The Christmas countdown is on. Two weeks to go but we ain't
stopping now. We've got an eye look at Iniaba
Deep Love Spectacular today you boys, It's all happening
alright. It's one of those, one of those
stories earlier that just makes me angry, mad, disappointed,
frustrated. All of the feelings.
A lot of feelings, yeah. Just it's a, it's a head
scratcher on a whole bunch of levels, which we're gonna get
into. But yeah, one thing that maybe
didn't make you unhappy or or us unhappy was your weekend.
How was your weekend, Ellie? It was.
Good. So I was at the the CBH over the
weekend. So for our non Western
Australian listeners, that's the Cottesloe Beach Hotel, right in
the heart of the infamous 6011. And I was waiting in line for a
drink at the bar when I saw something very peculiar on the
back wall which I didn't think to say.
So here's a picture. Can you guys spot it?
Am I looking at a hat with a little blue logo on it, Ellie?
I think that might be the one. Wildcat.
There's a Wildcat hat on the back of the bar, which is you'd
only say that in the six O1 1, so I love that.
But there's actually something else in that picture.
So if you take a closer look. Look at that.
It's true, but having a tuner so drew from K Drill, he can meet
up with you anytime, anywhere in the six O1 one or beyond to help
sort out your 2025 drilling contract.
With K Drill. It's been a bunch of ASX small
caps. We've been saying doing the
heaps of last last minute raises for the year to sort of set
themselves up for a strong start to 25 S to all of those
companies. Make sure you've got Rhino,
Sullivan and the rest of the casual tape up at your site in
the new year punching RC and Diamond.
Holes, Ellie, It's like Patrol's colours are red.
It's Christmas. It's Christmas theme.
Yeah, you've got Rhino doesn't take a break over Christmas.
He he's punching RC and Diamond holes through Christmas.
He's punching them every day of the week, punches them in his
sleep. So make it your new New Year's
resolution to get K drill up in your site punching RC diamond
holes. Get in contact with Juba.
His details in the show notes. Thanks for your support K Drill.
Go K drill. Alrighty, let's talk about Iluka
resources, guys. This was a big one on Friday.
The funding package that has been sort of long negotiated
between Iluka and the government came through and the market did
not like it down 10 percent. So wow, it, it was fascinating,
right? The the call had a lot of
interesting questions. Analysts trying to piece through
the call was put on a relatively short notice with a lot of info,
a lot of assumptions baked into it, a lot of footnote footnotes
that you have to go and read. So we've got we've got plenty to
chat about on this one for. For context, JD like what?
What is like the, you know, the background to this whole, you
know, any other railroads facility in the funding package
with the government? Yeah, Let's give a bit of a
recap on everything that's kind of happened because it's been a
few years in the process now, right.
So in early 2022 you had I look at pressing go on the Enieba
rare earths refinery to the north of Perth in WA.
Now final investment decision was taken with the aid of a 1
billion and 50 million non recourse loan from our
government. So this was done through the
government entity of Export Finance Australia.
Now I look at the time would contribute $200 million plus the
any other any ABBA stockpile. So that is a stockpile that had
been building for a number of years goes back quite, quite a
while now. So this refinery importantly
would be designed to handle not just the any other stockpile,
but any other Aluca feedstock. So we've got a few projects in
the works which which had about there plus potential third party
feed. That was, yeah, that was, it
was, it was, it was interesting at the time.
I don't know if too many people were expecting this FID.
It kind of just popped up out of the blue, and I think it was it
popped up the week before the standing government went into
caretaker mode. So kind of go figure.
And the the whole, you know, the, the loan that was provided
at the time by the Australian government was so like the terms
were so out of market with any concessional finance that had
been kind of provided at all in any, you know, critical minerals
like area whatsoever by a mile. It was, it was, you know, kind
of remarkable at $1.05 billion non recourse loan terms were
sweet as all hell. You know, I didn't have to repay
it forever, but it was just everything was was honky Dory
about it. But interestingly, at the time
when they when they did announce that, that FID, they talked up
the prospects of also being able to process their, some of their,
their, their deposit at Wimmera through this reverse facility as
well. Wimmera, these are the Wimmer
project is 1 of it. Like, you know, they've got a
bunch of these Wim style deposits in their portfolio.
They're in Victoria. They were actually kind of
delineated by Conzink back in the 80s.
