Ann: Cabinda Phosphate Project Update, page-47

In my post yesterday I touched on how the DFS is out dated.

The asx is very strict on what can and can’t be reported. There have been numerous changes that have made the DFS redundant, yet if you look at the latest presentation they still present the DFS NPV, IRR etc. That is because unless they do another DFS update, they can’t just say for example the change in the production schedule will double the NPV. The asx won’t allow this, so they report the latest figures portrayed by a study such as the DFS. I can see why they took so long to complete the DFS while there were so many changing circumstances.

But the market judges MNB on metrics such as the DFS and for potential investors having a Quick Look - the presentations (which portray the DFS). This is one reason why I think Minbos has gone under the radar of many investors.

Yet those that have delved a bit deeper into the company know the story is very different to the official DFS.

The market is use to companies that advance to production never achieving DFS figures, usually both capex and opex blow out. I don’t think there is a lithium producer in Australia that has built a plant to the original DFS capex, or operated it to the planned opex. The casual observer of Minbos would probably think the same applies to us.

In our case there are many factors that have reduced our capex and opex compared to the DFS. That $10m capex saving & associated opex saving wasn’t just a bit of cost cutting or taking shortcuts, it was the reworking of a flow sheet originally designed for EPR to one that just does BPR. As todays results show, most of Angola doesn’t need EPR, the cheaper BPR does just fine. Some of the enhancements compared to the DFS include:

The new site, lower transport costs and holding costs

The new flow sheet, reducing capex and building time, reducing opex with BFR only flow sheet, reduced power, labour costs etc.

The ability to go to stage 2 production with only US$2-3m spend instead of the DFS $26m
Carrinho want delivery in bulk, we don’t even need to bag it.

Totally updated production figures. In the 1st 2 years more than tripling production compared to that of the DFS.

The DFS had us producing 10kt in year 1 and 92kt in year 2. Just bringing the production/revenue forward 3 years has a profound affect on NPV. We use a 10% discount rate, by the time revenue in later years is discounted by 10% each year it has minimal affect on NPV yet revenue in year 1 is only discounted by the 10% once. The reality is if this S African contract comes off, we could be producing 370kt per year right from the get go.

If you re-worked the DFS, imagine the affect the above would have on NPV, IRR etc.

Will they update the DFS - probably not, once in, or nearing production the market values companies by their future revenue/profit. My point is with all the changes that has occurred, the DFS bares little resemblance to our future operation. However financiers require it (it’s quite often called a BFS - B for Bank) and I’m quite sure IDC’s due diligence will show just how conservative our DFS figures are compared to the revenues we’ll generate.