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Follow-on post also from 8-May exploring why SC is delayed by 2 months and implications for addition of Cobalt recovery in Kalaba plant .... Hint, IMHO it is all about the process flowsheet being developed and impact on FCF is profound !
All assumptions used are taken from RNSs and recent ICs
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"Interestingly it seems that the size of the intended plant has not changed since Dec-20 RNS, but very tellingly the Scoping Study was expected in 2 months from IC @15-Feb implying mid Apr-21, but update now expected a further 2 months later. I strongly suspect they are now accounting for recovery of the substantial Cobalt in the Kalaba/CE ore as mentioned on IC @5-May-21. By my calculation a possible 900t of Cobalt sounds trifling but at $45k/t it adds a whopping +75% uplift to the £37.5m copper FCF taking it up to £61m FCF overall when included ... that is some by-product credit, but is notoriously tricky to extract as it is a finely-tuned multi-stage process from what I've read up on so far!
Valuation wise I'm postulating that up to 2x the current £71m MCap could be supported by the 1Mt/annum Kalaba copper/cobalt production plant at todays metals prices and info gleaned/assumed. My numbers suggest Kalaba would generate £61.5m FCF probably from H2-22 as the ore throughput & process flowsheets will take some time both ramp up and tweak. Interesting IC @15-Feb-21 said that CE ore is soil & clay due to weathering so is more an 'earth moving' than mining exercise implying easier to build mine and process ore keeping both CAPEX & OPEX modest as it is also relatively shallow so I am expecting an open pit operation with a low strip ratio when Stage 2 of the SS is issued. https://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/strip-ratio-western-copper-gold-nemaska-lithium/
Clearly the above absolutely no account of anything else that we do so is a starting point, but if ARC can get to production quickly into a rising copper/cobalt price and use this FCF to fund further exploration avoiding dilution then they have a very rosy future ahead of them as they have the means to self-fund and/or JV as equal partners as they can pay their way."
If all the above comes to pass then the $10m CAPEX cost becomes a trivial 2-3 months at full 3kt/day throughput. I would then expect them to add a parallel processing plant once they have the flowsheet optimised and at least double the throughput which is another reason I think the Scoping Study is taking longer as they want to build in expansion space in such a way as it can be 'bolted on' rather than have to redesign/move existing to accommodate it. This way Plant A can continue at 100% whilst Plant B is added and commissioned.
AIMHO & ATB APR
Sorry useless post editor said I had 5 characters left and still truncated the post!
ATB APR
@Kully as per my 8-May post below I get 1Mt ore/year =7.7Kt Cu and 900t Co for £61.5m FCF @£10k Cu & £45k Co
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Given latest IC @ 6-May-21 plus latest $10k/t copper & $45k/t Cobalt pricing my initial 17-Feb-21 post deserves an update:
From 13-Dec-20 RNS plus Investor Conference 15-Feb & 6-May-21 on Kalaba/CE Scoping Study:
Scoping Study Assumptions:
Production: start planned early 2022 & cashflow positive 'TopCo' in 2022
Copper Price: $6,500/t stated in Dec-20 RNS
CAPEX: RNS states $5-$10m whilst latest IC stated $10m CAPEX & funded via Offtake or Asset-backed loan
Plant Size: RNS states 3kt/day ore processed or 1Mt pa & IC @May-21 stated 1Mt ore throughput pa so no change
Finances @$6.5k/t Copper: $45-50m revenue & $25m Free Cashflow (FCF) stated on IC @Feb-21
= Implied metal produced = $50m revenue / $6,500 = 7,700t/annum metal from 1Mt ore = 0.77% Copper effective
= Implied production costs = $50m revenue - $25m FCF = $25m sum OPEX for 1Mt ore processed
Implied Finances @$10k/t Copper:
Assumed $10k/t Cu & 7.7Kt metal from 1Mt ore processed with $25m OPEX includes any CAPEX loan repayments
> FCF = (7,700t x $10k/t) = $77m revenue - $25m OPEX = $52m or £37.5m FCF per annum
*New* Brucey Bonus = Cobalt stated on IC @May-21 @0.1% grade of Kalaba/CE ore
Assumed 90% recovery as per several papers, but highly dependent on local metallurgy & flowsheet used
Implied metal recovery = 1Mt x0.1% x90% = 900t/year
Implied Finances @$45k/t = 900t x$45k/t = $40.5m or £29m FCF as cost assumed picked up in plant OPEX above
Commentary:
It seems that CAPEX is now forecast near top-end of initial Dec-20 estimates @$10m and Scoping Study taking considerably longer to complete than envisaged even back on IC @Feb-21 of 2 months max. as now expected end of June-21. IC @Feb-21 stated significant works testing gravity, flotation, magnetic and leach flowsheet elements on a number of bulk samples was underway. Latest IC @May-21 stated 0.1% Cobalt in CE ore being used at Kalaba plant which at current price of $45k/t makes an enormous difference to the plant economics, but adds significant extra flowsheet complexities and doubtless to plant CAPEX and possibly OPEX costs due to add processing costs.
ARCM Valuation:
One valuation method is FCF multiples and using Junior African gold producers (PAF, HUM, RDG, SG et al) gives a range of 2x to 3.5x. So using a modest 2.5x multiple the Copper only FCF of £32.5m = MCap £81.3m, but if Cobalt credits also included Combined FCF rises to £61.5m so implied MCap = £153m. Value of other licences, exploration and/or JVs NOT accounted for in these figures !
This is looking more and more like a "Goldilocks scenario" where ARCM can scale up production and/or exploration and/or JV as it goes for one or more licence/project areas and be internally funded from its own FCF. I would then expect minimal or no shareholder dilution and a rapidly growing SP and MCap going forward over the next 12-24 months as this un