@Cookiemycat hardly throwing shit at management for putting lipstick on a pig, that's their job. My criticism is management should have applied the lipstick a little less thick and carefully, not smearing it halfway across Port Gregory's face like a crazy lady. Investor's job is to consider how realistic the critical assumptions in a SS, because an economic model is all about the assumptions (and no, the ASX doesn;t hold your hand and audit SS for you, that's beyond naive).
Take Ilmenite price for example. PG produces so little ilmenite it won;t be until year 3 of production they can stockpile enough to meet the first 20kt shipment, which on the most optimistic timeline after PFS, DFS, FID, construction, ramp etc can't be before 2029... a 'long term' price forecast by any definition. TZMI (global min sand industry expert) were forecasting US$220/t for Sulphate ilmenite in 2022 similar to PG's low-TiO2 Ilm, or ~AUD$420/t @ 66c FX... yet they chose to assume >50% higher price of $640/t for a product not used in WA and sold in such small quantities they have to receive 2029 spot, probably at a discount for being random one-off sellers.
Given Ilmenite contributes virtually nothing to project revenue, why raise such an obvious 'outrageous pricing assumptions' red flag to investors in the SS? Strategically pointless, tactically shot in the foot, tarring themselves with over-pricing that otherwise might have gone un-noticed. But I did notice, then looked into garnet and saw the same heroic assumptions there.
Engebo is hard rock sourced, but it's also Almandine garnet same as PG, so you are clinging on some hard-rock vs alluvial quality price differentiator yeah? I see articles saying hard-rock garnet is a better abrasive because it's sharp, angular facets work better than rounded alluvial, but GMA articles saying their alluvial garnet can be recycled more often, less dusty so who knows. Let's agree PG's alluvial almandine is better than hard-rcok almandine, but what price difference is that really going to make in the real world? Probably very little as a percentage, where slightly 'better quality' is a sales differentiator as much as price differentiator often as not.
Take MRC's Tormin almandine garnet sales to GMA for example if you don;t like the Engebo hard rock example. 2019 sales figures just before GMA reneged on the contract (because the garnet market is tight and competitive), MRC was getting paid ~US$100/t FOB for it's alluvial almandine garnet concentrate (ie US$21.5M divided by 215,000t). That discount to approx US$250/t FOB is steep, even after considering a discount for unprocessed, diluted garnet concentrate MRC was selling. That's the wholesale market for you when there isn;t a lot of wholesale off-take partners available or willing to pay big for wholesale garnet product...
The bottom line is, HVY assumed an average US$500/t garnet sales revenue when all evidence is that bulk sales of processed quality almandine garnet is going for about US$250/t FOB at best evidence. That's before considering the sort of discount for a large new supplier to push into the market if it's not under-supplied. Given GMA controlled the Australia Garnet market, then very recently HVY's other neighbour Chris Elliston's RDG has pushed into the local market to offer an alternative and competition... how the hell is HVY going to become the 'third force in Australian garnet' and sell through independent retailers without creating a price war?? There doesn;t seem any room for third Aussie supplier, so HVY needs to push into overseas retail market by taking volume away from GMA, RDG etc, etc unless demand suddenly spikes above supply growth and stays there.
Sure, third party off-takers are always happy to make room for new suppliers, but only because the competition and over-supply means lower wholesale pricing and fatter retail profits for those who control retail distribution networks. Only time will tell whether HVY ever become new suppliers and at what garnet price they can push into the market. If I'm still alive I'll probably be around HC to congratulate them and comment if they do, but I'm not hanging around the HVY thread to keep answering the same questions like a broken record.
DYOR people, GLTAH, over and out.