They haven't been developed yet for must have been a long time,
right? But they haven't been developed
for a few big reasons. First one is incredibly fine,
which makes separation of the of the zircon really, really
challenging. And the other one is that
they've got high levels of impurities, which makes
purification of a salable kind of zircon product really, really
challenging. On that first point I look at
they figured out a, a solution to to separate the, the zircon
in 2018. But the second point on, on the,
on the impurities that they've done some kind of purification
or zircon purification in a lab, but they still need to prove it
up. It's sort of scale and they're
doing a demonstration plan now. But there's no guarantees
though. And the attractiveness of those
of those whim style deposits is actually they're high zircon
great. So despite all this, and the
challenge is to actually get a saleable kind of zircon product
out of it. I look at they did put a reserve
on Winrar in 2022 and that assumed that would mine it sell
the kind of lowish value ilmenite products produce a rare
earth concentrate which would go to any other.
But the zircon product isn't assumed to be recoverable for
the purposes of the reserve there.
And you Fast forward to Friday's announcement, we get a bit of an
indication of how Luca might actually be thinking about its
feedstock options here. Because you in the, in the
interim since they announced FID, you know, a few things have
happened. They did a deal with, with
Northern Minerals in 2022 to, to try and get some supply from
their Browns Range project to feed any other refinery.
They also progressed their Bell Reynolds mineral sands project
in NSW. And hence the scenarios that I
look actually put forward on Friday were impacted by these
developments. So Trev, what the sort of three
scenarios that Aloka have have put forward now in the context
of all those what they had and those recent developments in the
last few years? If you if you look at like you
can see the the pictures of that kind of they show here.
So 3 scenarios, one just you know, 35 year life
underutilised, you know, refinery because they're only
assuming that it's using Aloka's any other stockpile, Al Reynold
concentrate from Al Reynold and when there are I'm constant
concentrate as well. The second scenario is the same
as above, but now they kind of they throw in northern minerals,
but look at what happens when they include northern minerals
as feedstock. It actually displaces Wimera to
later in the refineries life and I think that's telling
personally. And then the last scenario, they
call this the financing case, which only processes any other
stockpile and Bell Reynold, no Wimera.
So just like look at those 3 scenarios have changed.
I think there is a read through that there are doubts about the
economics or timelines or both of Wimmer, which makes a pretty
big impact when that was kind of, you know, your big baseload
long life part of the feed of of our Lucas.
And Trev explained to me and probably the other money minders
who are as clued up about mineral sands and the rest of it
and and whereas Bell, Reynolds and Wimmer are mineral sands
projects. So why are they getting talked
about in the context of a rare earths being feedstock for rare
earths refinery? Is it some sort of byproduct?
Exactly or absolutely yeah, when when you're when you're
processing mineral sands that you're often times a typical
byproduct of that process is a is a monocyte concentrate.
That monocyte concentrate is, is is is is often times, you know,
rich in rare earth elements, which if you, if you plug it
into a, a refinery, which is, you know, you're cracking and
leaching and, and also also a hydro net plant, you, you can
get some, some separated railroad oxides out of it.
So to to round out on the assumptions put forward, the key
point of the negotiations happening over the last year is
because the CapEx blew out. So initially that was pinned at
1 to $1.2 billion, hit a stumbling block in late 23, blew
out to 1.7 to $1.8 billion with 320 million of that money being
spent to date. So you had a bit of a stalemate
as Iluka and the government battled over who's going to chip
in and fund the the rest of it. And to clarify guys, this CapEx
relates to this indie ABBA refinery.
So any CapEx to bring online this Wimera project which I
think is currently at DFS stage, that would be in addition to
that, right? Yeah, Wimmer's CapEx is not
insignificant. It's like I think they're sort
of PFS assumptions, nearly a billion dollars there from my
memory. So yeah, that's they're actually
this is exactly right. That's not included in this.
Absolutely. This is just the refinery.
And so that brings us now to last Fridays announcement.
So what's been the funding update that's come through
recently? So to get them there, EFA are
going to contribute for $400 million on the same terms as
that 2022 agreement. And you've got Iluka adding $214
million in cash equity. That includes $82 million for
working capital once the plant is built, but you're waiting for
that first cash flow to come in the door.
So in total, from an Iluka perspective, there's another
$300 million that needs to go out the door because.
From their pocket. From their pocket because that
initial 200 million is not all yet spent.
So just looking at the, you know, in simple terms, the
amount of money going forward versus the proportions that were
paid up in 2022, Iluka is contributing a greater a greater
portion. And if you start to look at of
how cash flows are going to kind of be distributed, it gets
pretty interesting The annual interest charges.
So like you said Travis super friendly, but you know we won't
go through the full waterfall, but you still need to pay that
back. And there will be an annual
interest charge of about $116 million per annum on the fully
drawn debt plus accrued interest that doesn't leave much cash
flow from the sweep in the in the first four years.
