My second take on the announcement.
- 2200 tonnes capacity installation will be complete at the end of Q2 - the wording blurs the separate steps of installation and commissioning.
By this, I mean that commissioning of some plant is occurring simultaneously with installation of other plant.
- Production on Phase 1 plant will begin in Q3, but full capacity will not be achieved until end of year.
- Phase 2 plant will be installed through first half 2023, with production of 5500 tonnes achieved by end 2023.
- No offtake agreements have been signed yet
- If the Korean plant delivers according to expectations, and produces EBITDA of USD$40m, a P/E approach to valuation of 15 (which is low for a patented technology?) would make it worth USD$600m - for an outlay of USD$45m (higher estimate). Not a bad investment thesis.
- I see both parties having a degree of leverage, and risk.
* ASM will continue to build the Korean plant regardless of whether the KCM concludes their proposed contract - and provided the plant begins to deliver revenue (at expected costs is an important qualifier), the alternative partnership options will increase for them, placing increased pressure on KCM group to execute the agreement.
* KCM however, are clearly not willing to commit until a number of preconditions have been met, notably the Engineering Procurement and Construction Design of the changed Dubbo design, and the Korean plant achieving design specifications. To offset this understandable reluctance, they are tying all components of both Dubbo and Korean Plant deal together with a single neatly tied ribbon, which may be difficult for ASM to achieve with other parties.
In the immediate term (now), ASM needed todays announcement more than KCM did. Their share price has been tanking for months, and would likely continue to do so without something to counter the market uncertainty. Where the share price might have ended up without an announcement does not bear thinking about.
KCM has shown extremely good faith, while still holding the line on what MUST be delivered before the serious money changes hands.
They have supported ASM's need with a $15m injection, and an overall increased total investment.
ASM needed the agreement to be non exclusive, in order to counter market frustration with apparent delayed contracting - (although I believe contracts were never feasible without proven delivery of production at design expectations and costs).
As such, this is a stop gap announcement, and actually reflects that real risks remain.
All of this is merely my attempt at deconstructing the reasons behind the announcement - and I can be as wildly out in my assessment as the next HC punter.
Good luck to all holders, - I sold my last lot today at $6.44
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