Here's a repost of my post from late September ( Post #:
56399735 ). Happy to discuss assumptions and logic/method.
In general though I now prefer to focus on post-tax NPV based on discounted cashflow method (gives a more conservative number than pre-tax NPV). I have also used more conservative discount rates for the later activities.
I've used fairly conservative numbers for CAPEX ( $115M for Stage 1, 100%-basis ) and it will be interesting to see what startup CAPEX will be in the DFS.
Big cost-models can be tricky to build so I used this short form method of calculating approximate steady-state annual NPAT and then adjusting this for expected inflation ( both prices and costs of production will rise, however the Kaolin market trend is long-term price growth - nowhere near the volatility of commodities like Iron Ore ).
View attachment 3678683Analysis is highly-speculative. The analysis assumes offtake capacity for the Great White JV and HPA Projects are filled by the time the project stages start production. You must do your own research and analysis. Do not treat as advice. Seek independent professional advice and make your own investing decisions.
This
highly-speculative analysis aims to form a view of what Andromeda could potentially be valued at year-by-year as they progress their strategy. I've used my own speculative estimates of post-tax NPV to determine my view on potential value.
Conduct your own analysis and calculations to determine your own view of the potential future value of Andromeda's strategy.
I've only included the reasonably mature opportunities ( the initial mining project which has first offtakes and the HPA opportunity which is supported by multiple rounds of test work and is now in late-stage due diligence ).
The company has indicated they are looking at 2-stage startup for the Great White Project. I've assumed Stage 1 starts generating cash from FY2023 and achieves steady-state in FY2024. I assume Stage 2 starts 2 years later. In my analysis I have limited production mix to paints & coatings product and ceramics product. I have inferred the production capacities of these products from the information we already have in offtakes. I have assumed the balance of plant production capacity is used for producing ceramics.
I have used OPEX figures from the PFS, although I expect ADN will improve their production costs due to the reduced need for shipping.
The company in July indicated they expect 30+ years mine life. My analysis is based on 30 years mine life.
Depreciation and Amortisation is assumed at 3.5% of EBITDA and tax at 30%. Andromeda included South Australian mining royalty in their AISC-based estimate for OPEX.
The company has previously indicated they intend to look at startup of the HPA opportunity based on 2,000 tonne of 5N HPA from 2023. To keep the analysis conservative I have assumed cashflow start from FY2025. The company has indicated pricing for 5N HPA up to USD $50,000 per tonne. The company has indicated potential OPEX USD $6,000 to USD $7,000 per tonne of HPA, however there is not clarity on whether this includes feedstock costs so in my analysis I have used a much more conservative USD $10,500 per tonne for OPEX.
Notes on discount rates used for risk-weighting my NPV calculations:
- I've assumed that once Stage 1 is financed we can use a discount rate of 6% since by this stage debt-funding will have been completed. This first Stage of the project then becomes the means to potentially self-fund Stage 2 and the HPA opportunity.
- For the later opportunities ( GW Stage 2 and HPA ) I start with a very conservative NPV discount rates (12% and 15% respectively ). Note that I expect the DFS will used a discount rate of 8%.
- In my highly-speculative scenario I then tune-down discount rates to try and form a view of which each activity could be potentially be valued at in steady-state production (this is a forward-look in time view).
I have assumed an average 2% year on year increase in NPAT since I expect offtake agreements will include price-variation clauses linked to inflation.
I've assumed ~$115M for project startup of Stage 1 (CAPEX plus working capital) and an additional $65M for Stage 2 (duplication of parts of the process plant). I expect Stage 2 to be self-funded from cashflows for Stage 1.
My analysis above is derived from the worksheet below. My post-tax NPV estimates above are derived by using year-by year adjustment to the NPV discount rate and based on the NPAT scenarios I estimated below. All of my NPV figures above are post-tax.
(20min delay)