The distractions of the CR and SPP are over.
The company has ~22m$ worth of cash and should be fully funded for the next 12-18 months, up to DFS completion and funding arrangements per their timeline.
I believe it is the perfect time to start thinking about price targets and what we can expect from the DFS.
For that, we will need the data from the updated PFS, adjust prices and exchange rates and scale it up to the 1.2-1.5 wmt of the expanded plant.
PFS was for 565ktpa of ore, so for 1.2-1.5mtpa of ore, this gives us :
- Nickel sulphate 56066-70083 tpa
- Cobalt sulfate 6578-8222 tpa
- Hematite 696-870 ktpa
- Magnesia 42645-53308 tpa
- 4N HPA 8510-10639 tpa
Current prices (Shanghai metal markets and CuSteel) :
- Nickel sulphate 5159 us$/t, SMM
- Cobalt sulphate 11550 us$/t, SMM
- 66% Hematite concentrate 229.2 us$/t, based on 65%fe concentrate prices on Custeel. I do not expect these prices to last forever and will use 150 us$/t to be conservative.
- Magnesia ? Can't find any pricing, so let's be conservative and not count it in the revenue.
- 4N HPA 25000 us$/t, FYI used 26400 us$/t in their DFS, so the base case seems reasonable here.
Multiplying production by prices, we get a revenue of 682-853m us$ or 0.89-1.1bn $AU.
The exchange rate of the base case being 0.68 instead of the current 0.77 is already factored into the new revenue but we haven't factored that it should lower Capex and Opex due to cheaper ore, reagents and plant part imports.
Let's be conservative once again, neglect this effect and linearly scale up the opex.
For 1.2-1.5mtpa, we get 346-433m $au in yearly opex.
Revenue minus opex leaves us with 544-667m $au in yearly EBITDA.
The capex for the PFS was 650m $au with contingency.
Dr Grocott stated in an interview that around 50% extra capex would be enough to double the PFS due to economies of scale. Let's simplify by allocating an extra 1% capex for each 2% in production increase.
A 1.2-1.5mtpa operation is a 112-165% increase in output, which then result in 56-82% extra capex or a total of 1.01-1.18bn $au in capex.
I am not well versed in NPV and IRR calculations but essentially, the Tech project will necessitate 1.01-1.18bn $au in Capex and generate 544-667m $au in yearly EBITDA which should very roughly give a 40% IRR, around 3 years payback and 3-4bn $au NPV.
There are a few unknowns, some of which will be sorted in the next 12-18 months, some which will not.
From here on it's a lot of guessing so feel free to adjust depending on what you expect to happen, this here is just my opinion of how it should play out.
- How well the process will scale up ?
There's always issues to solve when going from pilot plant to industrial volumes, we won't see that until production in 2023 but operational risks always warrant a discount to NPV.
- How 8-10 ktpa of 4N HPA will affect the market ?
This is a pretty opaque and unpredictable market and accounts for 31% of revenue, which should warrant another discount.
- How do we come up with the funding ?
Wild guess here, but I reckon this will be a combination of NAIF and other schemes, prepayment from majors, Debt funding and some equity issue to prove they are serious.
Say 300m$ / 300m$ / 300m$ / 150m$ respectively.
With all these risks and I've attributed a conservative MC of 30% NPV value post DFS in April/May next year, which should see us around the 1bn $au mark in market cap or roughly 80c/shares.
So my 12 months target is roughly 80c/share.
Post equity issue and once into production, I assume we would have around 1.5bn shares and be generating ~600m $au in yearly EBITDA, or around 400m $au in net earnings.
At a conservative PE ratio of 8, this should justify a 3.2bn $au market cap or 2.13 $au per share, at which point I would retire.
I've tried to be conservative several times but it's hard to remain objective considering how everything seems to line up for this project.
With the macro context of the EV/Electrification/Renewable boom, harsher and harsher environmental regulations and tens of billions being invested in HPAL, a much worse technology on all aspects, I just can't see how the Tech project won't go ahead.
Feel free to use this as a base and change the numbers as you please.
