Initiation Report - Feb 2023 Curran & Co

Hi All,

Some coverage from Curran & Co as at today.  

Andromeda Metals (ADN.ASX) is developing the Great White Project (GWP) in South Australia. The project is well advanced with a Definitive Feasibility Study (DFS) completed and released in April 2022. The GWP will be Australia’s largest and highest quality halloysite-kaolin project and is backed by a very strong management team with significant expertise in kaolin markets.

The presence of halloysite nanotubes in the GWP kaolin deposit makes the products ideally suited to a range of specialist applications including ceramics and concrete additives, attracting premium pricing. The Asia-Pacific kaolin ceramics markets are forecast to experience very strong growth until 2030 (6.2% CAGR), placing Andromeda in a strong position with the majority of the GWP production bound for the Asia-Pacific ceramics market.

The DFS presents a long 28-year mine life utilising the 15.1Mt Ore Reserve and showing robust economics and a clear pathway to development. Located in South Australia - a Tier 1 mining jurisdiction, and on a granted Mining Lease further enhances our view that the project can be progressed forward and into production. We expect the Programme for Environment Protection and Rehabilitation (PEPR) to be approved this quarter after which groundworks can commence. The DFS considers a staged approach to developing the GWP with initial start-up CAPEX for a Stage 1A Starter Plant now estimated at only A$50-60M. Construction and ramp-up to full production is expected to only take 12 months with long lead time items already ordered.

Andromeda has signed binding offtake agreements with five customers at prices above the DFS estimates. In our view this provides strong evidence of the very high quality of halloysite-kaolin from the GWP. The offtake partners include: IMCD (IMCD.AS) – a $9B€ global leader in specialty chemicals, and Plantan Yamada - a leading multi-generational Japanese porcelain producer.

We anticipate first halloysite-kaolin production and sales in Q3 CY2024. AISC for kaolin production is forecast to average A$340/t and we have used a kaolin price deck with a weighted average price over the LOM being A$712/t. EBITDA and FCF average A$85M and A$59M respectively over the LOM.

We initiate on Andromeda with a BUY recommendation and a 12-month target price of $0.12 per share, a 173% upside to the last close price.