DSO ASIC

Hello Andromederians

I have always liked the ideathat this company can fund its start-up and future growth without shareholderdilution by implementing a strategy of low capital cost DSO shipping and Tollrefining.

My only problem was that Ithought it was too good to be true. I finally dug into all of the things that mademe uneasy and attempted my first crack at FA (of sorts) I hope my thoughtprocesses are clear and I haven’t missed the Elephant in the room.

I am not a financial advisor orexpert in this field and this is only my opinion.

My major concern was always theeconomics of the DSO phase (because if it stacks up why hasn’t someone elsedone it before?)

I have worked through somenumbers below {all Based on OSS numbers)

I have not done any research toconfirm that there is a market for the product or that the assumed $A700 pertonne of refined product is realistic. I feel James has enough industry credand enough of himself invested in this project that his numbers are the bestestimate we could hope to find given the specialist nature of the market andthe secrecy maintained in all fringe material contracts.

To me the biggest risk is thatthe shipping costs have been underdone (I have tried but struggled to findanything which would confirm or deny ADN’s estimates. My research with littleaccess to real contract numbers found that the $A/t rate in the OSS was about30% higher than I could get numbers for (this is based on Bitre rates from 2016and Shipping rates from about the same time.

I assumed the product would behauled by road to Ceduna as a mid range case.

On the other hand the price ofoil has been recently decimated so costs may actually go down (as an aside doesanybody think it is worth ADN hedging against current oil prices?)

The other major risk that I seeis Market size . Conversion of LOI’s to OTA’s will put me at ease on thatfront.

From the FDS I would like to seesome more detail about the DSO phase economics (rather than having to readbetween the lines as I have done here)

Please read through and let meknow your thoughts. I went into this with an open mind and I now believethat the claim that DSO will pay for a wet plant in a year (and very healthyprofits thereafter) is not only believable but possibly very conservative.

From the OSS

·Payback (start up and working expenditure) $AUD29M in 15 months : assuming that this is all generated by toll processing of DSO in the first 15 Months, prior to commissioning of Wet Processing facility

·Mining :- Are the Extraction rates for DSO equal to LOM assumed 500ktpa ? if so 625Kt of material should be mined in the first 15 Months

·Production :- 625kt material should produce 227ktpa * 1.25 = 283kt/15mos

·Revenue :- 283kt of refined product at $AUD700/tonne should generate gross revenue of

198.1 M $AUD X 8%discount = $A 182.25 M

·ASICDSO phase :- $A 182.25 M (revenue) - $A29 M (start up capital) = $A 153.25 M(inferred) all in sustaining cost for DSO campaign.Equates to $A153.25 M / 283kt =$A541.5 $AUD/tonne for DSO phase.

Sanity check of Mining costs, shipping prices and volumes.

·Mining (including Ioad Road Trains)increase by A$ 5/ tonne to allow for extra loading costs for additional material movement with assumed 36% product recovery (A$20per tonne mined / A$55per tonne product sold) = DSO Mining cost A$60/tonne sold.

·Wet Processing increase from A$78 to A$102 per tonne Product Sold (assume toll processing margin of 30% more than self processing this includes additional product handling and disposal)

·Administration :- assume increased Road train contract administration and road maint costs over Dry Processing or wet processing increase to $A13 per tonne of product sold.

·Shipping (this is the Kicker) increased material volume by 220% (assuming 45% yield from Toll wet Processing) equates to :- $A 227 per tonne of product sold

·Refining assuming no change :- $A 114 per tonne of product sold

·Other Costs :- Marketing, Royalties, Corporate Overheads and Reserve replacement :- Assume no change therefore equals $A35 pre tonne of product sold.

Estimate of DSO ASIC

	Expense category	$A/tonne Product Sold	Comment
1	Mining	$A 60 (+$A5)	Increase for additional Tramp screening & handling
2	Wet Toll Processing	$A 102 (+$A24)	Includes Toll Processors profit Margin
3	Administration	$A 13(+$A2)	Increased Contract admin for additional transport and wet processing contracts
4	Shipping	$A 227(+$A124)	Reducing to $A103 pays for a wet plantin about 7 months
5	Refining	$A 114	Assumed the same
6	Others	$A 35	Assumed the same
7	DSO AISC 15 months	$A 551	First Pass very close to what I back calculated from OSS ie. Payback in 15months infers a DSO ASIC of $A541 Per tonne of product sold