I think anyone that isn’t in that mindset has their head buried...

I think anyone that isn’t in that mindset has their head buried in the sand.No doubt there will be some emotional sellers if we see a 40%-50% CAPEX increase (inline with steel price escalation) however that doesn’t indicate the project is dead by any means.

Some key point to consider in our lead up to the eagerly anticipated Clough CAPEX announcement.

• Mt Peake will not be alone in being impacted by cost escalations.The entire mining development industry, particularly critical minerals that require a higher degree of processing are facing these headwinds.
• I surmise SMS may have over engineered the entire process to get comfortable on their process and product guarantees.Given Clough were only appointed in Oct 2021 for mine site layout / EPC / capex, what I don’t expect will be done by Clough and the TNG engineering project team is the value engineering that is required.By value engineering, I mean approaching the engineering commercially rather than technically and looking at commercial ways to reduce the funding requirement.For example there’s $95m BOOT for a Chlor-Alkali Plant that produces the reagents for the TIVAN process. Given Mt Peake is close access to rail infrastructure, they could just train the reagents down. ARU in their 2019 DFS suggest this exact strategy and then build your own plant when cash flow positive. One of many.
• The value engineering is where I suspect we will lose time – is it 6mth, 9mth or 12 mths?In any event I think as long as it’s occurring concurrently with EIS, CLC and financing we can give them the time to get it right.What does shit me to tears and why I’m just about out of goodwill is I don’t think there is anyone around the TNG boardroom table or anyone in the engineering team that would have considered the commercial engineering over the technical.
• The key is getting the capex to a fundable level via value engineering and getting real about BOOT items.I think $1.5B to $2B is still fundable when you consider KFW are mandated for AUD800m, NAIF/EFA/Government could easily write a combined cheque for AUD300-500m, pre-production financing for offtake to secure product AUD50-150m, leaving 25% for a strategic partners, BOOT and equity.That’s still fundable however it clearing impacts the project economics.
• What will also hit the project economics is the inflationary impacts to OPEX, currently at AUD210/t of ore mined.This is going north.
• Again getting commercial about this project, what can you do to offset larger upfront capital cost and higher OPEX that mathematically will reduce NPV and IRR, get more bloody revenue!If OPEX remains high we will get more revenue from higher commodity prices however key driver for revenue is scale.
• On revenue, what I don’t think the TNG boardroom would even have considered, pre-empted or anticipated is what happens if our CAPEX goes up 50%?Blind Freddy could have seen the capex increases coming yet our TNG board have simply been asleep at the wheel. Paul, as recent as four months ago has been telling the market he expects CAPEX to be well in our favour – your neck is on the line Paul Burton.They should have been considering scaling the project throughput, maybe from 2Mtpa to 3Mtp to bring 50% more revenue through annually whilst reducing LOM from 37 years to ~ 25 years.Yes CAPEX will again be higher but you will get economies of scale on the construction costs resulting in a net benefit to NPV and IRR.Then drill out the rest of Peake to find further resources to add a further 15-20 year to LOM.

I just feel this board has been asleep at the wheel for too long.I accepted the NTEPA outcome as a 50/50 call however what I won’t accept is simply appointing Clough and waiting for the outcome, which we all have clearly seen for the last 6 months was going to be higher, and think that’s the best you could have done.The board need people that have operated mines, not modelled them and until those people are on the board, you will not get the commercially driven outcomes.

Just as a side note, BCI Minerals had an NPV of $1.2B, 15% IRR and closed a circa $1.2B funding package.

If TNG capex blows to $2B, I’ve got our NPV at $1.7B and IRR of 15% of a 2Mtpa 37 year LOM operation.If we increase the operation to a 3Mtpa, I think Capex gets to $2.4B, resulting in NPV of $2.5B and IRR of 18% for a 25 year mine life.If you drill out Mt. Peake to find another 45MT of resource and run LOM for 40 years, you get an NPV of $3.2B and IRR of 18%.

Although capex is getting up there, it shows you the economics of the project can stand up and absorb the capex.From a ‘higher for longer’ commodity pricing scenario at 3Mtpa for 40 years LOM, if V is 30% higher (USD15/lb) and pigment is 10% higher (USD4,000/t), NPV of $5.2B and IRR of 24%.

	Operation	LOM (years)	CAPEX	Commodity Pricing (USD)	NPV	IRR
	2Mtpa	37	$824m	V 11.5/lb & Pigment 3,600/t	$2.8B	33%
	2Mtpa	37	$2B	V 11.5/lb & Pigment 3,600/t	$1.7B	15%
	2Mtpa	37	$2B	V 15/lb & pigment 4,000/t	$3.0B	19%
	Operation		CAPEX	Commodity Pricing (USD)	NPV	IRR
	3Mtpa	25	$2.4B	V 11.5/lb & Pigment 3,600/t	$2.5B	18%
	3Mtpa	25	$2.4B	V 15/lb & pigment 4,000/t	$4.3B	23%
	3Mtpa	40	$2.4B	V 11.5/lb & Pigment 3,600/t	$3.2B	18%	>> Need to drill out Mt. Peake and find another 45MT
	3Mtpa	40	$2.4B	V 15/lb & pigment 4,000/t	$5.2B	24%