, beginning with the Wickepin de-gritting plant and followed by the Wedin process plant and slurry pipeline between Wickepin de-gritting plant and the Wedin process plant. Based on the environmental compliance report provided, construction of the Wedin process plant and the slurry pipeline will not commence until 2023, at the earliest. It is the intent of the Works Approval Holder to operate the plant at Wickepin independently of the Wedin process plant and slurry pipeline.”

The new application could be made in 2023, but commencement of the work would, I suspect, hinge on when WAK has a high level of confidence of a railage-availability date. June 2026 was Andrew Sorensen's intuitive guesstimate, so 2024 is a more likely year to submit a new request for a Works Approval.

On the underlined words, “4 stages”, it probably means two more k99, but not necessarily of .2m tpa capacity. The pipeline and facilities at Wedin to allow WAK to produce paper-grade low-viscosity kaolin are likely to be able to draw K99 as feedstock from any plant, thus optimising plant utilisation, which gives WAK more confidence to expand K99 capacity irrespective of whether the product ends up being sold as a dry-process product, or with a wet-process add-on step. This makes it easier for any investor's spreadsheet model to assume bolder capacity “what ifs”, and for the want of a feel for an EBIT per tonne for wet-processed kaolin, expansion up to a possible 1m tpa in coming years, one could use the dry-product metric, on the basis that any change of profitability due to wet-processed kaolin would be to the upside.

I recall reading somewhere that a US kaolin producer stated some years ago that it cost them an extra $US70 per ton to produce paper-grade kaolin, and the margin on that extra step was generous. I'll moot that currently, and in Australian dollars, we could add $200 per tonne to the expense, and $250 per tonne to the price premium received, and thus uplift EBIT per tonne by $50. Management would not have so steadfastly pursued getting into paper-grade kaolin if it were not a very attractive option.

There are many grades within paper-grade kaolin, some specifications being mutually contradictory, so WAK should focus on grades that require a cheap extra step to the K99 feedstock, and hence focus on whatever is the most profitable. The end-use of kaolin is very sensitive to the quality and characteristics of the ore, so the nature of Wickepin ore may give WAK a huge advantage for specific kaolin specifications – e.g., its natural whiteness suffices for some paper grades that competitors, especially from the US state of Georgia, must use chemical bleaching to achieve. It is the EBIT per tonne that counts, not the FOB price per tonne.

I have not yet tinkered with my spreadsheet model to recognise what I have written in this post, but I know it would remain based on tonnages and dates, for both wet and dry in separate cells.