""Lies, damned lies, and statistics"... the old phrase that comes to mind reading release headline numbers bolstering a weak project. A good day for project sleuthing in Perth, but I'm reminded again how difficult they make the job for those not able/willing to ask the right questions and get straight answers. Remember those 1000 piece jigsaw puzzles you'd bring out on a wet school holiday with great enthusiasm, starting off with the easy corners and edges before it all gets too hard, then the sun comes out and it never gets finished. If the sun comes out tomorrow I'm probably done, this is proving more tricky than I thought... as intended no doubt.
I started with a fairly simple RE-con developer table to see what if any margin 58.5% payable TREO in mon-con would leave after accounting for MREC REO losses, opex, hydromet D&A, toll profit margins etc. Clearly not much, which is why historically mon-con gets paid sub-40% TREO basket value, so no surprise they're up to their usual tricks again. Hat tip to be fair, i fell for it also... "REO price: Stage 1 US$24/kg" and "Stage 2 10-year average US129/kg NdPr", but it isn't LOM, can't be, and mon-con isn;t getting 58.5% basket value payable because Stage 2 MREC revenue/costs are too high.
Nothing for it but spreadsheets sorry. Starting with a Stage 1 mon-con only LOM, the update is clear enough. The only uncertainties being Stage 1 Sust'g Cap, Royalties + other non-opex (non-opex costs) and Stage 1 Taxes (30% $2488M=EBITDA-capex).
Given so many known variables (grey cells), there simply has to be $1,756M LOM 'others' reducing provided Revenue to Free Cashflow and EBITDA totals. This is an ungeared, non-finance study so free cashflow is self-explanatory, add-back taxes and capex for approx EBITDA assuming straight-line LOM D&A, Sust'g Cap, Royalties + other non-opex expenses are thus the balancing figure. Sustaining capex, royalties, sales costs whatever look high, but I've seen higher when projects want to keep capex low and backend expenditure into the operating mine life. Bottom line, $424M avg revenue LOM has to reduce to $108M free cashflow one way or another.
This much I sort of tabled last post. The question is, what of the two variables TREO $/kg 'payability' and NdPr $/kg get there? I ran the same table but with more assumptions (fewer hard facts) for the Stage 2 Hydromet MREC plant to find out. The unknown assumptions being Stage 2 Opex, and that the Stage 2 figures are all a 17 mash-up of 3 years Stage 1 plus 14 years the rest. Makes it bloody hard to triangulate the answer... as intended.
What I did was:
- assume the first 3 years = LOM yearly average on the basis that higher early NdPr production (41% NdPr) from probably Simons and Yangi Nth is balanced out by lower NdPr prices 2025-27 before they're assumed to go exponential.
- deduct 3 years Stage 1 averages from the Stage 2 LOM figures, then divide the remainder by 14 years to get a feel for Stage 2 MREC metrics.
- assume " Sust'g Cap, Royalties + other non-opex" lifts per year to account for higher royalties and more plant for extra sustaining capex and other expenses than Stage 1 only.
-Reduce capex for 'sunk capex' already spent even though this is not reasonable.
The outcome showed:
Slightly higher Stage 2 14 year revenue and expense figures than LOM avg, after removing first 3 year Stage 1 figures
More confidence in the Updated DFS revenue and expense assumptions by moving further downstream
MREC revenue/expenses allow better comparison with peers and enable evaluation of this 'profit sharing' plan
At A$702M avg ann revenue years 4-17, calculate realistic TREO/kg and NdPr/kg pricing assumptions in the study
If we assume the Stage 2 metrics provided are 14 years, not 17 year averages, then revenue and expense assumtpions become even higher than I've calculated (thus more improbable and unfeasible).
The Feb23 MRE Update provided the formula HAS uses to for assumed MREC sale prices referenced to the Basket Price/kg of MREC sold. The maths might look complicated at first glance, but I think how I've laid it out is sensible. It's getting late, so I'll let the tables peak for themselves and see if there's any mistake or complaints tomorrow. The keys are; MREC Offtake Fees, Penalties and Charges same as Feb'23 MRE, $86.8/kg TREO to arrive at $702Mpa revenue assuming years1-3 are Stage 1 avg, otherwise it's all pretty much maths to square the circle.
43.6% Payable TREO/kg in Mon-Con is much closer to typical mid-30's and more believable than 58.5%, but still reflective of the higher 'profit share' sales pitch. The conclusion I was seeking is 'what price assumptions does the 17 year Study use', because it's important to know what price-pipe they been smoking and where Yangi sits in the industry cost-curve. Given Stage 1 years 1-3 are lower priced (ie US$24/kg) and conversely Stage 2 14 years are slightly above LOM average I re-jigged the original post's pricing table to show the LOM avg Stage 1 pricing (~US$175/kg NdPr) and periods that contributed to it (NB: Only 'Stage 1 avg' in table matches the Study for full 17 years).
Numbers are out a bit for rounding and mashing up two Stages for calculation, but not significantly. The calculated mon-con TREO Payable % might be a bit higher in the Study (unreported) which will lower the assumed prices because they are two sides of the same coin. My next post will work through the industry/peer MREC hydroplant costings, which should bookend realistic pricing and payable % for Yangi. HAS developer peers have also chosen to assume non-China sales are 13% higher price (ie don't drop the 13% VAT tax), taken Adamus bullish price forecasts and run like Forest Gump, and fortuitously released very recent feasibility studies that sort of bookend believable assumptions.
Disappointed but not surprised to see high prices used in the Study update than the US$129/kg NdPr dangled in text. Just won;t fly at more reasonable prices, which has been the same for years and why erroneous studies have been released imo. They have convinced Oz government to put up most of the risk finance to date, and hoping to wring the rest out of more Oz-Us agencies ignorant and willing to throw caution and taxpayer funds to the wind. Trouble is, there's a lot of cheaper NdPr around if the west really wants to duplicate China's RE production.... which it doesn't outside of defence, who are price insensitive unlike the real world.
(20min delay)
