I thought that suggesting a LT ilmenite price of $300/t when the...

I thought that suggesting a LT ilmenite price of $300/t when the short term price was quoted as $400/t showed some restraint and attempted realism ?? , although your point about the spike being sort term and due to mine closures makes a lot of sense and so a LT price forecast of $300 was probably overstating things. I'll take your $225 - $250 estimate.



above is a graphic from the SFX 2019 BFSU showing NPV sensitivity. You'll note that the biggest sensitivity comes from AUD commodity prices assumptions. A zircon reference price increase from $1381 (2017 BFS) to $1469 (2019 BFSU), plus a $100mil drop in capex (which adds $100mil straight onto NPV) were the major reasons that the NPV jumped from $620mil (2017 BFS) to $980mil (2019 BFSU, zircon production also increased by 33% in the BFSU, however ilmenite production dropped out so that may have balanced out the zircon tonnage increase more or less).

As many of us know, the 2019 numbers looked pretty good, and were bankable based on economics, it was only the marketing risk associated with the BFSU mine plan which made it non-fundable (the mine plan was based on producing a very specific product for a very specific customer and if that customer defaulted it would have been unlikely that SFX could have found an alternative buyer, so ultimately the PE funds said we cant take that risk so we cant invest). Those issue have been alleviated with the shift back to the LTR ilmenite approach, and furthermore were looking at a potential 12.5% - 25% increase in the ilmenite revenue streams.

As you point out SFX has a low enough cost of production profile that it will survive the lows of the product cycle as well as benefit during the peaks, so that should make it fundable on paper. Having said this, the NPV that gets spat out of the DFS later this year is also significant. If it remained at $980mil we're looking at a valuation which is very attractive compared to the current SP. It obviously could drop or increase, and my bet is on an increase rather a decrease on the estimate that the increases and decreases of the various capex factors will more or less balance themselves out, and running with seeing improvements in recoveries and underlying pricing assumptions.

When trying to get a feel for what price multiples the market could attribute to a de-risked TB, I think that STA is the most useful market listed peer to compare SFX to.

At 20.5c a share (price at which $120mil was recently raised and virtually the current sp) STA is attributed a market cap of $230mil (at the post funding and FID stage, and pre construction). Analyst research is calling STA to 65c.

STA has a pre tax NPV8 of $705mil (using 0.70 AUD FX rate). That means that institutional investors are willing to pay 0.33x of pre tax NPV8 (using 0.7 AUD FX).

If we see TB post funding, with FID and pre construction, with a post tax NPV8 of $980mil at (0.75 AUD FX) and we then normalise those figures to STA (pre tax NPV 8 at 0.7 AUD fx), we see TB with an approximate $1.475bil (pre tax NPV8 at 0.7 AUD) of which 50% is attributable to SFX, that equates to $737mil NPV attributable to SFX.

At an equivalent MKT CAP:NPV ratio as the market is willing to give STA (0.33x NPV) that would mean a mkt cap for SFX of $240mil. Divide that by the shares on issue (383mil, post $15mil raise) and you come out with a stable 63c a share (bearing in mind SFX won't have $120mil of overhang hanging over it's head given it raised the equity gap via a project selldown).

I also assess TB as a superior project to Cockburn (life of mine, grade, model assumptions), the above comparison doesn't factor in an sp premiumdiscount for any quality difference between the two projects.

Now the 63c is assuming a post tax NPV8 of 980mil, whereas given the potential improvements I mentioned above, and given the leverage of some of these factors on NPV, we may well see a post tax NPV of as much as $1.3bil (I'm realistically shooting for $1.15bil, and remaining open for an overshoot beyond expectations as we saw in 2019 due to price assumption increases).

And just quietly, I'm also half expecting that we could see a major change in mine plan from what has been broadcast to the market to-date. This change of mine plan I can foresee would eliminate stage 2 and incorporate increased capacity into stage 1. his would mean a bigger equity raise however before anyone gets all negative on this assuming massive dilution, I could only see management justifying this if it proved more beneficial to existing holders, otherwise they'd run with the simple shift from MS to LTR and leave stage 2 for later as has been broadcast. I consider this another reason that the BFS wasn't released in April, and one possible reason the debt consultants were brought on.

This project upsize is very much doable given several factors:
1) YS would be responsible for their share of the increase in capex,
2) the private sector debt component that was earmarked for the BFSU mine plan looks like it could drop if NAIF participated for more than previous, meaning the banks could fill in the increase debt requirement.
3) the previous equity gap has been filled, so the SFX equity raise needed for an upsize would be digestible.
4) Bruce I believe, was the consultant used by other PE funds when assessing their entry into the Finger Boards project and so he has access into that world,
5) Institutions seem to have excess capital to contribute into projects at the moment (demonstrated by STA's capacity to raise $120 mil).
6) An increase in throughput due to a larger plant could significantly enhance the project economics making it attractive to new investors and good for existing investors alike.
7) It would be a take it or leave it proposition from SFX's side rather than we need it to move forward

Anyhow, the above is just my speculation, however it would explain why the sp is not really moving yet (many balls up in the air internally). I'm not suggesting the sp isn't moving because a big raise is going to happen at 30c, I think its remaining low because the ducks aren't quite lined up yet, instos may have been approached in principle and there's no benefit in them pushing the price up if they are going to get set in another way, even if it is at 60c. Why do I say 60c, because my numbers say that the raise would have to happen at 60c for it to make sense for existing shareholders, and it was at a 63c equivalent that, strangely enough, was a price point that instos deemed it to be an attractive entry into STA.

Let's see what happens next.