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CAP carpentaria resources ltd

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WORLD'S BEST UNDEVELOPED IO PROJECT, page-4

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frog12

61 Posts.

22

06/07/21

21:00

Post #: 54326981
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Originally posted by Tran: ↑

In light of the latest development regarding the $35.6mil capital raising secured (fully underwritten) and the BFS is now fully funded, along with new drilling round and the pilot plant also fully funded, and the fact that there have been many new holders on the registry of CAP lately, I think it is important to have this new fresh thread for new and existing holders to remind ourselves of what Hawsons Iron Project has to offer.

Let me start by saying this: at current stage status of Hawsons Iron project (BFS commencement imminent), many mining projects would have MC/NPV ratio of 20%. Some even have that ratio in the range of 25%-30%. This is an all important goal post that every holder should understand and thus make appropriate decision whatever they want to do with their share holdings.

HAWSONS IRON PROJECTS KEY FACTS AND FIGURES:
- Total resource = 2.5 billion metric tons of ore at 17% head-grade = 348 million tons of 70%Fe fines concentrate.
- Total product = 201mt of 70%Fe based on 1.423 billion metric tons of the total resource.
- Annual production = 10mil tons of Fe70% fines concentrates. The highest iron ore concentrate grade in the world.
- Hawsons Iron Project will create approximately 1200 jobs in construction and 500 jobs in production operation.
- Awarded "MAJOR PROJECT STATUS" from the Australian Federal Government.
- Awarded "Significant State Development" status by NSW government.
- World's well-known and reputable mining consultant Wood McKenzie ranked Hawsons project as "the best undeveloped iron ore project in the world".- "Hawsons is located just 60 kilometres south-west of the Silver City, providing access to established rail, road, port and power infrastructure in a region with a long and proud mining history and a city with generations of skilled mining workers."
- BFS is scheduled to commence in Q3 2021 (imminent) with expected resource upgrade and pilot plant as part of the study.
- 8 of the world's major commodity trading houses and steelmakers have signed off-take options letter-of-intent (LOI) for total of 14mil tons per year.
- Management is working on binding offtake agreements with those 8 customers and others. NEGOTIATIONS ARE ONGOING.

Let's take a closer look at the NPV from the 2017 PFS:- Resource utilization: as part of the PFS carried out in 2016-2017, the company did an in-fill drilling round to upgrade part of its inferred resources to indicated resources. Inferred resources are typically 200m drill-holes apart and Indicated resources are typically 50m drill-holes apart. It was a spectacular successful in-fill drilling program with 96% of the section where it drilled during that campaign was upgraded to Indicated Resource Category. It would have been 100% conversion if the cut-off grade for DTR was lower than 9.5%. (Refer to the section Resource/Reserve on the 1st image above)

- Resource utilization: 201mil tons of 348mil tons total resource was used for the NPV calculation in the PFS carried out in 2016-2017. However, as i pointed out above, 96% of the area they did the in-fill drilling on was successfully converted from Inferred Resource category to Indicated Resource category. And therefore it is very likely that with further drilling/resource upgrade as part of the upcoming BFS we may see significant more of or all of the remaining inferred resource being converted to all Indicated resource (with possible further discovery of iron ore resource through new extensional drillings). And there are 4 scenarios of resource utilization that i like to look at of 250mil tons, 275mil tons, 300mil tons and 350mil tons. However, let's stay with the most conservative scenario of 250mil tons for now.

-Discount rate: refers to the time-value of money. This discount rate is the AVERAGE discount rate. It includes the impact of loan interest and inflation rate, worked out to be the average rate over the life-of-mine (20 years) of this Hawsons Iron Project. In the original PFS, it was assumed that bank loan will be paid off completely in 10.5 years. However, as the IO product prices have increased so much, with so much profit to be made, the total loan package for CAPEX could easily be reduced to a few years and thus would have a very major positive impact on NPV. And i mean it is very very significant positive impact on NPV of Hawsons project.

- Almost all mining projects in Australia are applying an 8% discount rate to NPV nowaday, not 10% any more. And so I will convert NPV10% to NPV8% for Hawsons Iron Project.

- At Fe65% = USD $75, NPV8% = USD $1bil (corresponding with NPV10% of USD $867mil from the table above)
- At Fe65% = USD $85.40, NPV8% = USD $1.651bil (corresponding with NPV10% of USD $1.432bil from the table above)
- There is a mathematical formulae to work out and to convert NPV10% to NPV8% and there is software on google to help you convert it if you are interested to do so. Just google it.
- So, you can see from above that for each USD $10.40 increase in the price of Fe65%, NPV8% increase by USD $651mil.
- You also see that the All-in-costs allowance increases by USD $0.60/ton
So, here are the NPVs on resource utilization of 250mil tons over LOM of 20 years (annual production = 12.5mil tons) at different Fe65% scenarios:

1. At Fe65% = USD $250/ton (current price)
NPV8% = [ $1.651 + ($250-$85)/10.40*$651mil ]* (250/201) = USD $14.9 =AUD $19.87 bil
All-in-costs allowance = USD $57.50/ton.

2. At Fe65% = USD $180/ton
NPV8% = [ $1.651bil = ($180 - $85)/10.40*$651mil ]*(250/201) = USD $9.45bil =AUD $12.6bil
All-in-costs allowance = USD $53.50/ton

3. At Fe65% = USD $140/ton (corresponding with Fe62% = USD $120/ton. This is the most talked about prediction of sustained long term IO price)
NPV8% = [ $1.651bil + ($140 - $85)/10.40*$651 ]*(250/201) = USD $6.34bil =AUD $8.45bil
All-in-costs allowance = USD $51.20/ton

I believe once some institutions are onboard and it looks like some of them are starting to, we will see some research reports on CAP soon. A high quality and thorough report would normally look at each of the chances of 250mil tons, 275mil tons, 300mil tons and 350mil tons resource utilization scenario and attach a weighted % probability. Regardless, the market will attach a certain percentage probability to each scenario anyway. As I said above, I believe the likelihood of 250mil resource utilization is very real and extremely high. In fact, 275mil and 300mil are not out of the question.

Whatever angle you want to look at it or whatever you want to cut and trim to those figures above, I don't think anyone can deny that this stock is under-valued to the extreme. Total shares on issue after the CR will be about 713mil. At 18c, MC = $128mil = 1.5% of NPV at Fe65% of USD $140/ton and ALL-IN-COST of USD $51.20/ton. On this note, it appears to me that MGT has ALL-IN-COST of USD $54/ton or lower. So, before you yell out that ALL-IN-COST of Hawsons project is expected to be higher, consider MGT's Razorback project unit cost and compare. Also, remember BFS will look at the project's all cost items and will optimize them further. My point is all-in-cost maybe higher but may not be by much.

I believe the MC will approach that 20% ratio of NPV, which suggests a sp above $1.50. It will take time but it will get there and the fight over 18c or 19c at the moment means nothing. For me, my friends and my sisters we just bought and bought more today. We dont even care if those extra shares we bought this afternoon are eligible for the discount entitlement.

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tran, i like what you have done. nice to work with clear presentation

regarding all in costs on mgt. they say break even on 62fe basis is $54. best case. add the premium and the break even on its 67.5%fe basis is $79/t. that is one way to assume the opex.

so much higher. truth is there is no clear opex in the mgt announcement.

CAP Price at posting: 17.5¢ Sentiment: None Disclosure: Held
2 Upvote

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