Thanks for the feedback @simonj888. I've been considering the RE...

Thanks for the feedback @simonj888. I've been considering the RE market for a while. Lots going on across a range of geological, technological, political and strategic areas as the world considers China's dominance, the EV revolution etc as you know. I have lots of theories across the whole topic, but end of the day my DNA was forged in the principles of supply and demand economics. Although complicated by supply-chain issues and government subsidies atm, that doesn;t mean the rules of economics no longer apply over the long term, and 7-8 years is LT imo.

That governments are picking winners through grants and soft loans for critical minerals right now is a given, HAS included. Governments are great at handing out money to help build projects but terrible at picking winners (take SO4 that went down the gurgler with NAIF's debt a couple of years back because the tec and geology didn;t stand up to reality). HAS greatest strength is first-mover advantage of getting the handouts, soft loans and incentive off-takes to get funded and built. LT if negative cash margins happen due to production issues and/or price downcycle, investors lose all their money even if liquidators sell the operation to new owners without debt. Maybe government subsidises the Yangibana to stay in operation supplying critical minerals, all well and good but again probably only shares and equity investors have gone down the toilet...

Not saying this will happen, just these are some risks. I pay close attention to two risks when evaluating a project. Where the project sits on the industry cost curve (ie how high the operating margin compared to other suppliers). Projects with higher margins have room to take production issue hits before their costs go over revenue, and/or other lower margin producers will go broke first in any over-supply situation where commodity prices fall hard until enough supply is take out of the market to rebalance. The other risk I'm wary of is technical. How robust is the project and how many things can go wrong to cause production to fall below target and thus costs per tonne of product to blow out.

Most of my jaundice comes from Yangibana looking like it is high on the cost-curve, meaning it has lower margins than other RE projects I look at. The margins are so low that, as we just saw, the company has to keep increasing commodity price assumptions to keep it's head well above water. That works if those prices or better come to pass, but it won;t change where HAS sits on the cost curve. Other RE projects will simply be making more proifts if those higher prices come to pass, which is great, but they won;t be the ones closing down if prices go the other way. I'm always cautious of building/operating complex plant in Australia, we're simply no good at doing it well or cheaply. Skiny pinch and swell orebody, somewhat complex hydromet in Nth WA.. what could go wrong?

Here is a comp between Yanibana and Nolans that helps explain why ARU has much higher operating margins than HAS.... twice the NdPr%


ARU has even higher cash operating margins because they are processing right through to NdPr-Ox not stopping at the MREC phase like HAS, but even if they both produced a MREC product, odds on double the NdPr tonnage production would mean higher revenue to cost ration than HAS (especially after deducting the phos credits). If prices fell or simply never made it to DFS assumptions, it wouldn't help either company's investment return but at low enough prices HAS would go broke well before ARU. On the flip side, ARU is building a complicated monster plant not far north of Alice Springs, which in itself puts a shiver up my spine before considering what could go wrong technically. Nolans DFS A$1.6B last effort and building that plant where they are is asking for capex and opex blowouts. Not my cup of tea either...

Most projects have pros and cons, every project has management/brokers/rampers pushing it as the next best thing... pick your poison as they say.

Good luck