The capex looks low at $230m. Opex at around $40 is great as well and well and truly on the low end of the cost curve which is what potential partners will be looking at.
As far as Capex goes, I think this can be greatly reduced. Firstly there is a pretty hefty $30m contingency. Most scoping studies use a contingency of around 10%, but we have used 25%. Lets assume we only use half of the contingency - $15m.
Secondly Rail Rolling stock is our biggest single expense at $82m. Given that this can be leased one would assume this could be reduced significantly. I think it would be safe to sat that we could save another $50m in upfront capex here.
Finally Rail (ex rolling stock) has a capex of $29m. Given that the rail is to be shared with Exxaro I think we can assume that we may end up paying only 50% of this.
Add those three numbers above and we could see a potential capex reduction of $80m bringing the total capex for 2mtpa to only $150m!!
Futhermore I think all of the above savings are realistic. In fact our upfront capex for Rail Rolling stock may be reduced by the full $82m if we lease everything. Obviously this will add to our opex, but could see our CAPEX come down to around $120m which is unbelievable for a 2mtpa operation.
All in all I believe these numbers suggest to me that there is a very good chance that the project will be bought from us. I still believe Exxaro are the likely and logical acquirers. However I certainly wouldn't rule out a third party having a crack given the numbers being so compelling. Plus we have $50m in the bank which theoretically means we wouldn't have too much trouble raising the funds to go it alone, so from a negotiating standpoint we are in an exceptionally strong position. Basically we control our own destiny which is an envious position to be in.
With the scoping study now out I would assume management want to progress this pretty quickly. I can see why Johnny Welborn took up his $600k worth of options. I hope he and the rest of us make plenty from our investment in EQX.
EQX Price at posting:
70.0¢ Sentiment: Buy Disclosure: Held
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