Ann: Share Purchase Plan Results, page-11

On what to not like, WAK has two major long term problems – one is the high cost of road transport to harbour. The other is that being a primary kaolin (not sedimentary). the size and shape of WAK's kaolin particles does not suit major market sectors, unless milled (an added cost). I present mitigating facts in relation to these two negatives.

Railway facilities

The railway problem can be resolved in the long term, but it is a chicken-or-egg conumdrum – it requires volume to justify the railway reconnection, and it requires the economics of railway transport to lower the transport cost to secure volume sales. WA Government has promised to reconnect the railway line (disconnected in 2013) in 2025, but nothing seems to have been done to effect that end, so that won't happen. WAK currently does not have the tonnage to lobby for it to happen sooner, rather than later, but Alf Baker intends to lobby for the reopening of the line when WAK has the volume to support the business case. The rail connection is a must-have for WAK to become more than a bit player in the kaolin business.

Particle size and shape

WAK's primary kaolinised granite ore has the advantage of being astoundingly pure, and the disadvantage of being coarse and blocky (erosive forces have not fractured and delaminated the kaolin particles to be flat and small). Consequently, milling is required to meet specifications required by paper, ceramics and other sectors.

WAK currently neither mills nor decontaminates it, other than removing the silica-sand host material by simple air float separation technology. That WAK has a market is testament to the benign quality of its ore (very pure kaolin hosted in loose silica sand). WAK can produce ≥64-micron kaolin with a mean size of circa 10 microns (my guess). I do not know its shape factor, but it is blocky, so for the want of a factor I'll use 4, whereas the market wants a multiple of that (perhaps >15). Because WAK was initially interested in being a supplier of delaminated kaolin, it has developed pilot milling technology to do that, and that technology is now being trialed by a Chinese partner. In summary the issues of both particle size and shape factor can be resolved by outsourcing milling to Asia distribution partners.

Becoming a virtual Big Boy

WAK has high-purity, high-crystallinity blocky kaolin that by forming partnerships abroad can be converted to meet specifications of the kaolin market as a whole. WAK's current strategy is to form partnerships abroad to distribute the kaolin to end users, and where necessary, further beneficiate the kaolin to end-user specifications. In effect, by partnering with entities in target geographies, WAK can match the processing facilities of successful kaolin companies like Active Minerals International.

Because WAK can export circa 99% pure precursor products to partners, there is no transport disadvantage exporting precursors. As an aside, the lithium concentrate exported to China contains only 8% lithium, so most of the transport cost delivers little benefit to China. Management has not overtly stated what I have written here, but it has announced it is “partnering” with entities abroad. For me, that suffices to support the concept of a virtual-Big-Boy strategy.

The virtual-Big-Boy strategy would allow CAPEX-constrained WAK to increase volume faster than its own funding can support. Increased tonnage justifies the railway investment by Government, and rail access reduces COGS (cost of goods sold), and that conduces to volume sales. I cannot think of apt words that describe the sort of servo mechanism that resolves the so-called chicken-or-egg paradox.

There may be a flaw in my thinking, so treat this post as grist for the mill, not WAK-unannounced facts.
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