Growth tempo
Ignoring the funding for now, 200MTA expansion a year is not illogical, but I would expect a one-year delay in 2025. WAK's wet processing is planned to use K99 as feedstock, so WAK could commit to a third K99 dry-processing plant ahead of committing to the wet-processing add-on. This flexibility is a significant advantage that WAK's wet-processing competitors do not have.
Confidence in respect the date when the rail link becomes available is a consideration. I do not expect the WA Transport Minister's 2025 suggested timing to be met. Mid-2026 may be more likely. Consequently, WAK may delay the wet-processing add-on until FY2027. The plan is to have a slurry pipeline to Wedin, and to perform the wet-processing there. Wedin is 27K from the mine site by road, so the pipeline would require CAPEX.
Breakaway report (July 2021 version)
The Breakaway report mentioned another two 250MTA plants to follow the first two 200MTA plants. That totals .9 million tonnes of capacity – 400MTA dry processed and 500MTA wet processed. That is close to Management's often-hinted million tonnes a year aspiration to become a globally significant force in the kaolin game.
Breakaway selected the 250MTA size plants because Andromeda and Suvo both had estimates of what a 250MTA wet-processing plant costs. This is what the July 2021 version of that Breakaway report states, “Stage 3 is likely to be the construction of a 250,000tpa capacity plant based on wet processing technology, to allow WA Kaolin to sell higher quality specification products into higher priced applications. This would be similar technology to that proposed by Andromeda and Suvo. Using those companies as a template, a wet process plant of that size would probably cost around A$80M. Our valuation includes the addition of a Stage 4, ie a doubling of Stage 3.”The report also stated, “On completiontion of a wet process plant to produce finished product suitable for premium paper and packaging markets at 250,000 tonnes per annum, with capability to double that output to a total of 500,000tpa wet processed products and 400,000tpa dry processed products.”
WAK may stick to 200MTA plants, in the absence of sound reasons to introduce larger plants.
Wet Processing and K99 feedstock
WAK's initial thinking years ago was to go down the conventional wet-processing path, where the wet process includes most of the beneficiation steps. WAK's current thinking is to use K99 dry processing to get a 99% pure kaolin, and for the paper market, use K99 kaolin as feedstock for wet processing. The wet step for WAK is to make the kaolin less viscous (better flow) by including additives to a kaolin sludge. WAK expects to produce paper-grade kaolin at a lower cost than competitors can. This would be very important when WAK enters the paper-grade-kaolin market.
The planned slurry pipe to Wedin need not carry grit, so that is a huge saving (less than 40% of the material needs to be pumped down the pipe, and it is less abrasive). Also, the grit is produced where it can be used as back fill. Wckpin ore has a high whiteness rating, so bleaching and other whiteness-enhancing steps are not required.
Things can go wrong
I am not asserting that Management's plans are immune from going awry, or that Management is so ethical as to not pursue their own interests at the expense of other shareholders. If Management remains as silent as is possible for a listed company, and the SP remains low, then they can via credit raising get more shares cheaply, as is happening with the current CR. I dislike CRs for that and other reasons. It may be in Management's interest to use CRs to fund growth, rather than grow at a slower pace via earnings, which I would prefer.
Difficult to value shares
Without a clear fix on annual tonnage and at what margin could be made per tonne, it is difficult to develop a time series of financial guesstimates for the near-future years. One could approximate some numbers, which can be useful if they give a spectrum of values to allow one to think in terms of upside-versus-downside probability.
There is also the matter of outstanding options. One could be conservative, and assume all options are taken up by 20 November 2025.
Then we have CRs introducing more shares to the tally, so even if we had a subjective range of future market capitalisation estimates for different years, we do not know how many shares would reasonably be regarded as good enough to derive per shares values.
Collectively, all these variables make it too difficult to develop a range of future SPs that one could
factor back to theoretical share values. Then there is the issue of market mood impacting the share price. There is no share value nor share price that I could with confidence tout as reasonable. I suppose Management thought that 35c by 20 Novemeber 2025 was reasonable, because that is the price of incentive options then, and 35c then should be worth circa 20c today.
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