Excerpts from interview by The Constant Investor with Mark Calderwood, MD of Tawana Resources, the 50-50 JV partner of Alliance Mineral Assets. Their Bald Hill project in Western Australia is just weeks away from starting production of lithium and tantalum concentrates. That will make them the N0.4 producer in Australia and the only new lithium producer in Australia since 2016.
Do you think there’s a lot more lithium at Bald Hill than has been found?
Mark Calderwood, MD, Tawana Resources.
Photo: Youtube screenshotOh, god yes. We’ve only really been drilling a year, we know there’s many years of drilling ahead of us but it was about speed to production. So we said, rather than finish drilling the project, we’ll drill out the initial reserve and then we’ll get on and build it and then we’ll keep growing the project over the coming years ahead.
Then the tantalum one is the one we announced today. We’ve signed an offtake for the tantalum with a European buyer, one of the main names in the industry. A very good price, confidential – they want to keep that confidential but Bald Hill is a premium product, it’ll be the best tantalum concentrate from WA.
Starter pit is a small fraction of Bald Hill project which is about the size of Singapore. Photo: Company
When you add together the two offtake agreements that you’ve now got, what sort of cash flow are you looking at over the next five years?
It comes down to the ramp up of the lithium production. If we bring the fines circuit on, stage 2 on by the end of this year, we’ll see net cash flows jump quite dramatically. 2018, not a lot of net cash flow, but next year we were looking at, on a project scale, well over $100 million, and then once we upsize the production on the lithium side we can get that right up to, we expect, over $200 million I’d say in 2020 with increased production.
Is that net cash per annum?
On site, yes, pre-tax obviously.
And is that the whole project?
That’s the total project, yeah.
So you’ve got half of that?
Yes, correct.
And that will come through in time.
We share the capital costs as well as we go along. But the project’s actually quite a low capital, so it’s a very high pay back. At the start I think it had 150 per cent IRR project, so the capital costs are not the issue, it’s timing of ramping up of production basically.
Did the study come up with an NPV?
It did, only for the three and a half years. The NPV was about $250 million I think it was, but that’s for the first three and a half years without the second stage through fines circuit. So, based on the study we only get about 65 per cent recovery but we’ll increase that to about 83 per cent recovery with the second stage that comes on at the end of this year.
|
TAWANA stock price |
48 c |
|
52-week range |
10 – 58 c |
|
PE (ttm) |
-- |
|
Market cap |
A$242 m |
|
Shares outstanding |
505 m |
|
Dividend |
-- |
|
1-year return |
269% |
|
Source: Bloomberg |
|
Your market cap at $250 million market cap, I mean there’s a bit of blue sky built into that isn’t there?
Correct. We’ve increased the resources since the study and we haven’t released the new reserve yet, so that’s going to come out soon.
Okay, when are you going to release that?
This quarter. Quite a big reserve upgrade and then when we bring out the fine study information, the NPV will jump quite dramatically.
|
AMA stock price |
42 c |
|
52-week range |
12 – 46 c |
|
PE (ttm) |
-- |
|
Market cap |
S$225 m |
|
Shares outstanding |
538 m |
|
Dividend |
-- |
|
1-year return |
249% |
|
Source: Bloomberg |
|
Oh, I see, okay.
Some of the market players are already doing back of the envelopes on some of that I guess.
And you reckon there’s probably more upgrades after this one?
Yes, definitely. Like all the WA lithium mines, they will increase their production. It’s fairly simple once you’re in to actually increase. Because with lithium the actual unit costs are quite low, a lot of it’s fixed costs. So, if we can increase that production our cost per tonne concentrate drops off quite a bit.
Your company’s pretty straightforward in some ways. You’re about to start production, you’re drilling for more. You’ve sold your first lot of production of both lithium and tantalum, pre-sold it, so it’s all reasonably straightforward.
It should be quite an exciting year for us this year.
The shares have already gone up a bit, you’re saying that there’s still more room for rising because of the upgraded resources?
Yes, as we come out with the news flow this quarter and as we start to bring on production and de-risk it for the few people sitting on the fence probably waiting for the de-risking stage, I think there should be a fairly healthy growth for us when you compare us against the other near term producers and producers.
Watch Dec 2017 drone footage of the Bald Hill project --->
Comments
AMA and TAW get $100 m each, which would value AMA at $1.2 BILLION using a conservative 12x cashflow,
With rapid moves toward production and eventually a scaling up of drilling, the Bald Hill Project will realise shareholder value in an optimal manner. Profit & cashflow come quickly enough while future stock gains will be supported by new resource upgrades.
Well done!