So that is just using the stockpile scenario, that
scenario C as we showed in the chart just before.
And that's also making a big assumption which we're going to
talk about a good bit that the ramp up goes smoothly.
We've said it many times in the past, rarest, rarest processing,
just not simple by any stretch of the imagination.
And I think you could almost comfortably take the other side.
That ramp up is going to be a smooth process here.
Yeah, well, that's that's the interesting point though, right?
Is like it is, it is a big interest rate.
You do have to pay that back. But keep in mind this loan is
non recourse. So it's like to the extent you
know, the Australian government has a has a claim, it's it's
it's I think it's limited to that refinery code.
It doesn't extend to other good other assets.
Yeah, which you know the management are keen to keen to
point out and I think one of the analysts sort of called it, you
know, in a sense it's an it's an option on rare risk prices
ticking up because you don't have that recourse to the rest
of your balance sheet. Yeah, I described that tweak to
the funding. It's kind of like, yeah, there
was this, this relative relatively kind of, you know,
commercial adjustment which allowed for more money to go
away. But it wasn't, it wasn't skewed
entirely in the government's favour, but it was, you know,
you're making this commercial adjustment on an already kind of
completely out of market concession it.
Was so, so friendly to, to put it lightly, it was order of
magnitude above any of the other cheques we've seen written in,
in Australia at least, you know, the US, they throw about a fair
bit of money to just round out on that funding piece as well.
There's $150 million cash overrun facility.
You know, it's worth mentioning because we've already seen a not
insignificant uptick in the CapEx.
So that would be split 5050 between Iluka and the
government. And then there's an important
caveat as well that additional funding is subject to offtake
agreements that the Australian government is happy with trading
between the lines, not China. So there was a good question
that was asked about this in the call that happened right after
the announcement from a UBS analyst asking where will the
buyers emerge from? And, you know, it's the right
question to ask. So Alluca came back and said
there's a number of EV manufacturers around the world
looking at Korea, looking at the US, there'll be a range of
markets that we can sell into. But you know, really thinking
about who is going to buy this, that there are no industrial
buyers in Australia of this project and the company.
Of the product from the project. Yeah, yes, yeah, yeah, that's
right. So the company said we're going
to come out and announce these off takes closer to the
completion of the plant build. But just looking around the
world, right, you've got China, we can't sell, but that is 8590%
of the market. Then you've got Japan.
Japan is wrapped up by Linus. Linus do everything they can to
sell into Japan or sell into Vietnam, which is kind of Japan
owned facilities there as well. Plus you've got MP materials the
the US rail rest maker who are very eager to sell into Japan
too. Korea and the US, they're just
not there yet. You know, you'd be making a big
assumption that their markets grow as you build this project
and you can sell into them. But that again is a big, big
assumption. So I mean, it kind of brings us
to the Aussie government and are they going to be the ones on the
hook for putting up an off take agreement and buying this after
they wrote the massive loan? I'm not sure if you guys have
like thoughts on that, but it's it's delicate situation, right?
This is this is a big head scratcher.
How do you how do you, how do you draw down your debt without
off takes in place? When it comes to niche
commodities you need, you need an off take that has some, you
know, some degree of comfort for the financier, which usually
means it's got to be, you know, the price link price flaws or
something like that, right? You know, you're not financing
is not going to be comfortable unless unless you've got like
some degree of certainty around what your price is actually
going to be on on this. I don't see where I don't see
where they're going to be able to get this off take from.
But I but I have a I've been putting together some dots and
yeah, this is part of the reason I get sick in my stomach about
what could really be going on here.
Run us through it. The whole financing case is is
is based on bifurcated markets by not not selling to to China.
So what they assume these long term Atomus Atomus like
forecasts of NDPR, which is like what like three times the
current spot price, their thereabouts of NDPR, which is
like, go figure. But I'm not I'm not sure if you
like read the news about the the change in the future funds
mandate a few weeks ago, JD and Ellie, but this was like a
pretty divisive topic. The future fund, Australia's,
you know, sovereign wealth fund supposed to be kind of changed
its mandate to include funding national priorities, including
building more housing, supporting the green energy
transition and improving infrastructure.
And while that sounds a little bit, you know, innocuous, this
is a a big deal. And it was understandably kind
of divisive because of the perception the money gets to go
towards potentially uneconomic pet projects of the government
of the day. And a few months before the
future funds mandate changed, I had a had someone give me a call
and they, they, they told me something that they'd heard on
the Grapevine or, or word on the decline.
I even put it in in Word on the decline in our daily email a few
months ago. But you know what, what I was
told is that a vehicle is expected to kind of pop up
backed by you know money of the future fund which will
explicitly underwrite the off takes of rare earth projects.
