Hi all, been some interesting price action of late and I've been very patiently holding, very happy with how things are shaping up. Surely the maiden JORC will drop this week, we all know it is overdue and maybe it's set to surprise a few, I was thinking it would disappoint (as they usually do) and am kinda selfishly hoping it isn't received well so I can get some more a bit cheaper, maybe this delay is aiding to include a few more holes and bump up that resource number, being able to include more life of mine or even a higher throughput should have a very positive impact on NPV for the SS.
As for the SS, I'm very excited as this is the first time that we will be able to reference an independent report released by the company that will hopefully vindicate our decisions to invest here. I had a quick catch up on the forum over the past day for the past fortnight and see there were some valid points raised in particular by Vector and 8Horse, at the end of the day the chances of finding a resource that will be profitable at low sale prices is unlikely (or it would likely already be in production). It's about picking the companies that can best take advantage of the situation. These points raised actually further reinforce my belief in CLA as IMO they are ironically reasons that CLA will have an advantage over it's peers. Those points raised are some of the reasons why I think this resource will likely be successful and will actually be one of the few explorers that will be worth buying out, as many of these points raised at this stage show a clear advantage as to why other explorers may ultimately struggle to make a significant impact.
I think it is reasonable to assume that a 2mtpa operation producing cobalt sulphate heptahydrate (the end product required in the use of batteries), will have a capex of around $250-300m USD total (roughly based around some other similar resources). I'm personally hoping the maiden resource is big enough that it can justify a 3mtpa processing (even if it has a short LOM, as it would allow a higher sale price to more reasonably be used/justified). I assume that 3mtpa would have a capex of around $350-400m USD.
We have a laterite explorer (ARL) with a similar market cap, a little bit further down the track than us and as mentioned by a few people on this forum, have released a PFS recently. When I read the PFS on face value it didn't appeal to me as a great project (but realise there is obviously scope to improve on these metrics).
For 1.0mtpa, post tax NPV of $1.04b AUD (sounds impressive), but a capex of $599m AUD, a payback period of 5.3 years and anticipating production 2023
For 1.5mtpa, post tax NPV of $1.40b AUD (again impressive), but a capex of $746m AUD, a payback period of 5.6 years and same production start date.
Based on the PFS's inputs, both of these scenarios don't get a positive NPV until 2027, who knows if the commodity prices will still be high then or perhaps rapidly falling as I'm currently assuming they will have dropped from highs and be stabilising by then, below today's prices (just my assumption).
To be fair and trying to be objective, I would like to stress that there is most likely opportunities to improve these economics further and would recommend to read the entire ARL PFS document to form your own opinions and not just what I have summarised above.
Lets assume the CLA SS explores a 2mtpa operation with a capex of $300m USD (~$400m AUD) and that it's producing 2021 which I feel is very achievable. I think this capex $ is very conservative, but we will have to wait for the SS to have a more accurate number to go off. I think it is fair to assume early on that opex will be similar, but I'm expecting CLA to be a bit higher, not enough to be significant though.
That would indicate CLA would be producing 2 years earlier, while prices are more likely to be higher, have a capex that's 2/3 as high (probably less) so critically less dilution/need to take on funding and yet also have 2x the product output during this time, when comparing to ARL's 1mtpa scenario. Comparing the same comparison with ARL's 1.5mtpa scenario, it is the same over this time frame except for processing (0.5Mt) and capex, which CLA is nearing half of ARL.
Sulphides should find it beneficial to expand output quickly for shareholders during high prices, Laterites can only do so with large amounts of dilution to shareholders or after a few years of production (they will need to dilute substantially initially to get initial capex). This expansion should also help Sulphides with increased economies of scale reducing opex.
Based on these assumptions, CLA could have a positive NPV before ARL has started producing!
This is an astonishing potential advantage to have, considering both companies are valued similarly at the moment. CLA has copper also and ARL has nickel it should be noted, but for cobalt it is clear that CLA is geared much more to the cobalt price we are all speculating will rise and remain high for a few years yet.
I'm not sure where opex will land for CLA, I'm assuming that it may be a little higher than the average laterite, because of the mining costs. Obviously the resource appears easy to mine, it won't be overly efficient due to the nature of the orebody and strip ratios as it is dug out. It will be interesting to get a cost on underground methods. The flip side to this is the ease in processing the ore with the minimal deleterious elements and this should be something that the market wakes up to soon I feel. Even if opex is higher, as long as it is producing at a substantial profit before most others, it will be creating value. I actually think opex for CLA will surprise many based on a number of factors (quality of ore, location, available infrastructure, to name a few).
I said early on that this would likely be one of the few explorers worth buying out for an existing miner or an entity really wanting to secure supply and this can only generate positive interest toward the company that we are already starting to hear about from our MD. Why buy or help develop something out that won't pay itself off for possibly 9 years (assuming things happen according to today's assumptions), when there is something that likely will be NPV positive within 4-5 years from today? This significantly low capex compared to many peers should allow for a much larger initial output along with rapid and significant expansion to supply the market while prices remain high, if it makes sense to do so.
I get the feeling the market will become acutely aware to the importance of some of these factors soon enough. Low capex, high quality product, possibly producing 2020 and able to produce a stable supply of cobalt is a very appealing list of factors in todays market, there aren't many cobalt exploration companies in the world you can say that about currently, especially ones heavily geared to the price of cobalt
CLA Price at posting:
15.5¢ Sentiment: Buy Disclosure: Held
(20min delay)