ARDEA RESOURCES LIMITED (ASX:ARL) - Ann: Presentation - Battery Materials 2018, Shanghai, China, page-43 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by chuk ↑

This looks very attractive when you look at the latest presentation. They compare the size of the deposit and grade versus market cap which suggest that this is very undervalued relative to CLQ for one.
The price rallied on the back of this presentation, but it previously fell heavily after the PFS results. It seems some here argue the reason for the fall was the date of production being a few years off. I wouldn’t have thought that date was unrealistic considering the size of the plant and funding required. I think the fall in the sp has more to do with the assumptions used to estimate cash costs. Cash cost looks very low with Cobalt credits but the price of Cobalt used when estimating credits is very high. CLQ used a much lower price to calculate their credits.
When you compare cash costs and factor in the metal price assumption differences, I think that will explain a large part of the difference in valuations between CLW and ARL. I’m not saying that ARL can’t close the gap to some extent but I wouldn’t be comparing the two based on grade and size of deposit alone. The size of the deposit becomes irrelevant if the Cobalt price comes back down after its current exponential rise. That rise could continue for some time of course.
ARL (from PFS pg 2);
C1 cash cost before Co credits US$5.59 (AISC before Co credits not provided but would obviously be significantly higher) and after credits US$0.42. AISC US$1 after Co credits. The AISC looks great with Co credits but again, the Co price used to calculate the credits was very high - Cobalt sulphate price $41.63/lb. Compare that to the much more conservative Co price assumption that CLQ used to calculate credits - US$14/lb.
CLQ (March 2018 presentation pg 19);
Average C1 operating cash cost of US$3.86/lb nickel or US$1.40/lb nickel after cobalt co-product credits, assuming US$14/lb Cobalt price. NI 43-101 assumptions: nickel price US$7.50/lb, cobalt price US$14.00/lb, AUD/USD 0.75.

So while CLQ conservatively uses US$14/lb CO to estimate credits, ARL uses US$41.63/lb Cobalt sulphate price. Ignoring Co credits, CLQ has a C1 cash cost of US$3.86/lb compared to US$5.59 for ARL. Remember these are C1 costs not AISC. AISC would be significantly higher. CLQ would be profitable at much lower metal prices than ALQ so should be less speculative and therefore probably deserves a big premium. I believe that ARL is more of a speculative play on the Cobalt price. Saying that, ARL could go well above $2 on higher for longer Co prices but I would expect it would come crashing back down on lower cobalt prices than current. CLQ should be much less volatile on the back of CO prices.
You can also see the risk with ARL when you look at the sensitivity analysis on pg 23 of the PFS.
According to ARL’s PFS, if metal prices fall 20%, the NPV (1Mtpa) halves from 1 bill to 516mill. Not nearly as attractive with Capex at A$600mill. A 30% fall would not be good at all. When you consider the Co price has tripled in the last few years, a 20% fall is very much a real risk over a 0-5 year time frame. Even a 50% fall looks realistic enough especially if the likes of BHP are saying they are considering producing Co to help meet demand. I would want to be very confident that the current exponential rise in Co prices continues and stabilises at higher prices before I become comfortable that this will be funded. CLQ should have much less issue with funding given their cash costs based on much more conservative assumptions.
I don’t think ARL's comparison to CLQ in the presentation, based on grade and size of deposit alone is realistic. I don’t hold either stock - I had a good look at this after yesterday’s move.
If I was a holder, I would be watching the Co price carefully.
I’m new to this stock so if I’m missing something I’d be happy to hear any feedback. I’m not talking about speculation on the Co price – I know that could do anything.
Hopefully holders continue to see higher Co prices.

As for talk of a takeover by BHP, just remember BHP usually looks for very low cost deposits (without relying on very high priced by product credits).

Expand

Only thing I would like to add to what everybody else has mentioned is ASIC costs are quoted on page 21.

1mtpa
Sustaining Capital $0.22
Royalty (Ni + Co) $0.35

1.5mtpa
Sustaining Capital $0.20
Royalty (Ni + Co) $0.34

The only difference currently between CLQ and ARL is the processing cost (ARL $4.03usd 1.5mtpa vs CLQ $2.58usd 2.5mtpa)

If ARL can reduce this number by increasing the thought put ect I would guess they will be able to get it down to around $3-3.5usd. CLQ should always be lower as they are using a propriety tech though this does also meant here is greater risk of cost blowouts and ramp up time as it will be untested at this scale.

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(20min delay)
Last 43.0¢		Change -0.010(2.27%)		Mkt cap ! $85.86M

Open	High	Low	Value	Volume
43.0¢	44.0¢	43.0¢	$4.32K	9.921K

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