So the future fund potentially agreeing to underwrite the price
and volume of production to come out of presumably any other and
potentially other facilities to to, to enable kind of that
financing case to be comfortable at, you know, potentially, you
know, absurd, absurd prices that could be up to like three times
higher than whatever their prevailing spot prices for
product in China, assuming that the green premium emerges in the
West. That's just a a kind of a kind
of baffling, a baffling proposition, don't you think?
I could not agree more. And it becomes a mechanism for
one government entity to to sort of save the potential
embarrassment of another one because they've made a hugely an
economic bet. And it brings out the question,
should the future fund be completely separate from the
government just like a central bank should be?
Or is it going to be used for the government of the day,
whoever that might be, to fund any sort of project at their
whim that they want? And you know it, it sets off
massive alarm bells because the future fund is, you know, it's
the, it's the money of the Australian people.
It should be invested in the future for the best return
possible for the Australian people.
You'd hope you get a fucking compound interest return on
that, not just like throwing it at things that you know what
under it's anyway. Like this is still like weird on
the decline that this would happen, but if it does come to
fruition I'll be particularly fucking pissed off mate.
Like as a taxpayer, what a fucking joke.
If it if it sees the light of day, though, it's sort of would
explain why our Luca may be so adamant about pushing ahead with
the project. I think they've sold off 10%.
I think a lot of the, the rhetoric and and commentary
about it is this project uneconomic?
Why are you pushing ahead with, with financing?
It makes no sense, right? And.
Do they know something We. Don't do they know something we
don't? I look isn't run by numbers like
I look as directors for decades have had a lot of connections
with W farmers, right? Tom O'Leary, the current CEO
since 2016 ex W farmers and and as we can see report in the West
last week, W farmers are even exploring for rare earths in the
gold fields themselves. Like none of this capital
allocation makes much sense, and Wesley's pride themselves on
being best in business at capital allocation doesn't make
sense unless you have high conviction about the government
underwriting higher prices, hence underwriting their
downside. So the thing like the thing that
sort of confused me about all this and I guess a bit of a
question a lot to put to you to is, you know, everyone's always
banging on about Australia needs to, you know, invest and develop
its downstream, you know, capabilities and industries and
things like that. You know, which would inevitably
involves some sort of, you know, government, you know, assistance
or incentives or in some sort of form.
But then trying to reconcile and balance that with, as you guys
have talked about, sensible capital allocation.
If if this is not the right way or the best, the best way to go
about setting up these industries and investing in
these industries in Australia, how else, how else can we do it?
Is there is there other ideas or ways we could go about it?
This is a picking winners strategy, right And I think the
way we've spoken about it in the past which I stood a standby is
setting up the infrastructure if you are going to allocate the
capital to have. You know, it be to the benefit
of a market based sort of system that can still sort of allocate
capital effectively as opposed to just allocating 2 billion
bucks to a project and saying here you go try and try and make
it happen. That's in in an in a nutshell,
how I kind of think about it. The price mechanism is a
tremendous tool at, at, you know, at filtering what is and
isn't financeable and, and, and do we want to distort the price
mechanism? Well, guess what, we're going to
end up like regretting that with taxpayer money.
Like to your point exactly, there's, there's two things that
we could do. And you know, we, we had a
conversation like like before, before turning on to these exact
two points #1 why, why, why would we be uncompetitive in
this industry? A huge part of it is our
nonsensical energy, energy black landscape in Australia and WA.
It's baffling. Its bizarre.
East Coast, no exception. East Coast, no exception.
We should focus on an energy abundance that actually gives us
a, you know, a competitive downstream industry in the 1st
place. There is no way we would have a
competitive downstream industry in in WA with with our like
without without cost of energy. Like unless you focused on like
energy abundance, all forms of energy and like invested reduce
the timelines to make that happen, like real capital
investment in in energy projects.
Then like, like say goodbye to, to, to that proposition and the,
the other, the other point is like on creating the settings
that enable the private sector to make its own investment
decisions which stack up on its own merit.
What does that look like? Well, you know, an example is,
is what Indonesia's done with, with Marwali, right?
We had 53 joint ventures. Are there they, they provided,
you know, a special economic zone, which, which enabled like
tax breaks for a tax holiday of like 7 years that encouraged
phenomenal capital investment to really build out a downstream
industrial sector there, which, which like, you know, it's, it's
just got like that's the private sector moving.
The private sector is, is, is like looking OK, the settings
are right for us to make investment decisions in this
area. You saw that in, in, you know
what the, what Rio Tinto and both BHP have talked about
investing in, in Argentina in the, in the last six months.
