BFSCon - Lower Capex Project

So now we have hit the rather impressive 12c share price milestone this week, representing a 90% fall from the daily high close of $1.20 on 10th Oct 2018. Meanwhile, the US S&P500 just closed at the same price it was back in Oct 2018. The world is bemoaning giving up 18 months of gains in little over a week, count themselves very lucky I say. Where to from here?

"Rescoping of the Project to be advanced under a materially lower project capital and corporate cost structure" is the key phrase. A quick look at the processing flowsheet and it's obvious that the non-mag zircon circuit is next under the knife. A substantial amount of capital and operating costs, the zircon plant involves hot acid leach (HAL), drying and separation, wet zircon separation, and then dry circuit separation into premium and concentrate products. Iv'e called this iteration BFSCon with tongue in cheek, let's hope this one isn;t another con lol.



A look at the capex funding requirements shows that straight up $88.6M is saved stripping out the zircon plant. With half the Processing infrastructure removed, one would expect a significantly reduced Engineering & Project Management costs, and also Site Construction, Commissioning & Mobilisation costs. It might be conservative to say that 25% of the EP&C plus Infrastructure costs can be taken out with a much simplified and smaller mine plant design. Save another $25M, maybe another $5M with other infrastructure and overheads on a quicker, simpler build. I'm could reduce the owners costs by another $5M to account for money already spent of the village and other long lead items this last 6-12 months but I won't. New capex is now approx $270M ($392M- $120M savings).

'Other' funding costs will also drop with a lower capex project, lets say another $20M drop. Cost Overrun Facility drops $12.5M from $40M to approx $28M, interest during construction on a lower Taurus Loan drops $7M, maybe financing costs a bit.



I have put these numbers together under 2020 BFSCon, next to those for the 2019 BFS 1st sale effort, the 2019 BFSU 2nd sale effort, and the enlightening 2019 Salt Lake Potash DFS. You can clearly see the Project Capex falling from $368M BFS, to $298M BFSU, and now $178M BFSCon in line with SFX's fall from grace.



Very important to note is the continued support of NAIF and their $95M, low interest 20 year loan. That loan effectively cancels out $100M Owner's Cost, partially secured against the infrastructure assets, part not. What that means is, unlike for Salt Lake Potash (SO4), Taurus is effectively only lending against the Project Capex, because the Owners infrastructure and cost is covered by NAIF (yet Taurus has joint security over the NAIF funded assets)..

The Total Funding Requirement on line 14 shows the new BFSCon at $244M, down from $509M BFS and $384M in the BFSU (vs $327M for SO4). This is where the Taurus loan has to fall, because US$175M at today's FX rate is $250M, more than the Total Funding Requirement after NAIF covered infrastructure. Taurus are not going to lend the client all the money for fees, interest, cost overrun etc because they need owner's first-loss skin in the game.

Let's look to SLP as what Taurus might be willing to lend, they lent over 100% of the Total Upfront Capex (lines 15 & 16) for SO4's potash project. Taurus lent SLP a total of $279M for a Total Upfront Capex of $254M, including ~$5M to help SLP complete the BFS (and I thought it was the clients not lenders on their knees). With an estimated $73M 'Other" Funding requirements for SLP (pro-rata based on SFX figures), this leaves SO4an Equity Gap of $48M 'skin in the game'.SO4 achieved this with the three 2019 capital raises totalling $50M. Bottom line, Taurus lent ~$279M for a (imo risky salt lake potash project) with Total Upfront Capex cost of $254M, and the client contributing approx $50M equity for fees, int, cost overrun contingency etc.

How much might Taurus lend SFX for a Total Upfront Capex cost of $178M after taking out the NAIF covered Owner's Cost Infrastructure etc? At a similar 110% gearing to upfront capex, Taurus might lend $195M instead of the existing $250M fascility, leaving SFX to come up with $50M equity skin in the game like SO4 to trigger finance. Including both Taurus and NAIF debt under this scenario would mean a total gearing of 104%, less than SO4 with lower interest rates and longer payback period due to NAIF's generous 20 year conditions. Further, even after rescoping to a non-mag con operation, my figures say SFX will still have double the average Stage 1 post-tax free cashflow to cover debt repayments than SO4. Actually, the SO4 DSF at 68c has a LOM average free cashflow of $78Mpa, where SFX has approx $200Mpa first 10 years average after my re-jigging the revenue, opex, and re-calc at 68c USD. The point is that even if my figures are a bit out, SFX can service a similar total debt burden more than twice as easily as SO4. Why wouldn't you lend SFX as much or more than SO4?

The bottom line is how much gearing would Taurus be prepared to stump up for Thunderbird, and how much first loss skin in the game equity do they require? Looking at a very similar SO4 project (which doesn't have 20 year low-int NAIF support) $50M would be tops considering SFX have completed their BF, undertaken considerable infrastructure and long lead item works, and have a more profitable project to service debt.

How might SFX get their hands on A$50M. There is always a chance that one or more of the off-take partners can be persuaded to contribute a 'line of credit' product prepayment. The JV partner route is always an option and must be a lot easier chasing something under $50M instead of $150M (BFS 1st sale chasing $250M equity gap.... I never liked it, dam you franpower). Selling a royalty stream maybe (did I see Iluka spinning off a royalty company to hold their Area C iron ore royalty assets, whose plan is to seek out more royalty deals and grow the royalty business. Oh the irony that Iluka's spin out might help SFX get up and running after Iluka tried their best to keep TB stillborn lol). Shareholder CR and/or combo of all above.

The downside to selling a non-mag concentrate instead of Premium Zircon plus a seperate Zircon concentrate is that the product pricing and revenue is lower. I guess between 10-15% lower (entirely driven by fall in Premium Zr pricing). With 12% the mid-point, leaving considerable value for the concentrate buyer to process out the Premium Zircon themselves before then processing the traditional Zircon Concentrate stream. I worked out that using the average first 10 years mine plan, an average of A$36Mpa revenue will be lost but for a reduction of A$15Mpa in opex costs (guessing but labour, gas heating, power, consumables, maintenance, G&A etc has to be considerable for the number of processes the zircon plant undertook).

A $20M pa operating revenue loss from selling an unprocessed non-mag concentrate represents only about 5% of total average revenues first 10 year. To put this in context, total revenue rises 12.5% by using 66c AUD:USD rate instead of 75c rate in the BFSU, so all things being equal TB would still be way ahead on a lower capex if the AUD stays low. Small price to pay for dropping the total equity gap from $143M down to approx $50M and getting up and running. Still should put TB in the lowest quartile revenue:cost with world leading operating margin per tonne. Still likely to have a post-tax NPV of around A$1B. All these figures are my own, I could be wrong in some assumptions, the market will need to wait for SFX official figures on the new plan obviously. DYOR etc...

Just need management to run their numbers and sell their new non-mag con to the right people for the right price. 6 months to bed it all down sounds more than enough, good timing to come back to the market after the WuFlu has been and hopefully gone with the Northern summer and markets starting to look forward to a global economic bounce after the downturn. Dilution on a CR looks worse from these share price levels, but otherwise the project just keeps getting better with simplified operations, maintaining attractive product pricing, while considerably lowering capex. I've thrown the rope Bruce, please catch it and haul us into safety this time.

Good Luck

APPENDIX: Salt Lake Potash Taurus Loan Details

Aug 2019 Release Summary



18th Dec 2019 Taurus Debt extension