Update 23-03-2018: Found the post! https://www.investingnote.com/posts/690047
Stage 1 production = 155,000 tpa
Stage 1 production with Lithium Fine Circuit (LFC) = 220,000 tpa (Taken from the interview with TAW CEO) by end of 2018
Stage 2 production with LFC = 440,000 tpa (Taken from the interview with TAW CEO) by Jun 2019
Production rate will be almost 3 times the rate of stage 1 production. The timeline is realistic and I trust Mark Calderwood in delivering it based on the track record.
P/E is based on price of S$0.395.
Stage 1 - During Stage 1 production which is now, the project will be generating a gross profit of (US$880-US$429) x 155,000 = US$69.9m or S$91.6m. AMAL gets 50% which is S$45.8m. At current price, we are trading at 4.78 times PE ratio.
Stage 1 (with LFC) - Upon addition of LFC by end of this year, we will be looking at a production rate of 220,000tpa and All-In-Sustaining Cost (AISC) should drop to about US$342 per ton according to the PFS. Project gross profit will be about US$83.4m or S$109.2m. AMAL gets 50% which is S$54.6m. At current price, we are trading at PE ratio of 4.0 times.
Stage 2 production is the highlight. (expecting double production to 440ktpa according to Mark Calderwood)
Using contract price of US$880 per ton, assuming we increase Life-of-mine significantly, our All-in-sustaining-cost should drop significantly and be comparable to Altura Mining which is about A$316 per ton according to their DFS. So as a rough guide, we can use A$316 per ton or US$248 per ton for calculation for stage 2.
Gross profit should be estimated at US$195.9m or SGD256m. AMAL 50% share is S$128m. PE ratio at current price is 1.7 times. To put it in another word, it means that if AMAL were to trade at just 10 times of its stage 2 production earnings (in future), the price ought to be around $2.31.
Several Catalysts coming up
- Binding Tantalum offtake with HC Starck (March 2018)
- Bald Hill Reserves upgrade (April 2018)
- Lithium Fines Circuit (By end 2018)
- Stage 2 2nd DMS plant (By June 2019)
(end of edited quoted post)
Addedeum by Marksman
Correct me if I'm wrong...
a) First of all, the above seems to have calculated pricing the share using gross profit to calculate P/E and hence share price. If the production cost above includes all other expenses (such as building the fines circuit and 2nd DMS plant), then he should be referring to net profit instead, otherwise the above calculation probably has to be tweaked in favour of a reduction.
Having said that, this does not affect my opinion on AMAL and I see strong upside.
b) Tantalum Offtake with HC Starck
Secondly, the above also has not seemed to include sales of tantalum concentrate?
The ex-CEO once mentioned sales of the tantalum offtake can cover the production cost of the spodumene concentrate.
HC Starck has entered into a non-binding agreement to purchase a minimum of 600,000 lbs of tantalum in aggregate from April 2018 to 31 December 2020, while AMAL and TAW continues to be in discussion with other third parties for excess tantalum concentrate. (link here)
As there is no established contract price for this offtake at the moment, I'll annualise the production rate above and base the expected revenue off a range of tantalum concentrate price.
600,000 lbs from April 2018 to 31 December 2020 = Approx 232,250 lbs annually.
If sales from all tantalum offtake is sufficient to cover production costs, then based on stage 2 production cost, overall tantalum production rate should be at least over 10x this amount?
c) Other things to look out for:
- Price of Lithium. Burwill's contract is 5 years. After the 2-year fixed price of USD880/ton, they will renegotiate the price. In spite of the development with SQM that will ramp up their output, I expect Demand will continue to outdo Supply and hence Lithium price to remain bullish and add further upside for TAW/AMAL thereafter.
- Forex. The strength of AUD and USD will probably also play a part.
- The strength of Burwill as a company, being the only customer for their Lithium concentrate.
- AMAL's direction going forward. What is the business direction beyond owning Bald Hill Mine?
Disclaimer: The above should not be used as a decision to solicit buy/sell activity. Use all information at your own discretion and DYODD
Stage 1 production = 155,000 tpa
Stage 1 production with Lithium Fine Circuit (LFC) = 220,000 tpa (Taken from the interview with TAW CEO) by end of 2018
Stage 2 production with LFC = 440,000 tpa (Taken from the interview with TAW CEO) by Jun 2019
Production rate will be almost 3 times the rate of stage 1 production. The timeline is realistic and I trust Mark Calderwood in delivering it based on the track record.
