KP2 (ASX) KP2 Discussion

Originally posted by ZaraahMichelle: ↑

Broker notes posted in London:

Our view: We note that with the EPC contract price now confirmed, the total project capex (EPC contract price + owners’ cost) now c.5% cheaper compared to the definitive feasibility study (DFS) published in 2019. Furthermore, the fixed price nature of the EPC contract minimises and protects Kore from capital cost overruns. We also highlight that close to 40% of the total contract price is earmarked for the construction of transportation links and utility pipelines - a key point in our view as this will render the Kola Project self-sufficient and not reliant on the state with regards to infrastructure. While in the near-term we continue to believe that potash prices will remain in the US$275-300/t band, our view of the potash market remains constructive, and we continue to see annual demand growth of c.3% pa driven largely by the need for agricultural yields to feed a growing global population in the face of a limited supply of arable land. House Stock.

Financing is the next key project milestone: While the financing structure for the financing of the Kola Project remains outstanding, we believe that in line with the non-binding memorandum of understanding signed in 2021, the Summit consortium is expected to deliver to Kore a non-binding term sheet for Kola’s financing within three months from the signing of the EPC.

Expected timeline for next milestones: The signing of a firm EPC contract is a key milestone as it ticks off a major project precursor and sets in motion a targeted timeline to first production. Below we summarise indicative timeline of the key development milestones ahead:

• End of February 2025 – receipt of non-binding financing term sheet from the Summit consortium.

• End of April 2025 – completion of the Early Works under the Early Works Agreement; the Early Works are designed to accelerate progress during the financing and enable construction to commence after signing a full set of legally binding financial agreements.

• 2H25: Financial close under the EPC; Final notice to proceed (FNTP) issued under the EPC; Commencement of construction under the EPC.

• 2H29 – first production at the Kola project.

They believe we should be trading at 4p. Lot's of upside from here before financing is agreed - then we should be significantly higher than that!

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IMO, even 4p (which equals about AUD $0.08 cents per share) would be low for KP2 considering the market cap at that price (at 8 cents per share KP2 market cap would be about AUD 350 million, as per below figures).

KP2 market cap at 8 cents = current shares on issue x AUD 8 cents per share = 4,377,869,961 x AUD $0.08 = AUD $350,229,596

IMO, an AUD $350 million market cap for KP2 would be very low based on the below information:

Project NPV

KP2's Kola project NPV is shown below:

NOTE: The full copy of the above attached broker note estimates an MoP price of approx USD $415/t over project life (" For our MoP product pricing, we assume a life-of-mine average realised MoP price for granular red of c.US$415/t, which is c.15% higher than the US$360/t we previously used ").

At an MoP price of USD $360/t, project NPV is USD $1.6 billion dollars (approx AUD $2.5 billion dollars)

At an MoP price of USD $500/t, project NPV is USD $3.3 billion dollars (approx AUD $5.0 billion dollars)

Kola Project

A high grade resource, with district scale development (over 6 billion tonnes of total estimated untapped resource located about 35km from the coast), which has a cost of production that is among the lowest in the industry (below screenshot shows an MoP cost of production of US $102/t MoP, which is far lower than the above stated anticipated market price of MoP for the project life of mine: US $415/t).

Long life production with a mine life of 33 years and a production rate of 2.2 million tons per annum of MoP.

Once in operation, and at a MoP price of USD $360/t, estimated free cash flow will be USD $500 million dollars annually (about AUD $ 780 million per year). That will obviously be much higher at an estimated MoP price of USD 415/t Mop price.

Project Funding and Construction

KP2 has just signed a project construction contract for the Kola project and expects that a debt and royalty financing offer will be received by the end of February 2025 (only 2 months away). Construction is currently scheduled to commence during the second half of 2025 (IMO, that may end up being earlier).

Additional Projects Owned by KP2

DX project.

Dougou Project.

IMO, KP2 is significantly undervalued.