Pbawley
The article
http://www.copyright link/business/...t-us1bn-silvergrass-project-20150812-gix5duat reads, “The first phase of the mine will be a mobile crushing and c
ontract mining operation at 10 million tonnes per year, with ore haulage back to another of Rio's mines, Nammuldi.” This is the work that I think NWH has through the 24-month, $140m contract. To quote from the contract Announcement:
“The scope of the contract includes;
- Construction of mine haul roads, ore stockpiles, waste dumps and other mine infrastructure
- Production mining (including drill & blast)
- Haulage of high grade ore from mine area to the existing Nammuldi Plant site
- Supply, installation and operation of two 5 Mtpa crushing plant”
The value of the existing contract is about $70m a year, which is in line with two other contracts of which I am aware – Watpac and BYL. Watpac's contract with BC Iron for 10 million tonnes of ore and waste panned out at $60 million a year, which included some infrastructure work. The BYL contract with RIO for 4.5 years was worth $300 million, or $67 million a year for a mine that is expected to produce 7 million tonnes of ore a year over the 4.5 year contract, and the work also included building access roads and non-processing infrastructure.
If Silvergrass Phase 2 is approved, which seems likely, the tonnage grows to 20 million tonnes, and if NWH mines the extra tonnage, then, for the want of a number, I suggest the contract will run at an extra $50 million a year to total $120 million. The The length of the contract may be extended – perhaps by adding two or three years to the existing contract that commenced circa June 2015 to take it to June 2019 or June 2020. The annual revenue would drop back a bit once the planned conveyor belts are commissioned. This is because the haulage distance would decline, in spite of the tonnage doubling. Haulage would be reduced to loading ore onto the planned conveyor, rather than trucking it to Nammuldi.
Silvergrass Phase 2 involves building a conveyor of a few kilometres to the Nammuldi ore blending facility, and that will cost hundreds of millions dollars, but that is not NWH's metier, so I do not expect it to get much of that action. NWH could get a small amount of site preparation work, perhaps including some concreting. However, NWH may get the extra mining tonnage before the conveyor belt is ready, and that will mean trucking the extra tonnage to Nammuldi for the nine months commissioning time suggested for the conveyor. Crusshing plant capacity would, however need to be increased by 10 million tonnes a year.
On timing, Phase 1 has started, and Phase 2 should get RIO's board approval early in 2016. If the start date is delayed, it should be a short delay – say to 1 July 2016, and that only for the major CAPEX activity, building a conveyor belt. Increasing the tonnage mined need not be delayed if the ore is required for more immediate export as part of RIO's shipment plans for Pilbara Blend ore.
NWH's SP is priced for a disaster that is not going to happen, because its fleet is currently 75% busy, and there are opportunities to increase that utilisation. The assets have been heavily impaired to compensate for both low depreciation of underutilised assets, and the downward shift of 2nd-hand equipment value. Consequently, I hold that the current NTA value is realistic. The SP would have to increase almost four fold to reach NTA per share. This tells me that the optimal path for me is to hold, and for many other shareholders, NWH is probably worth accumulating. I have been spectacularly wrong in my opinion on NWH before, so regard this opinion with scepticism.
(20min delay)