To gauge the potential dilution from here and its affect on a potential sp target, I'm going to assume they satisfy the IDC precondition of showing evidence of raising US$10mill for the balance of capital requirements by raising the full amount through equity. However, we know the company has already raised A$6mill after the IDC approval. US$10mill is around A$15mill so that leaves A$9mill still to raise from these African interests. I expect that it will be done at a higher price than the current sp but for the exercise I'll base the calculations of dilution on a 5c issue price. If it's done higher, all the better. Current shares 865mill. Potential new shares for A$9mill cash at 5c would be 180mill shares. Total new market cap at the current 5.4c sp would be $56mill. If all current options are exercised, the fully diluted mc would be $66mill. That includes the options recently attached to the cr which might be voted down and I will assume options with strike prices of 10c and 17c will be exercised too. So what's the upside from that potential, fully diluted for options and future cr, market cap of $66mill? I am assuming the DFS after tax, base case NPV of around A$305mill is going to be conservative based on capex savings of US$10mill stage 1 and US$24mill for stage 2. That's a saving of US$34mill or A$51mill. They are also bringing forward stage 2 to within a year of stage 1 or with stage 1 so the capex savings go straight onto the NPV bringing it up to A$350mill. It could be higher based on bringing forward much stronger cash flows to years 1-7 as guided post Carrinho offtake. I.e. $350mill could be conservative and does not take into account the likely strong export volumes to South Africa. Using the guidance for year 1 at around 153,000tpa and cash cost guidance and sell price recently provided, it's straightforward enough to come up with a similar initial market cap target for the phosphate project. Upside to an after tax NPV or market cap target of A$350mill from A$66mill fully diluted and allowing for the further dilution as above, still provides upside potential of 350/66 or 5.3 times the current 5.4c sp. I.e. around 29c per share. That's come down from my earlier targets due to the higher than expected level of dilution both existing and allowed for future dilution as discussed above. There would be upside from that target with growth to stage 1 nameplate capacity, stage 2 expansion and exports to South Africa. I still expect strong upside from the green ammonia as well, when a deal is announced to bring in a partner to advance that project.
So while there has been considerably more dilution than expected by anyone, that thankfully has been partially offset by the big capex savings, the large increase in production guidance for years 1-7 and the potential to boost further with sales to SA, to still offer strong upside.
