There are sufficient transport-related known unknowns, and unknown unknowns to warrant my use of the adjective “iffy” in respect to usual stock evaluation methodologies. To value WAK, one would want to either know, or guesstimate ,what the approximate net profit per tonne is, and how the tonnage can be expected to grow over the next decade, and hence guesstimating them is extremely "iffy".
WAK's road transport cost is one of its largest costs in its COGS (cost of goods sold). I recall looking into this a few years ago, and my hazy memory is that the saving that rail would effect was something like $15 a tonne, so at full capacity of 200,000 tonnes a year, that is $3 million Profit before Tax.
WA Government had mooted 2025 as a likely date when the rail link would be reconnected. But there has been no news on the matter in recent years, and no final decision made to proceed. This not only affects WAK's cost per tonne, it affects how many tonnes the road system can handle, and hence the road permits issued to WAK. I asked Management if the mention made about using the Port of Bunbury would help get road permits, and I was told that it is one reason why WAK has considered exporting via Bunbury, and the conversation extended to Albany being another option, and why Kwinana was not yet ready to replace Fremantle. WAK is to a degree hampered by what Government does not do to facilitate exports via good rail and port infrastructures. This makes the timing of Plants 3, 4, 5 and probably 6 (as a back-up for 1, 2, 3,4 and 5) very questionable. WAK has often mentioned a million tonnes a year as a dream, and that is five times 200,000 tonnes per year.
That said, Plant 2 could happen fairly soon within the current transport constraints, subject to the need for more capacity (read marketing success) and to a lesser degree CAPEX funds. If Stage 1 goes well and cash flow is there, then WAK could justify sourcing CAPEX funds for Plant 2 from sources other than available cash. It should not cost much, because some of the permitting and infrastructure (power supply, bagging and drying capacity, for instance) is already in place. Two classifiers have been ordered, not one, and it makes more debottlenecking sense to later shift the second classifier to a second K99 plant.
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Using Bunbury and Albany suits “break bulk” exports – that is, non-containerised cargo. For kaolin, that would be bulk bags loaded directly in to ships' holds. To a degree this initiative is linked to the partners-in-China initiative who would import K99 as a precursor product, and beneficiate it to meet customer specifications – for example, delaminate K99 product to suit the paper sector. This feeds back into the CAPEX issue, because WAK would not have to consider wet processing and other benficiation in Australia.
WAK has mentioned that it is in contact with two firms in China (one well connected to the paper sector, and the other to the ceramics sector) with whom it expects to negotiate sales of K99 as a precursor product. I would not be surprised if Stanco does not one day slot itself into the same game, but in respect to the fibreglass sector market.
WAK Price at posting:
4.3¢ Sentiment: Buy Disclosure: Held
