Asiamet's Amended Aggregate Assessments Ameliorate All
Good afternoon MINING AIM - a second blog in one day! What a treat....
This is what happens when NOMADs demand an intraday release deemed to be too 'material' to wait until the next day.
If you're wondering about the title, it's designed to both make sense and take time to understand. Much like the ongoing capex savings work.
The update is simple: the CEO has finally emerged from his bolt hole with good news: by reducing the initial scale of BKM, he has managed to optimise the project to a point where capex costs can be reduced by more than $26 million due to new equipment selection, process flowsheet simplification, and material reductions in earthworks - with more savings expected in the near term.
For perspective, the 2023 feasibility study came back with a $235.4 million estimate; new capex savings are expected to be in the range of $50-80 million (this is a large variance, but we will take the middling figure of $65 million). A final savings figure will be known over the next few weeks as work is received from ARS's engineering partners on equipment pricing and assessments of bulk earthworks costs.
Further, an environmental permit has been secured to commence a limestone resource definition drilling programme at the Rinjen Limestone area immediately north of the Project, as a local source of lime for copper processing. And strong interest has also been received from leading power equipment suppliers for the proposed Biomass Power Station under the anticipated Build, Own, Operate model.
And Asiamet needs both signed off; you need the limestone to neutralise the acid in the copper leaching process, with the exploration forestry permit expected to be granted in Q4. Power needs are self-explanatory.
On top of this, the plan as we all know is to adopt a higher grade, lower strip ratio mine design which will require a smaller mining fleet and workforce leading to reductions in infrastructure costs.
Darryn (who now clearly 'gets' the need for more comms) advised that 'Our key focus is on delivering material updates to shareholders.'
The CEO further noted 'It is particularly exciting that these material savings will not only reduce overall funding requirements but also enhance our ability to secure favourable financing terms, which will be a positive development for our shareholders...enable us to re-engage project lenders with a more highly competitive and financially robust project in hand.'
The company will also be 'sharing more capex-related wins with shareholders in the near future.'
Remember, these cost savings come on the heels of optimisation update of late June; a massive 47% decrease in total material mined, with the LOM strip ratio reduced from 1.37 to 0.72. This should not only reduce the capex costs, but hugely decrease opex.
The redesign still sits within the 2023 feasibility study, so expansion should be seamless, while the reduction from 38.4Mt to 28Mt means the soluble copper grade will rise from 0.51% to 0.55%. Heap leach pad lifts were also reduced by a third to 6.6 metres, allowing for earlier copper extraction and potentially accelerating first production of cathode.
Although total cathode production direct from the heap leach was reduced from 154.1kt over 10 years to 122.4kt over 13 years, the higher processed soluble copper grades combined with the reduced heap leach pad lift heights are expected have the potential to enhance early-stage project cash flow and economics.
For perspective, the new design of the heap leach facility allows for the first three years of stacking operations to be conducted on a much smaller area, reducing upfront construction requirements.
Darryn has previously said he wants to get at least $60 million off the capex bill. This doesn’t happen overnight, but the more time you give him, the more cash you are going to shave off the capex requirement. Take the middling $65 million figure off the current $235 million and you have a $170 million capex estimate. That’s a big difference – another $15 million and you could get it down to $155 million.
When you break it down, BKM will undoubtedly get project financing. The real question is on what proportion; debt, offtake and equity. The lower the capex figure, the less equity will be needed, and it all compounds. I've made this point before, but:
Capex figure comes down, share price rises = less shares needed to plug equity gap.
Capex figure comes down = HNWs and more strategics likely to take positions down here.
Capex figure comes down, assuming bank financing and offtake prepayment remains the same = smaller equity raise needed.
Capex figure comes down, bank financing will be on better terms as risk reduced = share price rises further, less equity needed.
Waiting is boring, but getting the best possible deal should eventually be worth it.
But 'politically,' this all remains a complex balancing act
The problem is that the company needs to communicate with shareholders and the market. Darryn is making the investment case objectively better but this quiet has caused the share price to suffer. It’s a competition for attention in this market and the quiet ones get hurt.
Hence the market capitalisation; sell off all the assets now and ARS would fetch considerably more than the current value attributed by the market. Some feel this would make most sense at this juncture...
But really what's needed is a list of what is left to complete, how long it will take, and when exactly you will approach the banks for finance. They have told Asiamet what to do - investors should know too.
But on the plus side, let's say Darryn gets the capex figure down to $170 million. If you fund the project on a 60% debt basis, this will leave a finance gap of $68 million. Another $30 million as pre-payment is typical - you're down to $38 million. Selling this down to strategics or at a project level is perfectly viable.
And the key point to understand is that it's the $38 million gap that matters most - because every $1 million you shave off beyond the middling $65 million, you are actually saving exponentially more dilution whether at the company or project level.
In other news, ASX-listed Celsius Resources (in the Philippines), with two projects covering 650Mt, recently received the first mining permit for a copper mine in the Philippines in almost 15 years. Executive Director Mark van Kerkwijk noted that 'The Philippines desperately needs revenue from a sustainable mining industry to contribute to GDP growth, and the exploration, development and operating frameworks to achieve this is clearly laid out.'
There are similarities.
Project financing for BKM will come through eventually. The only question is finance; every day Asiamet takes to reduce project capex brings it closer to needing more working capital - but it's clear that we're talking in terms of tens of millions of dollars of potential savings, with the majority of the work now concluded.
The bottom line is that on any metric, the market cap of the company is far, far below the value of its owned assets.
And a $38 million funding gap is peanuts.
- Charles Archer, 22/8/2024