It's the policy settings in Argentina that are very
attractive right now and it's why they're comfortable
investing in, in that jurisdiction in that country.
We've got the exact opposite situation in, in most of
Australia. It's completely unattractive to
commit significant like private capital for projects when you
have uncertainty, high cost of energy, like, you know, tax
regimes and royalties that keep going higher and higher.
There's there's there's no incentive for the private sector
to like, like, you know, come up with it's private projects that
stack up on its own merit. Focus on that and you'll have an
abundance of competitive projects that all want to like
come and invest in their own, do their own thing.
But if it doesn't stack up on private metrics, then you just
like limit yourself to like perpetual subsidisation of of
something that will never be competitive in the long run.
Like that's not good for anyone. It's like, should the government
pay people to just dig a hole? Like, no, it's got to be
productive. Yeah, agreed that the money's
going to come somewhere at the end of the day and it comes from
the tax base pocket. So to to continue on with that
and to make it, you know, draw it back in with Ilook and the
project, we should provide the, the economics and how they kind
of stand in the scenarios that the company is given.
There's a few really important pieces here.
So obviously you've got the price assumptions, then plant
utilisation. It's different under each
scenario as we've been through, but that is a super, it's a high
sensitivity aspect of whether the economics stack up here and
commissioning. Another one we'll touch on in a
moment. We'll start quickly with the,
the revised economics is Elucasies and just read out a
couple points. So they're using 8.25% discount
rate. You've got 2 broad scenarios,
pricing scenarios that is. The first one is this Adamus
one, which we've commented on a few Times Now.
They are a price forecaster and you know by and large they are
higher prices than the second scenario, which is the 10 year
average price. So just quickly, under scenario
A, you've got $1.7 billion, under scenario B you've got 3.3
billion, and under scenario C you've got $870 million.
Then under the 10 year average price assumption, the economics
fall back dramatically. You've got $650 million in
scenario A, 1.9 billion scenario B and $230 million in scenario C
noting that the scenarios exclude the $320 million that
have already been spent, so they are MPVS from this point in
time, not taking into account the sunk capital.
Well, it's been already done, yeah.
And to be clear, all these scenarios now include the
processing of monozite concentrate from Bell Reynold as
well. All of them.
All of them include Bell Reynolds as well.
Ally. Yeah, yeah, yeah, yeah.
And Bell Reynold isn't your usual kind of mineral sands
mine, is it, Trev? It's it's actually, yeah.
It's like different conventional mineral sands operation that the
norm is, is like, you know, surface mining.
You see that a lot like kind of be down South.
The other, the other common some type of mining is dredge mining
with with mineral sands. Like, you know, Tronox does a
fair bit of that over E for example.
But bell rental is is neither of those two.
It's it's, it's actually quite a lot higher grade than the the,
you know, the typical mineral sands project that comes online
these days, But it's that's because it's underground.
Yeah, right. Underground mineral sands mine.
Jeez, you want to make sure they've got some sand, big
ground sport all over that joint.
I would have thought so Ally, I would have, but the mining
method is it's a bit bit funky to you know what we used to talk
about. I'll read this from the DFS.
It says a novel internally developed underground mining
method utilising directional drilling technology has been
developed. It says underground mining will
use mining unit plant MUP and ancillaries, mobile mining plant
MMP and subsurface equipment. So you're not, you're not like
using a jumbo kind of thing alley these, you know, it's
these big kind of bulks processing infrastructure, but
you could be on to something I think because I also read this
bit in the DFS, it says an area of poor geotechnical conditions
has been identified in a geological zone above some
sections of the ore body. Mining this material during T3
proved problematic and it's estimated that only 30% of ore
was recovered in the trial. There's also this bit here I
read too. It said Stokes are designed with
one metre pillars separating each stoke.
Every 10 Stokes make a panel with one stoke left in situ for
ground support between each panel Geo ticket issues leading
to to poor or recovery in situ Stokes for ground support.
If if anything can can fix that alley, you know what can.
It's sandpit ground support they can do.
It's in the name, literally ground support.
I mean, and then now they've even got that new odour free
resin that Maddie's been telling everybody about.
How good's that? Excellent points.
It's not. It's not just meshing bolts,
alley injection resins and foams, mineral products for rock
reinforcement, resin, capsules and other chemicals.
Love it. Hit up Derek Heard from Sandvik
Ground Sport. Get one more Sandvik order in
before Christmas. Go Sandvik.
Thanks guys. Cheers, Derek.
All righty. So we got to talk a bit more
about pricing. This is a super, super important
detail, very pricing. Prices rather are very depressed
at the moment. No secret.
