re: Ann: CEN: RUM: Letter to CEN Shareholders... I still think...

re: Ann: CEN: RUM: Letter to CEN Shareholders...
I still think this is one for the Super long-term. They have just gained 52% of CEN over the last couple of days, so gaining total control is only a matter of time. This will effectively more than doubles (548m tonnes) the resource phosphate project at Barrow Creek (currently at pre-feasibility study stage) and adds to the potash project. CEN has another two phosphate projects in the Northern Territory, one with the potential of another 100 mt (Arganara). The potash tenements also look interesting for future development.

According to a release a couple days ago, ‘Commencing today, a number of site visits have been planned over the next week to allow Institutional Investors the opportunity to review the entire project on site’.

The potential investors will be told:

· The only company in Australia with both phosphate and potash resources.
· Large JORC phosphate resource, now twice the size with the inclusion of CEN
· Potential to create a significant fertiliser minerals business (now substantially bigger with the inclusion of CEN resources), including potash resource.
· Strategically located to leverage food security concerns and resultant demand for fertilisers in Asia
· Fertiliser demand growth in Asia underpinned by growing populations, changing dietary needs of an increasing middle class and decreasing arable land per head of population requiring higher crop yields
· A key component of a future ‘northern Australian food bowl’ value chain than could service Asian food demand.
· The board seems to have a great deal of experience in mining as well.
· Institutional shareholder base with a demonstrated history of support.

Financials:

Market Cap: $42m @ $0.175. this may change with the issue of shares to purchase CEN.
Cash: End of march $14.6m, from memory the acquisition of CEN was going to cost circa $6m + shares. Current cash buy rate of approx. $5m pa
Share Price: 0.175, annual low 0.10, high 0.31

Scoping Study completed in April 2013, prior to the acquisition of CEN: LOM 25 years, NPV $320 - $450m @ 8.5%, IRR 14% to 18.7%, conservative assumptions. Export capacity 1,800,000 tpa. Various options to be considered for production / direct ship. Capex estimate $276m + beneficiation $175m. Timing: Construction Q3 2014, production Q1 2016 (to produce Phosphoric acid and export more expensive capex, but better NPV. ‘The impact of high transport costs decreases as value is added to the product, such as in the case of phosphoric acid production’. Sensitivity to project in order: Opex, Price, AUD: USD, Production, Capex. Next step bankable feasibility study.

Comparable positive scoping study – Korella Phosphate Deposit (Krucible Metals Ltd) had a NPV of $82 million @ 15% with a LOM of 6 years and a production rate of 600,000 tp and a capital estimate of $39 – 45 million, including WC of $15m. The breakeven was $120 – 130 per tonne. Krucible (KRB) sold their phosphate tenements to Daton Group Australia for $12m. The RUM is 100 times bigger than the Korella deposit and the NPV is 10 times bigger, therefore taking the Daton deal as a benchmark the resource would be worth anywhere from $120m to $1,200m.

Phosphate:

Uses: Fertiliser, second largest - Detergents (declining over concerns over pollution of waterways).
Demand: Growth in the global market is expected to come from the developing countries of Asia-Pacific, Latin America and Middle East. Growth started from 2003 after a stable period and prices started to raise from 2005. Contaminants influence price paid by fertiliser companies
Supply: ‘’ ..major areas of concern that could have a grave implication for the future prospects of phosphates is the fast depletion of phosphate rock reserves globally. Even though reserves are found in many countries, recoverable resources are located only in China, USA and Morocco. Judging by the current rates of extraction, reserves of phosphate rock in the US will deplete in the next 30 years, while global reserves will last only for a maximum period of 100 years.’ Western Farm Press.
China largest phosphate rock producer – 55 million tonnes in 2009 (circa 36%), followed by US. Morocco dominant player in internationally traded with 45% share.
Current price per tonne is US$165 and has been falling from the end of last year. Looking at the price there seems a good correlation with DAP fertiliser.

Washington H Soul Pattinson & Co have an 18% share in RUM. Purchased more shares in December 2012,

Conclusion: Production still a long way off, but the size of the resource is now of a size that may interest global investors with a long LOM. I do like the idea of creating a ‘Asian Food Bowl’ in the NT.
TFP