You raise some interesting points. There has clearly been several shifts in thinking. I've just done a quick review of yesterday's interview along with three documents:
The PFS 01/06/20
The announcement regarding the BOA with a Japanese customer, 17/03/21
The last quarterly 31/03/21
In the interview, James made a couple of points (to paraphrase):
- Mining is simple, even the processing is simple, marketing is difficult, BOA takes time and investment from customers.
- We are confident of selling everything we can produce we just need to lock in those agreements at the right price.
I don't see too much difference in what James said today with what the company put out on 17/03/21. In the 17/03/21 announcement the company said the following about the progress of the DFS:
The PFS was prepared based upon an initial period of mining kaolinized granite as DSO and toll wet-refining overseas to generate early cashflows and to then convert to onsite wet-processing in Year 2. This would produce concentrated kaolinitic product that is shipped in bulk as filter cake for final toll wet-refining overseas in order to produce a premium bright-white halloysite-kaolin product for high value ceramic applications. A pre-tax NPV of A$736M and IRR of 175% was estimated by the PFS from annual sales of 233ktpa of refined kaolin produced (refer ADN ASX announcement dated 1 June 2020 titled “Pre-Feasibility Study Further Improves Poochera Halloysite-Kaolin Project Economics”).
In an attempt to de-risk the project the DFS will evaluate alternative scenarios of a start-up 500,000tpa plant or a two-staged 250,000tpa modular phased wet-processing plant to be constructed at site,in preference to an initial DSO phase moving to 500,000tpa from Year 2 as contemplated under the PFS. In addition, the product specifications under the DFS have been altered from those considered in the PFS to a product with approximately 70% passing 2 microns (PFS was 90%) to meet the requirements of high-end ceramic manufacturers. The processed kaolin product has the brand name‘Great White CRM’.
The expected benefit of the new DFS approach is that high value product will be manufactured at site from the commencement of operations, from either an immediate 500,000tpa or two-staged wet-processing plant,tasking Project management with direct control to meet product quality specifications.
The option to undertake DSO in the first 2 years of operations as proposed by the PFS will be further analysed under the DFS to consider the technical capabilities of identified refineries and perform more cost benefit analysis to ensure this to be the best option for the Project.
Either of the early start-up scenarios will require bringing forward capital expenditure for construction of the plant. Under the PFS processing plant,capital expenditure was initially deferred such that plant construction would be funded by DSO sale revenues generated in the first two years of operation. Funding options are being considered under the DFS and for the following Bankable Feasibility Study (BFS) with significant assistance being provided by highly experienced corporate advisors Origin Capital.
Project debt funding will be sourced to the benefit of both parties to the joint venture, with similar terms to apply to each. Importantly, for Minotaur as minority participant, this arrangement obviates the need for Minotaur to seek separate financing avenues and streamlines the joint venture manager’s negotiations with bankers.
Primero Engineering Group was awarded the EPC contract (Engineering, Procurement and Construction) and is currently completing detailed design and costings for the wet-processing plant to be used in the DFS, which is scheduled for completion in the second quarter 2021
So the explanation is that although the capital costs will need to be met up-front, the product shipped will be a more valuable product.
It's one thing to have a target date to start mining but that might precede sales by some period. Usually a traditional ore miner will start mining by removing overburden then loading the ROM pad with ore while they build the processing plant. Then there is usually a period of testing and ramping up the processing plant to nameplate capacity.
I do sometimes wonder whether James has set overly simplistic expectations in investors minds. If the DFS does not align with existing expectations of shareholders this will be reflected in the share price upon release of the DFS. The devil is in the details.
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