I've come across a well researched piece which helps to explain what's going on with AML (imo):
TWO WORLD CLASS PROJECTS IN THE SAME PRECINCT
WALFORD CREEK
VARDYS ZONE
Is this the most outstanding COBALT dominant metals play in Australia today?
Here’s why we think it is:
WALFORD CREEK.
The global Walford Creek resource as published by the Company is 73.3Mt @ 1.43% CuEq. This JORC compliant resource was published by the Company in 2014/15 and comprises:
60,000t Cobalt
296,000t Copper
623,000t Zinc
626,000t Lead
55moz Silver TOTAL INSITU VALUE A$11.73billion (28/06/17) Applying metal prices as at 28th June 2017 to the resource, the ore value calculates to $152.00 pt, or2.1% CuEq.
In the calculation of the JORC resource in 2014/15, many of the drill holes used were historical holes drilled by previous operators (WMC, Copper Strike) and were not assayed for Cobalt, in fact it was unusual for the holes to be assayed for Cobalt at that time, probably due to the prevailing Cobalt price.
It appears that 39% of the holes used in the calculation were not assayed for Cobalt, and as such under JORC regulation were assigned a zero value for Cobalt. This of course has the effect of reducing the overall grade of the Cobalt in the resource.
If we assign the average Co grade in the resource (.08%) to those unassayed holes, the Co grade in the resource becomes .1112%.
This increases the ore value to $176per ton or2.34%CuEq.
No other resource company in Australia has a Cobalt sulphide resource at this grade and size.
In December 2010, Copper Strike (owner of Walford Creek at that time) made a release to the ASX defining the assay results for hole number WFDD87. In that release the Company stated the following:
‘The true Cobalt content of the deposit is unknown and potentially interesting. No cobalt assays were completed on the first 90 historic holes that were used in the resource calculation so all these were assumed to be zero. The other 30 holes used in the resource calculation, drilled by Copper Strike, had cobalt assays that indicated that the average level was higher than that estimated in the resource assessment.’ Therefore it would seem that the Cobalt grades are still understated
VARDYS.
A subset zone of the global resource, Vardys has 6.6mt @ 3.66% CuEq equating to an ore value of A$280pt. Current drilling underway both within and outside the resource will lead to a material increase in tonnage according to management. There is a high level of confidence the high grade fault bound deposit extends to the northeast (and east) where the fault splays into a horse tail formation.
METALURGY.
Extensive metallurgy work has been completed over the years with the Company quoting recovery levels of 90% for Copper and 75/85% for lead zinc and silver. The recovery level for Cobalt has been quoted as 64% via roasting after some preliminary test work. There is high confidence that further test work will greatly increase the Cobalt recovery level.
PEA. VARDYS.
On 15th February 2017 the Company announced the completion of a Preliminary Economic Assessment for the Vardys sub-zone. Throughput is assumed at 600ktpa and envisages a life-of-mine cash flow of $84 million with an average EBITDA of ~$39 million per year over 10 years.
The production seems reasonable enough on a capex of approx $97 million.
HOWEVER, the PEA assumes operating costs of $97/tonne of ROM production! This appears outrageously excessive on peer group comparisons imo.
The ore processing cost is quoted at $45.40pt; there is no vaguely similar mine anywhere in the world, that I can find, that has processing costs even remotely similar to this.
When compared to profitable operating mines in Australia (Metals X, Avanco et al) the cost structure lacks credibility. The mining cost at $26.50 also seems excessive on such a shallow ore body.
The consultancy work on the operating costs was done by AMEC Foster Wheeler and AMDAD, however the results are not substantiated in the PEA and we are left to guess how they were conceived.
There is an ‘on site administration’ cost quoted in the PEA of $4.5million….how you arrive at on site admin costs of $4.5million on a 600kt pa operation is unfathomable…a mine of this capacity is a front-end-loader-tip-truck operation and does not require such massive administration imo.
So my point is that the operating costs quoted in the PEA are excessive and out of line with reality.
Management confirms this in subsequent ASX presentations stating “high confidence costs can be reduced”.
Reducing costs of course will have a corresponding positive impact on EBITDA.
The figures quoted in the PEA are conservative in the extreme on operating costs and somewhat out of line on commodity prices. The Copper price used is US$3.30 (current price US$2.65) the Cobalt price used is US$20.41 (current price US$27).
The Company has stated in announcements to the ASX that production is planned to commence in first Qtr 2019.
THE TRULY BIG DOLLARS.
There is much much bigger story here, to unlock the vast Walford Creek global resource and create a world class project.
Using a conventional flotation process, Copper, lead, zinc and pyrite concentrates will be produced. The Cobalt lives in the pyrite concentrate and is sent to the roaster to produce cobalt metal via SX/EW. The roasting process produces sulphur dioxide which is sent to the acid plant to produce sulphuric acid.
An open pit operation at 2.5Mtpa over 15 years would have annual production of:
1.2ktpa Cobalt
8ktpa Copper
15ktpa Zinc
13ktpa lead
1.3mt Sulphuric Acid
TOTAL PRODUCTION VALUE =$375 million less costs @ $175 (@ $70pt quoted in the scoping study) leaves a net of $200 million pa.
HOWEVER combining sulphuric acid with phosphate rock produces phosphoric acid which sells for around $820 per tonne (this product is used to make MAP & DAP, fertilisers used by farmers worldwide) The equation works like this: combining the 1.3mt of sulphuric acid produced at Walford Creek with 1.9mt of phosphate rock produces 470,000 tonne of phosphoric acid; at $820pt that’s $385million per annum.
The combined value of the Cobalt, Copper, Zinc and Lead in the above equation is $245million. (i.e. $375million total prod val. less $130million for Sulphuric Acid)
So total production (metals + phosphoric acid) is $630million gross pa.
The key to this of course is to do a deal with one of the numerous phosphate projects in the region which shouldn’t be hard to do if management are doing their jobs. Given that rock phosphate is not a high value commodity, hampered by high transport costs etc, you would have to think the value add story makes compelling sense to someone in the space. I’m certain it does.
The Cobalt roasting technical components in the scoping study are conventional in nature, there is nothing involved that has not been done previously. The flotation process is also conventional and widely used in the industry. It’s ready to go.
The surging price of Cobalt due the fast moving battery storage market is well documented, however just as vital to the trade will be the large increase in Copper usage in electric cars and motors. Copper consumption is set to double over the next few years imo, however production certainly will not, it’s not that easy to find and produce.
IMO THERE IS NO COMPARABLE PROJECT IN AUSTRALIA AT THE DEVELOPMENT STAGE and
ACCORDING TO MANAGEMENT THIS WILL BE IN PRODUCTION Q1 2019.
The current market cap is approx $50million against a projected income of $630million pa.
Hopefully this helps to explain what's going on here....?