You listen to any Linus call or a Luca call for that matter over
the the past few quarters, past couple years now.
And yeah, you hear it all the time.
So Aloka have been encouraging everyone.
They said it again on the call on Friday.
They actually contract with buyers.
Now that kind of gets back to the green premium and all these
sorts of things that we've touched on already.
But for those that don't follow rare earths closely, it's a
highly, highly manipulated market.
It is dominated by China. We're talking 90% China
dominated. And the NDPI price right now is
about US 58 bucks last time I looked per kilo.
That includes VAT. That said, you've got to make a
price assumption when you're putting out a study like this.
So at current prices, any Abbott does not make any money.
And the question to ask is how do Iluka have the confidence
that they will receive an economic price so that they can
make FID or continue building the project.
And I know they're getting a very, very friendly loan as
we've touched on, but they are still putting hundreds of
millions of dollars on the table here.
And you hope they're not suffering from any sort of sunk
cost fallacy. I should say we rather, and I
really hope we're not suffering from any kind of sunk cost
fallacy here and I and I use the word we pretty deliberately
because our government again is contributing hugely.
Taxpayers should be asking the question, is it right for
Australia to write a cheque of this sort of magnitude?
The the life of mine NDPR price assumptions for scenario A&B are
US $148 a kilo, bearing in mind I just said 58 bucks is where
we're at right now. For scenario C, it's US $129 a
kilo, but that is more than double, you know, nearly sort of
triple in the prices we're at. And as we kind of touched on,
maybe the company pulls a rabbit out of the hat.
It's it's very hard to see in terms of an off take.
I just don't know where that kind of comes from.
How does how does assuming like those those prices long term
price assumptions? How is it a financing case to
assume prices bifurcate? Like, how is that a financing
case? Like, like, like who who's
making these decisions? It's just like it's nonsensical
in my opinion. I think they the only reason
they can do it is if they, if they have line of sight to.
Yeah, like the government underwriting the off day.
They just love to be a fly on the wall there and hear whether
they actually seriously spoke about not going ahead with the
rest of the build, $320 million has already been spent.
It's not a negligible amount of money.
It's, you know, it would be to the detriment of Aluca as well
as the taxpayer, but you, you don't really get the impression
that that was seriously considered at all.
There's just so many, like assumptions on assumptions on
assumptions here. Like a lot.
A lot of things have to go right.
And who knows, maybe the rarest price will get that one day.
Who will wait to comment or know that you know it's but the
thing. Is your financing case like?
But it's yeah, to use that as your sort of base case price,
you know, in a, in a model to, to make a decision on this where
I don't know if you'd call it spot, but perhaps the whatever
the current prices are today, it makes you a bit nervous, right?
And that's yes, they've got this extra money in the door, which,
OK, that's all lovely. But all these, you know,
projected economics and things like that are still on the basis
of these prices two to three times without today, not as at
today A. 100% your base case scenario is double.
It's double it's and you know, the analysts were really
touching on this in the in the questions they were asking.
So Glenn Lawcock from Barry and Joey, he asked some great
questions and he was really quizzing management on these
points, sort of getting at how long is the market going to be
in the dark on whether this project makes money, IE when are
we going to get an uptake, an update on the offtakes.
So you know, if you look at the the analysts, what they've kind
of said or what they're reporting, any other is carrying
a negligible or negative in some cases value in the NAV
assessments that a lot of the equity research analysts have
have put out and. That's even including the, you
know, the the generous concessions.
They're basically saying, yeah, the including the NAV to Iluka
per share is negative. Yeah, and.
The the long term consensus for a lot of these analysts is 20-30
bucks higher from where we are today.
So you know, let let alone at what spot is right now and it's.
Still a fair bit lower than what seems to be assumed.
Than what the company has assumed yeah, yeah, that that
that's right. And the company again they'll
they'll point to this growing market they put a number of
slides in the the presentation comparing 2024 the size of the
market to 2035. They spoke to this in the in the
Q&A. Again, like you said Ali,
another big assumption to just assume that the market grows to
this very, very big level. And you know what you're banking
on massive EV adoption and wind turbine adoption amongst the
other, you know, uses of these these magnets.
And I mean, forecasting anything 11 years out is it's almost a
mug's game, right? It's super, super hard.
Like forecasting commodity prices is very hard.
That's why we look at where we are in in the cost curve and in
the cycle. And you can't really do that
with this stuff because there's not really a normal cycle.
Very tricky because it's so manipulated.
So yeah, again, I think we kind of come back to the point.
Maybe there are details and maybe we're talking way out of
school because there's things we're just not Privy to.
