Key points: - No more CR anticipated going forward as the latest raise gets us to end Q4 where we need to be before increased margins and reduced capital spend. - 10 months of reserves/resource drilling underway at approx $700k/month in spend. - Hydroxide deal in final stages of negotiation. Should be binding in 30 days. Very supportive JV partner - they just threw us $10M! - Slow ramp up of the hydroxide plant expected as they usually take about a year to ramp up. Looking at 2,000t this year and looking at 15-20,000t next year depending on ramp up and recoveries. Multiply by 7 to get spod requirement. - Exploring downstream options in Australia outside of carbonate and hydroxide (early stages). Perhaps something more niche, pricing/economics/viability studies underway. - Currently getting US$750ish/t which is well above our competitors although a little less than we achieved in Q1. Costs looking around $550/t average this year and down towards $400/t average next year. Pricing should increase in Q4 with new pricing formula that is based on hydroxide cost and not just carbonate cost. - Costs this year to remain high as pre-strip activities continue. - Looking to refinance debt and in any case likely to pay it off in 2020. - 240,000t run rate next year, ability to push the plant closer to 300,000t if demand is there. Plant is the lowest $capex/t expansion option in the world. - Bald Hill manages to get the best recovery from a DMS in the world. Interesting to see how it compares to the other plants once the fines circuit is complete. - Mark further stressed the quality of Bald Hill spod as the best in the world. - Seems to be open dialogue with GXY and happy to have them on board for the ride. Seen by MC as protection against a cheap TO. Increasing the resources for the project will likely make Bald Hill a TO target given it will be the only operating mine that's cheaply and quickly upgradable without the offtake already spoken for. - Currently negotiating offtake deals for the remaining this year and next years forward spod production capacity. Offtakers have expressed interest for more than what is available. No timeline on offtake deals given but not as urgent now and no longer stressed about pre-payments. - Comparing to our peers we are looking undervalued given our immediate potential to increase mine life to be in line with the other mines in WA.
Overall, we're in good shape. This year the short term will continue to be rough from an operating margin perspective but with fines online in Q4, increased margins on the spod sales AND the hydroxide JV, we'll be looking at something in the order of US$300-450/t operating profit come Q1 2020. Do the math based on a run rate of 240,000-300,000t/year and you have yourself a nice business worth well north of the current ~$300M. Now top it off with a reserve that allows for a 20 year mine life...
Will be adding on any near term SP weakness this year because it's unlikely there will be a chance to top up come Q4!
A40 Price at posting:
21.5¢ Sentiment: Buy Disclosure: Held
