Ann: NAIF to provide $50m Finance for Butcherbird Expansion, page-45

The shortcut way is to look at the cashflow / EBITDA of the two projects E25 has outlined financials for and assume it occurs. E25 has put out its studies with US$155m/yr of cashflow (EBITDA margin of US$178m/yr) from the Louisiana HPMSM (12 April 2023). They have put out an expansion study (23 Jan 2024) with AU$57.3m/yr of cashflow. An update provided on 22 Jan 2025 that put annual cashflow at AU$70.5m/yr. The post-tax NPV's of the HPMSM was US$1,161m and the pre-tax NPV for Butcherbird was A$561m. All of these figures indicate if E25 delivers both projects in full (or even close to in full) they are likely to be a ASX market darling. If viewed as a mining company the EBITDA multiples will be lower. If viewed as a specialty chemicals company, EBITDA ratios beyond 10x (and sometimes above 15x are possible). The combination of Australian and HPMSM earnings (on E25's modelling) could be close to A$300m/yr. If that were actually to be delivered and repeated across multiple years, It could be a $3b (or more) company. If the share price (and MC) were to have the fantastic run that would put E25 into the billion dollar MC space, further HPMSM expansion projects would become feasible and projected earnings to support the MC would not just come from Butcherbird and Louisiana. This however requires E25 to deliver the projects, the costs to be close to forecast and the revenues to be close to forecast. The market doubts at least one, if not all 3 of these hence the current MC. Current 44% Mn prices are well below the assumptions used. Market prices for HPMSM depend heavily on whether they remain set in China or whether a non-Chinese supply price emerges.I'll focus on Butcherbird below.

Butcherbird expansion
Expansion Case 1 (Dec2020) put forward a 3x expansion to ~1Mt that would deliver a cost base of A$3.73/dmtu (US$2.65/dmtu) FoB Port Headland. Table 1 (page 4) presented undiscounted cashflow of $81.5m/yr. This calculation would appear to be approximately (US$4.37-US$2.65) * 1,023 * 33 Mn grade divided by a 0.70 exchange rate for a total of A$82.95m. The difference between $81.5m and $82.95m can be explained by rounding (just). Table 10 of this study showed that production costs and corporate costs per DMTU drop with size but increased scale makes little change to Logistics, Marketing and Royalty costs. These were the largest cost category. At this point FoB Port Headland revenue assumptions were quoted (not adjusted CIF 44% Mn prices).

Expansion Case 2 (Jan 2024). The case was now 1.1Mt of production at 32% Mn. A variable 44% Mn price per DMTU is used which is graphically presented as E25 receiving just over US$1/dmtu less than the headline price due to the lower concentration of the Mn product and shipping costs (Perhaps US$1.20 less). The C1 cost is A$4.02/dmtu (US$2.76/dmtu). The wider C2 cost (which includes depreciation, amortisation and through that sustaining capital costs) were A$4.52/dmtu with this mix being A$1.85/dmtu of site costs, $2.17/dmtu of Logistics and Marketing and $0.39/dmtu of royalties and rehabilitation. In terms of scale, if E25 is producing 1.1Mt of 32% Mn and spending A$4.52/dmtu total expenses (including depn) annual costs before tax will be around $159m/yr. The study used prices increasing and then stable at US$5.75/dmtu (44% Mn CIF China). Note - The logistics cost is getting material to port. Shipping costs are a deduction from 44% Mn prices when setting revenue. A CIF not FOB off-take contract would change this.

Case 3 (Jan 2025). This case remains 1.1Mt of production at 31.6% Mn. C1 Life of mine is A$4.14/dmtu (US$2.86/dmtu). The revenue price assumption was pushed up modestly to US$6.06/dmtu for 44% Mn (CIF China). This increase allows an improvement in projected cashflow to A$70.2m across years 4-18. Page 34 notes the C2 cost as A$4.50/dmtu (US$3.10/dmtu). The maths (using C2) is 1,100 * 31.6 * 4.50 = A$156m/yr of cash & non-cash expenses. Using C1 this figure is A$144m. With this operation being expected to generate $70m of cashflow, revenue needs to be $214m or A$6.16/dmtu. The cashflow assumption comes from assuming ~A$2/dmtu of profit.

There is enough times that the Mn price has spiked that the "average" used is not unreasonable, but there will be times and perhaps significant periods of time where the 44% Min price will be below, if not well below US$6/dmtu. For a while OM Holdings quoted the 44% price but they aren't now. From backwards calculations it would look to be about US$4.20/dmtu now. If the discount is just over US$1 to get from 44% Mn (CIF China) to a grade adjusted 32% Mn price FOB Port Hedland then the current price E25 would be receiving is around US$3/dmtu. If E25 were operating their full proposed operation they would be marginally cash positive if costs were US$2.86/dmtu but E25 may be posting small accounting losses if their C2 cost base were US$3.10/dmtu. As per the graph below, current prices are close to the lowest they have been in 5 years.

How much is the butcherbird expansion worth?
That depends massively on future estimates of Mn prices. From E25 graphs, the Mn price spent 2008-2012 above US$6/dmtu. The 2018-2020 period was also above this, but not by as much. The graph below is my attempt to estimate the 44% price from Fastmarkets Mn reported annual percentage change graphs. The period since 2020 has had a weaker Chinese property market (less steel in buildings). Prices have gone above US$6 a couple of times but they haven't stayed there for a multi-year period. While ~US$6/dmtu may be a sensible long term forecast, recent history is that prices are lower.

From recent history you would have greater confidence in assuming an average of A$7/dmtu (CIF China) although the actual average of the orange line is A$7.65/dmtu. If there was a $2/dmtu loss due to grade adjustments and shipping costs then a A$7/dmtu 44% Mn price would become A$5/dmtu as a receivable price or $174m revenue per year. This would be ~$18m/yr of accounting profits before tax and ~$30m/yr of cash profits. This should support a MC more than double that of today (But E25 would need to deliver on its estimated costs).

But Mn prices don't remain stable.

If prices were to spike to A$10/dmtu (CIF China) for a year, on the expansion case financials, that spike would allow revenue of $278m. With expenses of ~$156m it would allow annual profitability of $122m for the year (before tax). Its these spikes where most of the value would accrue from the Butcherbird operation. The unknown is how the market would price this. Would it be priced in or would the share price jump if a Mn Price surge happened?