ANDROMEDA METALS LIMITED (ASX:ADN) - Ann: Great White Kaolin Project - Definitive Feasibility Study, page-579 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by Rhino1963 ↑

Haven't read the DFS other than the summary...
Have read all the emotional posts from new and exiting posters.
A lot of my so called new friends have gone on ignore.

ALL IMO

FWIW Here are my thoughts...

The board has been focussed on the question,
"What is the best bang for buck for shareholders and the business?"
In the last two years since the PFS several new opportunities have presented.

The DFS shows ADN has moved from DSO revenue model to a refined/processed product revenue model
We all knew the CAPEX for DSO was circa $30m and expected a refined model CAPEX to be circa $120m.
We also knew the margins would be higher for the end product.

Ask yourself,
Could ADN have started with DSO and low capex and a higher IRR?
Would starting with DSO likely make the journey to good revenue and divies longer or shorter?

IMO there is a fundamental shift in path to production to maximise returns to SHs
I believe the company included this narrative in their presentations and interviews

The DFS was written deliberately for a finance solution...
I am in finance and know that when it comes to finance applications banks hate projections.
They deal is "as is" and not projections i.e. "what may be"
e.g. If I had a dollar for every time I heard "I have a new job and the bonuses are $30kpa"...
Banks require 2 years history of the bonuses to be included in revenue.

Further, if ADN stated revenue Q1 2023 the bank would expect repayments to start Q1 2023.
If ADN didn't make the first repayment they would be in default of the loan
This would be an extremely bad outcome for SHs and ADN
Instead ADN has stated revenue is Q3 2023.
This is a responsible way of writing the business case.
I note that in The Advertiser story JM talks about production Q1 2023
Did someone say under promise over deliver?

This is important because it appears ADN plan on a structured finance solution.
i.e. finance is likely in place this year and yet there will be no repayments until Q3 next year.

The bottom line is we have a DFS that says there is a business case to move to production
...and that path to production can be financed.

Why is the IRR much lower than the PFS?
On its own the IRR is more than acceptable for a DFS...

It appears ADN has included many head costs in the project.
In development terms head costs are costs that are required for the entire project.
i.e. the correct accounting is to amortise head costs across all project stages.
However, for finance the heads costs align with stage 1.
i.e. They inflate the cost of stage 1 of a project.
Head costs can form a hurdle that prevents a project from getting finance...

e.g. When doing a land subdivision in 5 Stages.
There are a number head costs that must be completed in order for Lots in Stage 1 to be sold.
For a Land Sub head costs include;
- Installation of electrical infrastructure for the entire 5 stage subdivision.
- All the water supply and water drainage infrastructure which can be very expensive
In most cases stage 1 in a Land sub project make a loss

Why include all these Head Costs?
Clearly ADN believe they need to include the infrastructure for new revenue streams now
Why? so they can be included in the finance package and built.
I think I recall reading or hearing we can expect Off Takes between DFS and BFS

The positive news is that the DFS shows the business case stacks up with these Head Costs.
Does it effect the initial IRR? absolutely.

Have ADN included costs that have no revenue result?
Yes they have and that's because it is written for finance.
We know ADN have been discussing finance solutions.
I expect ADN are fully aware of all conditions precedent to finance.

Could the narrative have been better positioned?
Yes it could have, but would people have listened?
When the other revenue streams (Stages) kick in the IRR will be higher as will returns
The DFS is just a point in time
Project a DFS 12 months from now and it is probably 3-4 times better than the PFS

Am I happy with the SP? not really.
I have sat and read as a fascinated observer of the proceedings on HC.
My reason to invest has not changed and nor has my holding.

I was pleased to hear my daughter ask if her boyfriend should invest on this dip.
I have taken my family on the investment journey and they know nothing goes up in a straight line.
They expect and accept dips along the way and see them as opportunities.

I think a lot of people misunderstand what it takes to get a business into production.
I hope some of the above is of assistance.

GLTAH

Expand

@Rhino1963 I am a commercial finance broker with 5 years running my own business and prior 10 years commercial banking at WBC. I agree wholeheartedly with your comments and will be listening intently at 9am to the rational for the way this DFS has been presented.

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Last 0.6¢		Change 0.000(0.00%)		Mkt cap ! $20.57M

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0.7¢	0.7¢	0.6¢	$19.77K	3.041M

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