Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (38185)	12/14/2017 8:00:25 PM
From: Goose94	Read Replies (2) \| Respond to of 203353

Clean TeQ Holdings (CLQ-T) Cobalt boost for Clean TeQ eases capex indigestion Robert Friedland has never taken kindly to suggestions that securing the debt financing component of Clean TeQ’s US$782 million (A$1.03 billion) Sunrise nickel-cobalt-scandium project near Parkes is a big ask, writes Barry FitzGerald. The billionaire mining entrepreneur has snapped back in the past that it is the sort of thing he has done over and over again, and before the rest of us have had breakfast. It has not quite been that way for the Sunrise project (formerly Syerston). But it has to be said that Clean TeQ – Friedland is the co-chairman and a 16.3% shareholder – is just about there after appointing its fourth financing partner, Industrial and Commercial Bank of China (ICBC). ICBC joins Société Générale, NAB and Natixis as an additional mandated lead arranger for a $125 million debt financing facility, taking the amount to be put in place on a best efforts basis by the group of four to $500 million. The inclusion of ICBC is noteworthy on a number of levels. Apart from China’s lead role in the nickel and cobalt-heavy electric vehicle revolution, China’s Pengxin Mining is Clean TeQ’s second biggest shareholder with a 16% stake, and Beijing Easpring has a supply contract with Sunrise. Whether China Inc’s involvement deepens with the additional debt financing and offtake arrangements needed to underpin the development of Sunrise remains to be seen. However, it can at least be said that but for the sake of securing another $150 million in debt, and a supporting $200-$300 equity raising (assuming no sell-down of equity in Sunrise which could be the case in future offtake deals), Clean TeQ’s ambition to become a major supplier of battery materials from Sunrise is fast becoming a reality. A definitive feasibility study in to the development is due to be released by the end of March. It is delayed from the fourth quarter of this calendar year but that doesn’t matter match given the scale and longevity of what is being proposed. Confirmation of the capex requirement and robust operating costs could lead to a construction start in mid-2018, subject to the debt and equity package being locked down. These are the best of times for a project like Sunrise to be contemplated, thanks to the stunning price performance of cobalt, a metal critical to the main lithium-ion battery chemistries. Most of the world’s cobalt comes from the politically charged and socially uneasy Democratic Republic of the Congo, and a good portion of its output involves child labour. That’s not sustainable for the battery makers. Their fretting about securing non-DRC supplies, and the sheer growth in demand from the EV sector, has driven cobalt prices 130% higher this year to $33.60/lb or more than twice the $14/lb assumption Clean TeQ plugged in to early economic modelling for Sunrise. It means that currently at least, Sunrise is really a cobalt-nickel-scandium deposit, with cobalt accounting for about 60% of project revenues, on an assessment by Macquarie. Nickel prices have not been so kind but there is general agreement that the EV revolution will carry prices higher as shortages develop. Take Clean TeQ’s debt financing inroads, the ballistic cobalt price, and the longer-term recovery expected for spluttering nickel prices, and it comes as something of a surprise that the company’s share price has been struggling of late. It has fallen from A$1.78 in early November to $1.17 on Tuesday. While the stock is still up massively on its opening price for the year of 50c, the 34% fall since early November suggests other factors are at play. Completing the debt/equity package for Sunrise is the key one. Others can be found in the technical report on Sunrise posted by Clean TeQ on November 2 in support of its listing application to the Toronto Stock Exchange. It was prepared by SRK Consulting and was based on the 2016 prefeasibility study in to Sunrise. But it also included several updated several assumptions including capital and operating cost estimates. The report estimated total capital costs for the project of US$784 million (including a contingency of $102 million) which was up from the $680 million (including a $62 million million contingency) in the 2016 PFS. It also revised operating costs per pound of nickel produced (including cobalt credits) from the PFS assumption of 89c/lb to $1.42/lb. The changes reduced the post-tax internal rate of return from 25% to 21%. So there is good reason to think that the SRK report was the cause of some indigestion in the market for Clean TeQ shares. Clean TeQ shares have lost 34% of their value since, even if the company found some words of comfort in the November 2 announcement. “The economics of the project, at conservative commodity price forecasts ($7.50/lb nickel and $14/lb cobalt inclusive of sulphate premia), remain strong,’’ Clean Teq said. It wasn’t joking when it comes to cobalt. The revenue difference between producing 5000 tonnes of cobalt at $14/lb and the current price of $33.80 is $218 million. While few expect cobalt to stick at these levels, Sunrise’s leverage to elevated prices as the EV revolution takes hold is clearly a boon for the project, and Clean TeQ’s market rating. Macquarie expects cobalt to retreat in the near-term before taking off to more than $40/lb in 2022 when Sunrise should be hitting its straps as a producer. It suspects nickel will have risen to more than $8/lb by then. It has a 12-month share price target on Clean-TeQ of A$2.20 a share. Part of that valuation includes the water purification business – it too employs Clean Teq’s proprietary ion exchange extraction process – which got a kick along today with a water re-treatment deal struck for the Fosterville gold mine in Victoria. MiningNews.net 13 December 2017 Barry Fitzgerald