According to the company, China makes around 80% of this product because production is heavily subsidized there. That makes it financially unviable to produce in most countries outside of China. Phosphate and energy are both the largest components of the cost of production. MNB has it's own phosphate which will be very cheap, at least partly because much of it will already be mined as waste (at the 20% grade) from the fertiliser project (which uses the 30% grade) so there is little additional mining cost or mining capital required. On top of the very low cost of the phosphate for MNB, power is extremely cheap in Angola. It's not unreasonable to expect an average near 1c/kwh again as was provided for the green ammonia project. Another advantage for MNB to produce this in Angola is the very low tax in the economic free zone. This is looking very promising for MNB to be able to offer a supply of this product outside of China. For the reasons above this is looking just as compelling on economics as the green ammonia looked before the tech report numbers backed up that view for the GA project.
"The Company believes Angola, with its cheap electricity prices and economic free zone, presents a compelling opportunity for P4 production."
"A large range of Chinese and European industrial sectors are dependent on P4 which, in addition to Phosphate Rock, is currently on the EU Critical and Raw Materials List1."
As it is on the EU Critical and Raw Materials List1, potential customers should be lining up for a source outside of China, especially from an Australian company.
Timdonny's post has a reference showing a price of US$5721/t for this product.
Stage two phosphate expansion was meant to be in seven years time for the fertiliser production according to the DFS and stage 2 was to double production, increasing it by 187,500tpa.
From today's announcement;
"In order to double the capacity of the beneficiation plant for this Stage 2 expansion, should it prove feasible, Minbos has estimated the additional CAPEX to be only $US1.7-3.3M."
That sounds to me like stage two may be brought forward and dedicated to P4 production.
If 187,500tpa of phosphorous is allocated to this product, we could be looking at 18.7ktpa x US$5,700 = US$107mill revenue. With a very cheap source of electricity and MNB's own source of phosphate, margins could be comfortably over 50%, just as they are for the green ammonia. I'd be guessing US$60-65mill margin at this stage based on the very cheap phosphate and electricity which are the two largest cash cost components. That would be around A$90mill per year profit margin. Not far off our current mc. That sort of income could justify a mc of close to $1bill.
That brings the company to at least three major projects, each with potential earnings of around A$90mill per year or more. The DFS shows the phosphate fertiliser project will reach A$90mill per year by year 6 and that figure grows strongly to more than double again over the next seven years (pg 46 DFS). The green ammonia and this project could see A$90million plus per year in their first full year of production. Any one of these three projects earning that sort of cash flow can justify a billion dollar market cap. The three combined might justify a $3-4 billion mc. Somewhere in between might be expected if two of these projects are JV'd.
It seems to me that we now have three projects that even at their relative stages of development, each are worth more than the current mc.
The phosphate for fertiliser has a NPV of around A$400mill at current TSP prices, which is worth over 40c per share. That alone could justify nearly three times the current sp by later this year. I believe the green ammonia NPV will be well over A$1bill and my numbers (recently posted) actually have it at around A$2bill. Even at this early stage, that could easily justify a mc of $400mill or another 40c and this third project appears to have a similar potential but we will have to wait and see on that one. $1 per share is looking much closer than I had previously thought.
I like that there are multiple uses for this product. It protects MNB from possible technology changes that might reduce demand for any one use.
From today's announcement;
• P4 is required to produce specialist phosphorus chemicals needed by a very wide range of high-value end-uses, including electronics, fire safety, batteries, industrial water and process treatment, technical plastics, pharmaceuticals, lubricants, and metal treatments.
• P4 is used to produce lithium hexafluorophosphate (LiPF6), the electrolyte used in today’s lithium-ion batteries which can only be produced from P4-derivatives.
This was easily one of the best stocks on high probability blue sky potential that I have ever come across and that blue sky upside just keeps growing. Not with projects that look doubtful but with projects that look very compelling, greatly increasing the odds of success.
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