Only Mr. Market is too stupid to get it. Oh well, that's how great bargains are created ...
My favorite parts:
"In the $890 million total capex figure there is $140 million in contingency. We could potentially take $140 million off that total if we manage it correctly and when we get final tender pricing. We believe we were being very conservative with the contingency."
"How do we fund the project? We?ve had a great deal of interest and there are five distinct options. The first option is to sell a minority interest in the holding company Australian Zirconia Ltd AT MULTIPLES OF THE NPV of the 1Mtpa case to strategic stake holders. We might sell 10% and break that up to three or four parties but it won?t be a straight 10% of the NPV of $1.2 billion and an escalation factor will be used." Comment: Do you get that, Mr. Market? The 1,2 billion NPV (SP ~ $5) is way too LOW, because it doesn't give due respect to the 80 years of minelife ... If we use a - 5x multiple for the DZP, thats 6 billion => 10% = 600 mio cash for Alk and still lots of upside for the partners ... - 3x multiple for the DZP, thats 3,6 billion => 10% = 360 mio cash Add some loand by the jv partners, a loan by a gov entity and (in the second case) a commercial loan and and we are set.
"When you get budget pricing rather than tender pricing for projects the natural instinct of the vendor is to give a higher price initially, but bring that down once the tender process occurs. So we believe there may be capital savings at the development stage. We anticipate other possible reduction through water recycling ... we could save on capital items acquired from overseas ... [and] bring down operating costs for consumables ..."
"we don?t believe prices for heavy rare earths will come down and believe they will remain strong or even stronger for the long term and will remain well above the prices that we used in our DFS."
"Zircon supply has become very tight ... We can?t see that supply/demand balance changing for at least until 2025 ... Operating costs in China have also increased such as power, chemicals, labour and new environmental laws. ... So we expect zirconium prices to at least remain at current levels for the short term, but more likely increase as we move into 2012. Again, we used conservative pricing in our financial model." Comment: in other words, prices will remain where they are or go higher until 2025. That's worth another 100-200 mio / year in profits (on top of the 300 mio base case; cf. my second post above) for at least 10 years ...
"The JORC Resource goes down to 100 metres vertically. At a production rate of 1Mtpa of ore, that resource would support an open pit operation for 80 years. There is no doubt in my mind that the resource will continue down for several hundred metres based on the known geology and we could open pit mine that to 300 metres, giving an operating life of at least 200 years. We?re not resource constrained in any way!" Comment: And yet there are recent reports on Alks website that use only the 40 years resource (not including the 30 years reserve) as their baseline for doing their maths ...
"An expansion beyond 1Mtpa is always a possibility, but there are other issues to take into account such as the market demand and eventually new projects that might be developed. The short answer is it is certainly a possibility, but we need to focus on the primary project at this stage." Very reasonable, but a shareholder can dream ... ;-)
"We think we?re pretty close to signing an MOU for niobium, which will cover 100% output from the 1Mtpa case."
"The situation for rare earths is a bit more complex. We can sell the two types of concentrate we will produce. I?ve tried to be a little more proactive to generate more revenue from those two concentrates by potentially entering into joint venture or toll treating arrangements with non-Chinese producers. This arrangement would see them separate the metals from the concentrates, take what they want and give us back the material they don?t need, for us to sell to existing potential customers. We hope to have something finalized by the end of the year." Comment: I'd guess Lynas is high on the list and they want to make sure Lynas can indeed get its plant running before they discourage other potential JV-partners.
"In New South Wales, the permitting requirements have become more complex because of the public conflict between the agricultural industry and coal and coal seam gas operations. That has had a flow on impact to other mining projects such as Alkane?s, despite our operations being much smaller and less environmental impact. The government departments appear to be doing a lot more analysis when they assess projects and that is causing a delay in the approvals process. ... the critical issue is the approvals process and we have a fair bit of work to do to put the Environmental Assessment documents together. We hope to complete that by the end of the March quarter next year and normally we would expect it to take around 6 months for it to be approved. In the current circumstances I am unsure about the length of time to achieve both goals." Comment: Wait and see ...
ALK Price at posting:
$1.05 Sentiment: ST Buy Disclosure: Held
(20min delay)