General discussion, page-9516

Some back-of-the-envelope arithmetic in relation to the phosphate by-product..

Pricing: (Pure) phosphorous ~$3k/T (A$4.5k/T) vs. Niobium ~$45k/T (A$67k/T) (1/15 x).
Grade: P2O5 ~ 10% => 4% P by mass vs. ~3.2% Nb2O5 => 2% Nb by mass (2 x) (*).

So, 2/15 ~ 13% addition to gross revenue per tonne mined; assuming margins ~>50%, optimistically adds >20% to profit per tonne mined (**).

In terms of valuation, I estimated previously that CBMM minority acquisitions took place at a PE ~ 20; publicly traded phosphate cos seem to trade at PE ~ 10. Using the above estimates that phosphate extraction may add ~10% to gross revenue, ~20% to profit, so it seems reasonable to assume that the phosphate stream adds ~10% to WA1’s fair valuation.

To use explicit numbers, assuming 2% Nb, 4% P from the high grade zone, 60% recovery of each element, 0.02 * 0.6 * A$67k/T = A$800/T mined from Nb, 0.04* 0.6 * A4.5k/T = A$110/T mined from P.

Conservatively, a ~.85MTpa mine with the above yields ~ 10ktpa niobium, 20ktpa phosphorous, ~A$700m gross revenue from niobium, ~A$90m gross revenue from phosphorous, let’s say ~A$350m profit from niobium standalone and an additional ~A$70m profit with the phosphorous stream addition.

Using these rough profit numbers and the multipliers quoted above would put the niobium standalone business at ~A$7b and the phosphate add-on at ~A$700m. Discounting by 40% (= 1.14^4; 4 years @ ~14% [~beta of 2]) gives A$4b present enterprise value for the Nb business standalone with A$400m added to present value by the phosphorous by-product stream.

Any wildly incorrect assumptions here? I haven't accounted for the marginal capex, which will presumably be material at the (conservative) throughput above. Obviously the reader can rescale the arithmetic to their own more optimistic / pessimistic scenarios. At some point I would like to go through the China Molybdenum Catalao acquisition breakdown into Niobium / Phosphate streams more carefully (they split revenue, profit by segment and provide many other details in the circular here)

(*) Grade estimates from a cursory sampling of enriched assay results in recent reports; the high grade zone appears to be very rich in apatite (like Catalao, unlike Araxa?).
(**) Assuming the marginal direct costs /T associated with phosphate concentration and shipping will be fairly low; also assuming the same recovery rate for both elements - probably phosphorous recovery will be higher.