MZI Valuation

MZI Valuation

Hi guys, I gathered more insights/info regarding the prices received by MZI for its 3 different products (Leucoxene 70, Leucoxene 88, Zircon Concentrate) from my discussion with management. Here is a summary of my findings, along with an update on my basket prices/revenue/profitability guesstimates and different possible scenarios going forward for MZI dependant on their ability to produce a zircon premium product instead of zircon concentrate. Enjoy !

Insights from my discussion with management :

-It seems the 5 years fixed price contract MZI signed for Leucoxene 70 consists of 2 periods : the first 2 years of the contract (october 2015 - october 2017) where MZI receives a higher than market price of 350 US$ per tonne and then the remaining 3 years (october 2017 - october 2020) whereas MZI receives only around 225 US$ per tonne (+/- 15 US$ margin of error, the exact price is confidential, this is my best guesstimate). Our off-taker was generous, supportive and understanding (prescient ?) of the potential challenges/risks of developing a first of its kind in the world leucoxene-focused mine, accepting to offer MZI higher than market prices for its leucoxene 70 product during the first two years of commissioning/ramping up of production.

-The Leucoxene 88 price is updated on a half yearly basis based on Iluka reference prices.

-The Zircon concentrate price is updated on a quarterly basis based on spot prices and Iluka reference prices.


My updated MZI basket price / valuation based on 4 different scenarios :

Assumptions :

-Leucoxene 70 : Fixed Price off-take (225 US$/t)
-Leucoxene 88 : Market Price off-take (80% of the price of Rutile currently @ 1100 US$/t)
-Zircon Concentrate : Market Price off-take (46% of the price of premium zircon currently @ 1580 US$/t)

-Total costs of 21 Million AU$ per quarter (14.5M$ for production + 1.5M$ for staff and administration + 4 Million AU$ quarterly debt repayments (2Million AU$ to RCF and 2 Million AU$ to RMB Bank) + 1 Million AU$ quarterly for royalties and land acquisition payments), resulting in annual total costs of 84 Million AU$.

-US$/AU$ exchange rate (1.36)


1/ A worst case scenario (only zircon concentrate / 120,000 tpa)

L70 (30% of total production) : 225 US$/t
Zircon concentrate (30% of total production) : 727 US$/t
L88 (40% of total production) : 880 US$/t

Average Basket Price : 638 US$/T (or 860 AU$/t)

Annual Revenue : 103.2 Million AU$

Net Annual Profits : 19.2 Million AU$

Fair Value Market Cap (12X earnings) : 230 Million AU$
(8X bagger from current 30M$ market cap levels).


2/ A conservative scenario (mixture of zircon concentrate and zircon premium / 120,000 tpa)

L70 (30% of total production) : 225 US$/t
Zircon concentrate (15% of total production) : 727 US$/t
Zircon Premium (15% of total production) : 1580 US$/t
L88 (40% of total production) : 880 US$/t

Average Basket Price : 766 US$/T (or 1041 AU$/t)

Annual Revenue : 125 Million AU$

Net Annual Profits : 41 Million AU$

Fair Value Market Cap (12X earnings) : 492 Million AU$
(16X bagger from current levels).


3/ An optimistic scenario (zircon premium, 120,000 tpa)

L70 (30% of total production) : 225 US$/t
Zircon Premium (30% of total production) : 1580 US$/t
L88 (40% of total production) : 880 US$/t

Average Basket Price : 894 US$/T (or 1216 AU$/t)

Annual Revenue : 146 Million AU$

Net Annual Profits : 62 Million AU$

Fair Value Market Cap (12X earnings) : 744 Million AU$
(25X bagger from current 30M$ market cap levels)


4/ A best case scenario (zircon premium, 140.000 tpa due to much improved recovery rates)

L70 (30% of total production) : 225 US$/t
Zircon Premium (30% of total production) : 1580 US$/t
L88 (40% of total production) : 880 US$/t

Average Basket Price : 894 US$/T (or 1216 AU$/t)

Annual Revenue : 170 Million AU$

Net Annual Profits : 86 Million AU$

Fair Value Market Cap (12X earnings) : 1032 Million AU$
(35X bagger from current 30M$ market cap).



Hope that helped,
Happy multi-bagger investing to all !