P/E is based on price of S$0.395.
Stage 1 - During Stage 1 production which is now, the project will be generating a gross profit of (US$880-US$429) x 155,000 = US$69.9m or S$91.6m. AMAL gets 50% which is S$45.8m. At current price, we are trading at 4.78 times PE ratio.
Stage 1 (with LFC) - Upon addition of LFC by end of this year, we will be looking at a production rate of 220,000tpa and All-In-Sustaining Cost (AISC) should drop to about US$342 per ton according to the PFS. Project gross profit will be about US$83.4m or S$109.2m. AMAL gets 50% which is S$54.6m. At current price, we are trading at PE ratio of 4.0 times.
Stage 2 production is the highlight. (expecting double production to 440ktpa according to Mark Calderwood)
Using contract price of US$880 per ton, assuming we increase Life-of-mine significantly, our All-in-sustaining-cost should drop significantly and be comparable to Altura Mining which is about A$316 per ton according to their DFS. So as a rough guide, we can use A$316 per ton or US$248 per ton for calculation for stage 2.
Gross profit should be estimated at US$195.9m or SGD256m. AMAL 50% share is S$128m. PE ratio at current price is 1.7 times. To put it in another word, it means that if AMAL were to trade at just 10 times of its stage 2 production earnings (in future), the price ought to be around $2.31.
Several Catalysts coming up
- Binding Tantalum offtake with HC Starck (March 2018)
- Bald Hill Reserves upgrade (April 2018)
- Lithium Fines Circuit (By end 2018)
- Stage 2 2nd DMS plant (By June 2019)
(end of edited quoted post)
Addedeum by Marksman
Correct me if I'm wrong...
a) First of all, the above seems to have calculated pricing the share using gross profit to calculate P/E and hence share price. If the production cost above includes all other expenses (such as building the fines circuit and 2nd DMS plant), then he should be referring to net profit instead, otherwise the above calculation probably has to be tweaked in favour of a reduction.
Having said that, this does not affect my opinion on AMAL and I see strong upside.
b) Tantalum Offtake with HC Starck
Secondly, the above also has not seemed to include sales of tantalum concentrate?
The ex-CEO once mentioned sales of the tantalum offtake can cover the production cost of the spodumene concentrate.
HC Starck has entered into a non-binding agreement to purchase a minimum of 600,000 lbs of tantalum in aggregate from April 2018 to 31 December 2020, while AMAL and TAW continues to be in discussion with other third parties for excess tantalum concentrate. (link here)
As there is no established contract price for this offtake at the moment, I'll annualise the production rate above and base the expected revenue off a range of tantalum concentrate price.
600,000 lbs from April 2018 to 31 December 2020 = Approx 232,250 lbs annually.
Price (USD/lbs)
|
50
|
55
|
60
|
65
|
70
|
75
|
80
|
85
|
90
|
95
|
100
|
Annual Revenue from Tanatalum Sales to HC Starck (USD)
|
11.61m
|
12.77m
|
13.95m
|
15.09m
|
16.25m
|
17.41m
|
18.58m
|
19.74m
|
20.90m
|
22.06m
|
23.22m
|
If sales from all tantalum offtake is sufficient to cover production costs, then based on stage 2 production cost, overall tantalum production rate should be at least over 10x this amount?
c) Other things to look out for:
- Price of Lithium. Burwill's contract is 5 years. After the 2-year fixed price of USD880/ton, they will renegotiate the price. In spite of the development with SQM that will ramp up their output, I expect Demand will continue to outdo Supply and hence Lithium price to remain bullish and add further upside for TAW/AMAL thereafter.
- Forex. The strength of AUD and USD will probably also play a part.
- The strength of Burwill as a company, being the only customer for their Lithium concentrate.
- AMAL's direction going forward. What is the business direction beyond owning Bald Hill Mine?
Disclaimer: The above should not be used as a decision to solicit buy/sell activity. Use all information at your own discretion and DYODD
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