Maybe, maybe there are agreements that the company has
come out with, you know, with. Well, even if that's the case,
like it's either it either makes no sense from a capital
allocation perspective from our Luca, or it makes no sense from
a capital allocation perspective for the taxpayer.
Either one, you've got to ask questions like, what the fuck's
going on here? Yeah.
And, and, and if the government does like kind of underwrite it
or the taxpayer underwrites it, maybe maybe that's because they,
they can underwrite, they've got these agreements to distribute
these strategic stockpiles to the West.
And this is going to be the source of strategic stockpiles
of like an NDPR oxide like and there's your bifurcated market.
Yeah, great. Thanks.
Cool. How about, how about telling
that to us? Like, just not, you know,
there's a lot to be filled in here.
That, that stockpile point is one that that comes up and up
and up and it's something the Chinese have done, you know,
very well. They've been great over the past
two decades. It just hoovering up commodities
when they're, they're at Lowe's. There's not, not the situation
here. It's not really how it's been
pictured. You wouldn't be scooping up
prices when they are super low. You know, the Australian
government would almost do better.
Just don't buy them now if they can be getting them, getting
them a bit cheaper. So yeah, it's a it's a it's a
super interesting one, right? And it's even more fascinating
in the context of the the news in the in the past week or so
with gallium, germanium and antimony, again, you know,
making headlines, just highlighting that these product,
these byproduct minerals are, you know, strategically
important around the world and China, their ideology, we'll use
these as utensils as sort of pawns in a trade war.
So these things are important, but I'm not sure from the
perspective of an ASX listed company Pressing Go on a project
like this with these sort of assumptions makes complete sense
to me. I think the other point you, you
know, we should really hone in on, it's just like the
assumptions on commissioning, Like JD, this is an area where
there's a tremendous amount of risk in the spreadsheet, like
not just not just commissioning, by the way, but also just CapEx
blowouts, like CapEx already blown out.
Like these, these projects absolutely renowned for more and
more CapEx blowouts. Wouldn't surprise me to see that
blowout again. And what does that do to your
Yeah, yeah, economics kills it. But on commissioning you, you,
you guys know about McNulty curves?
Oh. Gee, it's been a while since
we've talked about them. Give us the rundown, Trev, for
those who aren't familiar with those.
McNulty curves in in, you know, mining ramp up.
They used to model like the time and efficiency required to to
bring an operation from kind of, you know, like the point it
starts that when the plants turned on into into full
production, like how long does it take?
So like. And importantly, the the steady
state, yeah, you get to. Get to how?
How long does it take to get to nameplate right?
Like ramp up typically follows this sort of like sigmoid S
shaped curve starting sort of slowly as you know, equipment's
tested in that commissioning and then and processes are refined,
sort of accelerating as efficiency improves and then
like eventually kind of levelling and tapering off at a
steady state. Like you talked about JD, but
the these McNulty curve, they put the time from the plant
turning on versus, you know, the plant output percentage of
nameplate on the Y axis. And the research on these, you
know, McNulty curves kind of categorises them into into four
types of of curves. Top one curves model the the
ramp up of well established processing facilities in
locations where the technical expertise is abundant.
It's a well Trotten path. You know, people, people who
know what they're doing and doing the job.
And and then they then you can expect these type 1 curves.
Think conventional kind of gold plants in, in WA.
So you, you ramp up pretty fast to nameplate honky Dory.
You know, it's happy, happy days.
Then type 4 models the ramp up of complex processing techniques
for advanced commodities or processing in in regions that
also do not have inherent technical expertise in these
areas. And, you know, built by
contractors who maybe you know, haven't, haven't built something
like this before. Think, think the, you know,
lithium hydroxide facilities in WA Type 4 curves are, are still
in ramp up in, in year 3 and they're still in ramp up three
years after the plant turns on. And they never actually get get
to the name plate number that was supposed to, they get to
like far, far, far left less of that over time, you know,
processing methods and plants, they can become, you know,
better understood. And a curve that was once a type
4 can become a type one. That's what happened with H
pals, the 1st generation of those H pal plants.
You know, I think the ones in WA Ravens thought Mara Mara and
Coors Bulong, they were, they were type 4 big disappointments.
But the Chinese built on that technology over decades, they
got much better and efficient at building them and that's what
they built in Indonesia in a phenomenally kind of efficient
manner on tight capital budgets and ramp them up super fast.
Is these. So now you can say hey to bounce
over type 1 curve. So apologies for waffling on
about McNulty curve so much. But if I look as spreadsheet is
assuming anything other than a type for McNulty for any ABA,
they are kidding themselves. This is like the, the most
advanced, you know, stuff when it comes like we all, everyone,
everyone says where it's the most, this is the most
challenging, like metallurgically challenging,
like chemistry set stuff that there is in our industry.
