Have been re-running some numbers to try and get a bit of a handle on the potential should Hazer get a single full scale plant up and running and though that others may find them interesting. The assumptions are my workings only and could be well off although I have tried to match as well as I can with known data. A plant of this size would produce 25,000 tonnes per year of Hydrogen and 100,000 tonnes of graphite. On a world market scale this represents 0.05% of the existing hydrogen market and 4.1% of the graphite market so quite easy to imagine that any products produced have a pathway to market.
Assumptions:
Hazer process OPEX will be similar to Steam Methane Reforming plant (in reality the Hazer process should be less expensive due to the lack of steam raising equipment required and lower comparative process pressure)
Purification OPEX not included nor known therefore assumed as a cost per ton and on the high side
Graphite produced will purified to battery grade therefore attracting around AU$8300/tonne (as per MIN announcement stating US$6000)
Hydrogen is priced at $1/kg which is around half the price of the closest competing method
Methane feed will be purchased at market rate (if landfill or stranded methane are utilised this will be lower). Many ASX listed explorers have stranded gas assets which require a pathway to commercial application. Think AJQ NT, RLE north, GLL Galilee, BUL etc
The plant depicted above I speculate would be profitable to the tune of around $530m with a 15% royalty providing HZR with ~$80m p.a for capturing 4% of the graphite market and hardly denting the hydrogen market. This would value the company at somewhere around $1b EV.
It’s a genuine possibility that we get there over 3-5 years but the point I’d like to make is that at this stage valuation growth is all about improving the probability that we get to this scale. With each, engineering study, each process scale up, each quality management decision, each successful JV, each product test and vertical study the probability of reaching this valuation increases. As these pieces fit together the the barriers to success diminish at an increasing rate.
Today at 34c the EV is $23.9m (undiluted) or $25.3m including in the money options
Fully diluted at $1b EV the SP would be $6.57 or 19 times current.
To get to that 100ktpa plant we there's scale, quality and economics to overcome.
MIN have committed to a 3 stage scale up with a nominal end goal of 10kpta with the first stage to be delivered in the next few months. A 4th MIN scale up stage would take us to 100ktpa. MIN have finalised stage 1 design and are currently performing the concept engineering for the stage 2 plant. Later this year when operational MIN intend to test the produced and purified graphite to ascertain a more accurate market value and potential offtake routes.
Hazer have internally completed 4 scale up stages to get to the current 14tpa pilot plant with planning underway for a demonstration plant at 146tpa with a commercial 10ktpa plant the stage to follow. A 4th HZR scale up stage would take us to 100ktpa. Another significant derisking point is the FEED and concept engineering study commissioned which will deliver a level of certainty regarding the build and operational costs involved with a commercial plant. While it's important to keep in mind the challenges that face any new technology the potential that HZR has is pretty hard to match and the de-risking steps are now coming thick and fast, as the reasons that prevent a highly profitable business being established are removed one by one it is my expectation that we begin to price in success in a stock that has for the last few months clearly been priced for failure.
HZR Price at posting:
34.0¢ Sentiment: Buy Disclosure: Held
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