Well, this is better than I expected! US$460M NPV post-tax for just their initial expanded pilot phase is outstanding and to see it bump up to 5.4ktpa on evaporation optimisation is a very pleasant surprise, and reflective of the super high quality of our HMW Brine!
I need to take a little time now to take these numbers into my own GLN Hombre Muerto economic model and calibrate it (i.e. match the Phase 1 results) and then I will be able to more confidently share my expectations for the real game, which is Phase 2, 3 & 4.
Initial thoughts from first read before I duck off to update my model;
1. Production: Great to see the rate increase from 4 to 5.4ktpa (a 35% increase), this is a pleasant surprise and the main driver to the higher NPV than I expected (the upside torque here to higher rates is phenomenal given the margins, which will only improve with economies of scale). This is absolutely a reflection of the high grade of our brine delivering higher recoveries than I imagine they initially expected.
2. Free Cash Flow: As I said in an earlier post of mine, this is in my view, the most important metric in this DFS, and its impressive. To return an annual average post tax net free cash flow of US$54M from just the initial expanded pilot, where capex and opex is far from optimised at scale, is phenomenal. This is a simple evaporation, low risk development that has now shown, via a DFS, to be able to churn out, even at very small scale, a whopping US$54M pa free cash. That’s about A$80M free cash pa (basically forever with low risk). In 2025 (18mo away) we should easily trade at 8-10x Free Cash = A$640-800M MC just from this initial extended pilot phase of 5,4ktpa!! I can’t wait to see the free cash generation from Phases 2, 3 & 4 from my model (I will share later).
3. NPV: Excellent to see the post tax NPV8 at US$460M, that’s A$675M = 2.3x our current market cap of A$293M! With this initial expanded pilot phase such low risk, low capital, and a no brainer, I’d suggest we should be trading at near 100% of this initial Phase NPV and then trade at increasing discounts off the NPV for Pgase2, 3 and 4. Key takeaway = the price upside is HUGE from here…
4. Capex: A little disappointed to see it over US$100M (US$104M ex contingency), however not totally surprised to be honest. I was encouraged a little to see the “Direct” capex at US$84M. What’s important to note here, and I don’t think Galan emphasised this enough in the DFS, is that this Phase 1 Capex is NOT reflective of the capex if this was to only ever be a 5ktpa project forever, there is a substantial amount of pre-investment included for Phase 2+ (i.e. infrastructure like roads, mobilisation of equipment used for subsequent phases, temp construction facilities, spare parts etc.). I expect the capital efficiency to greatly improve with subsequent Phases, when the economics of scale kick in and all the Phase 1 setup and shared cost start to pay off.
5. Opex: This will likely upset some people, but as I said in my earlier post, I expected it to be high given this is unit opex (i.e. $ per tonne), so the denominator (production) really has a big impact when its so low as is the case for this small 5ktpa initial Phase. This is especially true when it’s the very first phase and there are a low of high fixed costs and G&A etc. to cover initially, before economies of scale kick in with ramped up production. Rest assured, this number of US$3,963/t is not reflective of the low operating cost from the scaled up development. I fully expect that in Phase 2 and 3/4 the unit opex will reduce down into the low 3’s and then into the 2’s as full HMW scale is realised. I expect the naysayers to focus on opex but don’t get sucked in, HMW will still be one of the lowest cost of supply projects out there when at even medium scale; this small 5ktpa Phase 1 is NOT scale…so basically ignore the Phase 1 opex is my view, its not relevant at all given how low the production is and we are not staying AT THIS LOW RATE FOR VERY LONG (Phase 2 of 20-25ktpa will be producing in H2 2026!).
6. Ore Reserves: Irrelevant number given size of the massive high grade homogeneous resource and future Phases to come from 2026 onwards. A little disappointing there were so conservative an only issues ore reserves related to the small Phase 1 production and development. I may be wrong but my read of the JORC codes suggests there is flexibility to include more reserves than just that covered by this initial Phase 1 DFS (i.e. they could even use the PEA as the basis for . That said, great to finally have at least some ore reserves on the books, a huge milestone for any explorer/developer!
7. UPSIDE: The upside I expect from the proper Phases 2+ is staggering and I can’t wait to now validate my model and run the numbers and come back in an hour or so and share them…
Well done on your patience to hold strong holders and for all new buyers from today, you lucky buggers to be getting in so cheap at basement prices with a fully de-risked Phase 1 project that is just an appetizer of what’s to follow but still churns out some impressive metrics!
(20min delay)