This is this is super advanced. And, and what they're going for
is the full vertical integration shebang.
It's not just the cracking and leaching bit, which Linus is
done in Kalgoorlie and is struggling with big time, but
they want to build a hydromet plant on top of that, which is
like, you know, compounding the complexity, complexity in a lot
of ways. So I just think what what
happens here if inevitably ramp up takes way longer than
expected. And so the working interim
working capital is massive. Like the cap explodes out to,
you know, 2 1/2 billion plus and you're and you're and it takes
what if it takes like six years and you're still not at at
nameplate? Like who's on the who's on the
hook for that? Right?
Like does the does the taxpayer keep underwriting more
advancements and more advancements because otherwise
the economics don't stack up or does it leave other kind of
precarious situation? I just like, I think that's why
the stocks come off. It's just like people have run
the roller over this and just thinking like, what are you
doing? So I think that the TLDR version
of what you've sort of gone through, Travis, what I'm
getting is essentially it's naive.
It's not to say that it can't be done, but it's naive to think
it's what without its complexities, challenges, you
know, potential cost and time blowouts and things like that.
So it's just important to keep that in the back of your mind.
Yeah. And because the government's
picked a winner like when you have the the timing and CapEx
like blow out like snowy hydride, does that mean the
taxpayers on the on the hook for that?
Like again, like I just think that this is the the where
things get really. Like dubious in my opinion, by
picking winners, like create the policy settings that encourage
private investment. Don't pick winners.
It's just fucking an easy, it's an easy point to make, but it's
also a very like easy philosophy to bring to the table when
trying to like like address these complex problems I think
today. And recoveries was one of the
other assumptions you guys flagged as well to have a look
at. Yeah.
I mean credit to Rare Earth Observer for this one, but it
just hammers home what what you've said there, Travan.
I mean, maybe it goes one step kind of further.
The company gave this worked example on just the any other
stockpile feed scenario and it's just a sort of simple 90%
recovery assumption. That implies 90% overall, IE 90%
after processing, after cracking, after leaching and
separation. It's not 90% at each step of the
way because that would be .9 * .9 and so on.
It's 90% all up. That is a big, big assumption to
make. Again, to your point, Ali, just
another assumption. And yeah, coming out the back of
this, we've probably sounded pretty critical.
I'm sure Iluka is well aware of of the challenges.
They they would understand this. I mean, it's, yeah, it's very
interesting from from their perspective because they have
gone from just, you know, they go to mineral sands, play with
iron ore exposure through their doTerra shareholding to now a
kind of convoluted, you know, mineral sands, iron ore and this
wacky big rarest thing. It makes their investment
proposition as a complete sort of side note, a whole lot
different. And who knows what their their
shareholders were. You know, what they kind of
think. I mean, some of them voted with
their feet last Friday what they think about that.
So I'm sure some were hoping that this would have just gone
on the back burner and they would have called this Enyabba
for a bit of a day. But it's not been the case and
some of them have left now. Notice what They're not willing
to part ways with JD. So, so they've, they own 20% of
the terror, the dividends from the terror they they pass
straight through to their own shareholders.
So the dividend that I look at pays is basically what they're
getting from the de terror royalty that they they still
own. And they're not, they're not
willing to monetize that stake because too expensive.
They said, well, whether it's too expensive or like, think of
what happened, like there's a lot of.
A. Lot of shareholders, old stocks
in Australia, superannuation fast, blah, blah, blah, we'll be
frank dividends, happy days. Do you get rid of that?
Where's the cash flow in this business that actually goes back
shareholders like it's it's not there.
It's absolutely for a very long time.
So like, I think, I think what happens to share price if you
got rid of that? It's, it's the, it's the more
unnerving thing. Completely agreed.
And yeah, I think that's that's enough said for that one.
Wow, I've learned so much about mineral sands and rarest.
Best way to learn, Ali, Just don't nurse yourself in it.
Absolutely. All righty, We've got a couple
partners to thank. Thank you to Mineral Mining
Services, Grounded Sandy Ground Support, who we had in the show,
CRE Insurance, Kaydrill, Dasat, Saltbush Contracting and Get Wet
Solutions. Hodoro guys.
Hodoro The information contained in this episode of Money of Mine
is of general nature only and does not take into account the
objectives, financial situation or needs of any particular
person. Before making any investment
decision, you should consult with your financial advisor and
consider how appropriate the advice is to your objectives,
financial situation and needs.