If my hurriedly-written post is not clear, the basic thoughts I have are as follows:
- WAK's addressable Asia-Pacific market is hundreds of million tonnes a year.
- Each plant produces 200,000 tonnes a year, or .2 million tonnes year, of kaolin.
- At a yield of 50%, each plant consumes .4 million tonnes a year of kaolinised granite.
- If WAK decided to have ten plants, that is 2 million tonnes a year of kaolin, a percentage of the whole that is too small to be a concern that WAK's supply would disrupt the market.
- Ore reserves (kaolinised granite) would be consumed at 4 million tonnes a year, so considering ramp-up, the reserves of mining lease M70/4413 alone would last for about thirty years. Remember that the DFS and my crude numbers only apply to about a quarter of the reserves in mining lease M70/4133.
- WAK can to a degree select a price and a profit margin, and work to that.
- The price should be low enough to be able to sell everything, and yet retain the goodwill of its customers, and $300 FOB seems to be a viable number.
- Now pick a NPAT margin, and 50% is far too greedy, but achieved by the likes of FMG in the iron-export trade, so 10% is a good start.
- What I did not cover is the cash flow and the share tally, but I am inclined to ignore the EPS metrics until all the options are taken up, or abandoned, but assume they will be taken up.
- To attempt to value the entire orebody is too difficult, because many of the retention licences are certain to fall away, and anyhow, someone like Imrys will acquire WAK at some multiple of the current SP.
PS for SWILTDMulti-genrationalOn Point 5 and Sorensen's term, “multi-generational”, mining lease M70/1143 alone would take a generation to exhaust its 109 million tones of reserves. So two more similar-sized initiatives would last until 2100, and exhaust half the Wickepin resource. For Wickepin, JORC 2012 reported kaolinised granite resources as:
– Inferred – 644.5Mt kaolinised granite – 75.8 whiteness scale – 44% yield – 283.6Mt kaolin
WAK has made the point that many of the arrangements with interested parties on things like access, royalties and whatever are informal, so even over multiple generations, WAK will not extract that 644.5 million tonnes. That is why I moot M70/1143's resource of 109 million tonnes times three between now and 2100.
Earnings of approximately $60-80As I hinted that the margin of profit may be what WAK thinks is wise, rather than the maximum it can get on a deal-by-deal basis. Consequently, WAK may choose $60 gross profit per tonne, and set its FOB price to get there. If FOB costs were $240, then it could sell at $300, or as a matter of principle, always keepthe the ratio at 24:30, so if the FOB cost rises to $250, the selling price would be $250*30/24 = $312.50. Additional flights of fancy could invent expenses to get to a profit before tax. There are many other paths that one could take free cash flow for one.
On free cash flow, a 200,000mta plant costs below $20 million, so we could use $20 million to be conservative. Plant expansion would thus occasion cash outflow. Then there is option-money yet to come. I am disinclined to spend much time on all this because being 81 years old, if the SP dropped to zero, or doubled, would make no difference to my life.
Creative accountingHow long is a piece of string? I understand accounting well, and that includes its underlying philosophy. Creativity is just another word for imagination, and I have spent decades practising my imaginative facility. An imaginative thought that has flitted across my mind is for the likes of Stanco (Taiwan) to invest in one or more 200,000 tpa plants, and strike a win-win arrangement with WAK. The multi-generational aspect of the resource suggests that much of the value would be lost to WAK if it delays locking in projects that convert more retention licences to mining leases and that may well call for vivid imagination – e.g., concurrently exploiting multiple mining leases via the franchise model.
(20min delay)