In August 2019, the company released its Definitive Feasibility Study (DFS) on Lake Wells, with results showing a robust and low-cost Sulphate of Potash (SOP) project that has the potential to supply up to 150,000 tonnes per annum of SOP to overseas and domestic markets.
Patersons Securities has initiated coverage of APC with a Speculative Buy rating and a 23 cents per share valuation.
Following is an extract from Patersons’ research note on APC.
A low-cost long-life project. The LWSOP project, located in one of the world’s superior locations for solar evaporation operations offers a compelling low-cost long-life development opportunity as the demand for premium grade fertilizer products like SOP continue to rise in Asia and the rest of the world. With total measured drainable SOP resource of 18.1Mt, evaporated through sun and wind, APC will look to supply overseas and domestic markets with up to 150ktpa of SOP for at least the next 30 years. DFS results indicate life of mine (LOM) operating costs of US$262/t, placing the LWSOP project in the first quartile of the SOP cost curve.
Robust Financial Returns. DFS results indicate the project boasts a pretax NPV8 of A$665M with an internal rate of return (IRR) of 25% on robust operational and capital efficiencies. These economics are based on the Project’s Probable Reserves of 3.6Mt SOP, which account for 95% of the LOM output, with the remaining 5% coming from the Measured Resource (18.1Mt). Overall, the project has a 30-year mine life with LOM production of 4.5Mt of premium high-grade SOP.
SOP price outlook looks stable. Historically, SOP prices have not been subject to the same level of volatility we observe in traditional commodities, having held between US$450/t and US$650/t over the past 5 years. The price premium of SOP over Muriate of Potash (MOP) has averaged US$267/t over the same period. Using an SOP price of US$550/t and an exchange rate of AUD/USD $0.70, the LWSOP generates on average A$100m.pa in EBITDA throughout the LOM, with an operational payback period (post-tax) of 4.75 years.
Valuation: $0.23/share. Our APC valuation is based on the discounted cash flow analysis of the Lake Wells Potash Project (LWSOP), risk weighted at 60%. Un-risked our valuation increases to $0.35/share. We assume LWSOP is financed using 60% debt and 40% equity.