DYOR. Make Your Own Decisions.
Information and analysis has been collated below to help with understanding of potential. It collates some of my own thoughts on the project based on information released by the company. You are responsible for making your own investment decisions.
I have put this diagram together to help with better understanding of the ADN potential.
Potential Near to mid-term Cashflow
ADN have a few initiatives that have potential to deliver near to mid-term cashflow at relatively low CAPEX in what I assume to be is the 2020 to 2021 timeframe.
The first is Direct-shipped Ore which they could bring into production potentially by the mid 2020, subject to permitting.
The second is Dry-processed Ore. Expectation is they could bring this into production by the end of 2020. The proposed flowsheet is simple and involves lump-breaking and dry-processing. Current understanding is they will implement two processing modules of up to 250 kt each (for a total of 500 kt). ADN now have signed Letters of Intent for 307 kt (or about 60% of production capacity). See https://www.asx.com.au/asxpdf/20190729/pdf/446yslll0jsbtz.pdf
( link to 18 July 2019 announcement - https://www.asx.com.au/asxpdf/20190718/pdf/446pykh1dlswss.pdf )
The third is Wet-processed products and the most likely approach is toll-processing in China. This avoids ADN having to develop their own plant for wet-processing. This could include high grade Kaolin and Pure Halloysite products and derivative products. Our MD JM has great connections in the industry from his decades of experience in the industry. ADN have signed letters of intent for 208 kt pa of wet-processed products. See https://www.asx.com.au/asxpdf/20190729/pdf/446yslll0jsbtz.pdf
( link to 25 June 2018 announcement - https://www.asx.com.au/asxpdf/20180625/pdf/43w0q9znysq82q.pdf )
Blue Sky Potential
Blue sky potential comes into play with sale of 4N High Purity Alumina (HPA) from USD $30k to USD $35k per tonne. ADN's large high-grade resource could easily support greater than 8,000 tonnes per annum (my speculation). That would equate to JV revenues of USD $280M. They are in discussions with one of the potential offtake partners for collaborating on HPA development.
https://www.asx.com.au/asxpdf/20190528/pdf/445f0rb6ly8l5f.pdf
Additional Blue Sky potential comes from Halloysite Nanotubes. See https://www.asx.com.au/asxpdf/20190516/pdf/4454dccghxfydb.pdf
The company provides this slide in their presentation with relative commercial values of various types of products:
https://www.asx.com.au/asxpdf/20190516/pdf/4454dp9gxz8h22.pdf
Potentially Robust Cashflows to sustainably fund growth without heavily diluting shareholders
The below is an update of my earlier post, however I have included a comparison with LRT.
The intent of the comparisons is just to show the unique opportunity ADN provides for generating strong cashflows with very low capital intensity to get to a point where they are generating nice $$$. It's the potential low CAPEX that provides a situation where shareholder capital is significantly less likely to be heavily diluted.
ADN's strategy is essentially to first put into production a simple in-demand product (Dry-processed Ore) at low capital intensity, make some nice $$$ and then use the cashflow to assist in bankrolling growth into downstream products such as wet-processed Halloysite, pure Kaolin products and 4N HPA.
ADN peers are pursuing a strategy directly focused on 4N and 5N HPA. This comes with very costly development studies that heavily dilute shareholders. Once the studies are complete the shareholders face a very challenging and often highly dilutive financing process because of the very high CAPEX burden. The financing alone can take over 3 years ( and some of it comes from very dilutive capital raises ... the finance takes so long because of the high CAPEX burden that companies continuously pass round the tin for working capital ). Other factors complicating the finance are technical risk and hence the years of development studies required to create a Bankable Feasibility Study that can be used as the basis for debt financing.
Another peer has been working on developing their HPA plant for over 8 years ( and in that time the shares on issue have gone from 100M shares on issue to 723M shares on issue ... that's dilution or shareholder capital by over 600% ).
The charts below put into perspective the very low CAPEX burden and hence capital intensity expected from ADN's strategy to achieve cashflow. It's this very low capital intensity on a cashflow basis that makes ADN a unique investment.
In the three columns we have:
- ADN on basis of 500 kt of Dry-processed Ore. Indication is production from a first 250 kt module by end of 2020.
- An ADN peer that based on their PFS are pursuing 8,000 tonnes PA of HPA. Development timeframe in PFS is 48 months (but for one peer has been 8 years).
- LRT are a popular Lithium developer now in the feasibility stage. Planned life of mine of 8 to 9 years with development CAPEX of AUD $232M and a development timeframe of around 36 months.
- GOR ... a new gold producer but provides some perspective for a cashflow and CAPEX comparison (development timeframe from their PFS was 3 years).
Must qualify this ... we need to wait for the scoping study to confirm CAPEX and cashflow for ADN but we have a fairly good indication based on the site visit that brokers and shareholders attended. I used $10M as a more conservative figure for CAPEX although indication from site visit was up to $5M.
Even if it is $20M CAPEX, capital intensity will be very, very low compared to peers purely on a $M generated basis. Looks like it will be easily under 1/20th of the capital intensity of one peers or worst case under 1/10th of the capital intensity of that peer ... that is to get ADN to a position of strength ... i.e. generating real $$$ that sustainably funds growth.
(20min delay)
