CRP
06/11/2014 08:30
GENERAL
REL: 0830 HRS Chatham Rock Phosphate Limited
GENERAL: CRP: Chatham provides 5 November update
Update
5 November 2014
Thank you - and we need just a little bit more please....
There's been a great response to our latest tranche of capital-raising.
Habitual investors (including existing shareholders) contributed more than
$900,000 towards the rights issue shortfall, and we've had continuing
interest since we closed off the latest allotment last week. We 've reached
this position (effectively in sight of the finish line in a marathon) with
your continuing support. Thank you for your ongoing faith in the project.
We still need another $1 million to complete this Marine Consent application
process. This a bit more than we were initially expecting, partly because
we've done some additional research to ensure we've covered all of the bases.
Budgeted costs charged by the EPA have also increased.
The offer, for habitual investors, is priced at the same level as the recent
rights issue, i.e. 12 cents with an entitlement to a 68.8 cent option and
compares attractively with recent share price trading at up to 23c. (Note
these options have been extended for a year). The price rose in response to
profit guidance that reinforced the robust financial basis of the project and
then fell again - normal market behaviour given share placements being
offered at a market discount.
We will seek to raise only the funds we really need to achieve the Marine
Consent. This opportunity is not without risk but in my view has
significantly greater upside than downside. So if you're up for another
contribution, I'd love to hear from you.
Marine Consent hearings on track
We're now nearing the end of the Marine Consent hearings. This week we've
heard from the fishing industry, we're completing the presentation of some
scientific evidence that could not be scheduled earlier and next week we're
heading to the Chathams for a rescheduled visit after the first planned
hearing was postponed due to a death on the island.
In the week starting 17 November our final two witnesses, from environmental
consultants Golders, will summarise our environmental impact assessment and
present our proposed consent conditions. Then there will be closing
statements with legal counsel James Winchester from Simpson Grierson
presenting on 19 November. If you have the opportunity to attend this
session at the RA Vance Stand at Wellington's Basin Reserve it will be a
comprehensive overview of why this project is so compelling.
The hearings are panning out pretty much as we expected. We were pleased the
decision-making committee agreed to our request for the supplementary staff
report not to include any recommendations. The report authors appeared at the
hearing but offered very little in terms of additional information or insight
and we continue to believe the report is an expensive waste of resources and
inappropriate to the process.
Our scientific experts have met to caucus with those hired by the opposition
and are mostly reaching a consensus. This includes common ground on all the
major elements of our proposal including the plume, sedimentation deposition,
effect on fishing, uranium (non) effects, etc. As a result, it appears that
these perceived issues are unlikely to have a significant influence on
whether or not the DMC will grant consent.
Thanks to shareholders Mac Beggs and Paul Martin who appeared at the
hearings, putting a lot of effort into well-researched professional
presentations.
Remember every word of what happens is on the EPA website. Each day's
proceedings appear the day after. Check out:
http://www.epa.govt.nz/EEZ/chatham_rock_phosphate/Pages/default.aspx
Profit guide enthuses investors
Issuing guidance on our expected business plan and financials had a (at least
temporary) positive effect on our share price. We issued the guidance because
of confusion among some witnesses at the hearings regarding our financials.
It was a good opportunity to clarify to the decision-making committee and
financial markets the significant economic benefits our project offers for
New Zealand and the attractive profitability.
Environmental benefits - As we've commented before, we're also proud our
project offers new environmental benefits for New Zealand's farming industry,
in terms of using a low cadmium, low carbon footprint, low run off,
potentially organic product. This project will create a new industry with
strong ties to agriculture, our most important export earner. Our product
will enhance New Zealand's security of supply and reduce our exposure to
politically risky sources of a critical input to this country's biggest
industry.
Over the past few years our marketing vice president Najib Moutia has
undertaken extensive market research and sales development in international
and local rock phosphate markets. The factors potential buyers consider in
assessing the attractiveness of the different phosphate rock available on
international markets include the level of phosphorus and other minerals and
ease of handling. CRP rock phosphate can be used to make either medium or
high grade superphosphate, direct application fertiliser, or even dicalcic
phosphate.
We've identified buyers in eight Australasian and Asian countries and expect
to export 1.15 million tonnes annually and for 350,000 tonnes to be used
within New Zealand, with two thirds of the total used to make single super
phosphate and one third sold for direct application use.
Big potential - Rock sold for direct application use sells at a substantial
premium in some markets so we'll focus on maximising direct application use.
We believe the market for direct application rock phosphate in New Zealand is
100,000 to 200,000 tonnes a year, but with potential for significant
expansion, given:
- this product has not been readily available from a local source
- there is a desire or likely requirement to reduce leaching run-off effects,
and
- our product is the ideal for high country use and for maintenance in dairy
farm application.
We are undertaking pot trials to validate the work done in earlier years
proving the strong performance of our product on New Zealand soils, and
evaluating the market potential for RPR on home garden use in New Zealand and
internationally.
Price confusion - There's also been some confusion at the hearing about the
use of the World Bank quoted spot price, which is simply a reference point
and often bears little resemblance to the contract prices with individual
buyers that are the industry norm.
We expect an average revenue per tonne of USD 125 (NZD 158) yielding annual
project revenues of USD 187.5 million (NZD 237 million). These revenues are
net of export freight costs.
One of the key financial strengths of the project is the cost of transport of
imported rock phosphate to New Zealand is about equivalent to Chatham's
current estimated mining costs, which gives the project a significant
financial advantage.
After deducting expected contract dredging costs, incoming port charges,
environmental monitoring costs, community contributions, biodiversity offset
costs and business overheads, the annual profit before royalties is estimated
to be USD 54 million (NZD 68 million). From this Chatham estimates paying
USD 5.4 million (NZD 6.8 m) in royalties and USD 13.6 million (NZD 17.2m) in
income tax.
Benefits for NZ - There are also significant economic and employment benefits
for New Zealand including:
- Port charges to the port where the operations and product stockpiles will
be based of several million dollars a year
- Port support services relating to product handling
- Overseas phosphate export vessels provisioning support services ( 30+
ships)
- Survey vessel services
- Portside engineering services
- Jobs on the mining vessel
- Other jobs relating to environmental monitoring services
- Maritime training opportunities
- Ongoing scientific research and data gathering
- Mining vessel provisioning and bunkering
- Jobs arising from increasing farming outputs where CRP rock is used on
marginal land.
Chris Castle, Managing Director [email protected] or +64 21 55 81 85
End CA:00257285 For:CRP Type:GENERAL Time:2014-11-06 08:30:09
