General comments/chat, page-225

IMO. DYOR. Not advice and caution that analysis is speculative.

Playing with some speculation because I like speculating ...

1. 2020 ... We know there is significant demand and demand has increased since last year so let's say they start with 200 kt pa DSO, just for 1 year to get the business going.
2. 2021 ... Then they switch to doing Dry-processed Ore, let's say 250 kt because we know there is strong demand for > 200kt, plus they would want to build in extra offtake capacity.
3. 2023 ... They expand (double) production of Dry-processed Ore to 500 kt. Again, lots of interest and demand and the CAPEX is unlikely to be expensive. It is important that they scope it appropriately to have environmental permitting in place.

Now they could skip straight to Dry-processed Ore but have left DSO in the scenario for guesswork on cashflow.

Further assumptions:

1. ADN will have a 75% share of revenue
2. Cash costs ... I'm using AUD $15 per tonne for DSO and AUD $25 per tonne for Dry-processed Ore ( those assumptions from @prolifix here https://hotcopper.com.au/posts/38544745/single )
3. Mineral Royalty at 1.5%
4. CAPEX, in stages ... it's a simple low-risk flow sheet
   • DSO @ $2M ( establishing site roads, fencing, waste dump, pit and maybe some basic sheds )
   • Dry-processing Stage 1 @ $4M ( adding a processing, bagging and storage shed and first module of Dry-Process equipment and product storage silos )
   • Dry-processing Stage 2 @ $2M ( adding second module of Dry-Process equipment )
   • Total cumulative CAPEX @ $8M
   • Contract mining so they don't need to buy mining equipment
5. Price for DSO ... let's say $100 per tonne
6. Price for Dry-processed Ore ... I'm using $350 per tonne but their presentation suggests anywhere from $500 to $1000 per tonne for a Kaolin/Halloysite Hybrid (and this recognises the demand from the ceramics part of the market ... both traditional ceramics and high-tech applications )

Hopefully my price assumptions are conservative enough to offset potential that cash cost assumptions are too conservative.

CAPEX figures are really just guesswork but I can't see basic flowsheet equipment costing significant dollars:

• Sheds ... well large industrial sheds can be bought for just $280k ( see https://www.centralbuild.com.au/build-factory-shed/ )
• Also, I credit @prolifix for pointing out this scoping study for a Potash project https://www.asx.com.au/asxpdf/20181130/pdf/440tdr741s324g.pdf. CAPEX on that project is just $1.2M. Again, ADN are planning contract mining in small campaigns of probably 6 weeks per year so they don't need to buy mining equipment. It will basically be free-dig a quarry-type operation.

So $8M I have used is probably too conservative for CAPEX. Low CAPEX also means no debt and lower chance of further dilution for shareholders. Exercising of the options covers all of the development capital, probably comfortably if my CAPEX number is on the high end.

No debt means no interest and no amortisation. We just have depreciation on cumulative CAPEX. I'm an engineer and not a bean-counter so my figures are rough but maybe in the ballpark.

Now I think we could be on a path to greater than $40M free cashflow within 2-3 years and maybe $9M free cahsflow in say 12-18 months.

So my numbers for this speculative scenario:

1. 200 kt DSO ... a share price of $0.064 ( they may skip this step )
2. 250 kt Dry-processed Ore ... a share price of $0.30
3. 500 kt Dry-processed Ore ... a share price of $0.60

( I've assumed they stop shipping DSO once they move to Dry-processed Ore )

I have used a P/E of 15.0. This is the ASX average and I think ADN will be a very credible and compelling growth story once they add in revenues from wet-processed purified products and then add in HPA down the track. A strong growth plan will help to sustain a respectable P/E.





Estimates are a bit simplistic because they are carrying a loss of $35M ( which just means they pay no tax for the first year or two ). Incidentally, I understand the tax rate is 27.5% for businesses with revenue under $50M and 30% for revenue over $50M.

Will also point out ... that GOR traded at 50% of their in-production share price back in 2016 ... and they had a very complex gold mine to build. First Gold is imminent and they will perhaps take 6 months to ramp up to full production.



So on my scenarios above ... just imagine potentially in a 6-12 months time:

1. Decision to mine
2. Binding Offtakes
3. All the options exercised
4. 18 to 24 months away from generating $40M+ free cashflow with no debt ...

What will the market think and where will the share price be in 12 months time ... if scoping study is anywhere near my numbers ... I think we could be at $0.15 this time next year ( if scenarios are valid and 4 conditions above ).

The comparison with GOR is actually interesting. Bell Potter are estimating free cash $63M for them in 2020. The interesting thing is that ADN could potentially generate similar ballpark cashflows with less than $8M CAPEX (if my analysis is valid).

This is all why ADN is so, so interesting. My cashflow figures above don't even consider wet-processed products, a HPA JV of some form or the blue-sky potential of Halloysite Nanotubes.