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WA Kaolin set to start stage one development at Wickepin Project after strong start to ASX trading

Last updated: 16:47 26 Nov 2020 AEDT, First published: 14:45 26 Nov 2020 AEDT

WA Kaolin Ltd - WA Kaolin set to start stage one development at the Wickepin project after commencing trading on the ASX
CEO Andrew Sorensen and non-executive director Linton Putland poised to ring the bell on opening day

WA Kaolin Ltd (ASX:WAK) has had a strong start to its first day of ASX trading supported by an oversubscribed initial public offering (IPO) which raised $22 million at an offer price of 20 cents per share and a development-ready, high-quality kaolin project.

Shares opened at 28 cents and traded as much as 16% higher to 32.5 cents on strong volume of more than 49 million valued at more than $14.2 million.

The company recently released a robust definitive feasibility study (DFS) for its Wickepin Kaolin Project, southeast of Perth in WA, and is set to begin construction leading to staged development.

World-class reserve

The DFS is backed by a JORC-compliant ore reserve estimate of 30.5 million tonnes of kaolinised granite within 644.5 million tonnes of mineral resource.

This makes the Wickepin Kaolin Project one of the world’s largest remaining primary resources delivering a long life of mine of more than 30 years with high brightness and low impurities – suitable for all kaolin market applications.

Staged development strategy

Stage one of project development is intended to produce around 200,000 tonnes per annum of kaolin product via the company’s proprietary K99 dry processing method.

Typically, kaolin producers mine secondary resources which have high levels of impurities and operate chemical treatment, magnetic separation and generally wet process to produce a quality product for the market.

The K99 process has no chemicals, no magnetic separation, and no tailings dams – making it an environmentally friendly low-cost production process due to the high purity of the product.

WAK intends for the operation to consist of two modules of equal design capacity which, if successful, would then be expanded in stage two to produce around 400,000 tonnes per annum through the construction of a further two identical modules.

Project NPV(7) LOM is calculated to be $119 million, with an IRR of 39% for the initial project.

DFS displays robust economics

Capital development costs for the initial production stage and expansion are estimated at $18.07 million and $13.57 million respectively and the company is fully funded to begin stage one development.

Construction is scheduled to be completed over a 37-week period and subsequent commissioning and production ramp-up is scheduled over 26 weeks.

Sustaining capital for the project is estimated at 1.2% of prior capital expenditure per year of operation.

There remains significant scope to further increase the production from the project due to the very large resource inventory which contains 54.5 million tonnes of kaolin and remains open laterally, as well as the potential to attract additional market share.

Notably, the initial phase of the project generates positive EBITDA in the second year and becomes cashflow positive during the fourth year.

Kaolin market outlook

In 2019 the global kaolin market was valued at US$4.76 billion and is projected to reach US$6.28 billion by 2027, which equals a compound annual growth rate (CAGR) of 3.5% per year from 2020 until 2027.

It is anticipated that the total market registered demand by volume will increase from 29 million tonnes in 2019 to over 37 million tonnes in 2027.

Cosmetics and ceramics are expected to become the fastest-growing applications for the kaolin market in the region over coming years with an increasing number of ceramic manufacturing companies in China contributing to the growth of the kaolin industry.

Similarly, rising consumption of natural ingredients in manufacturing cosmetics, due to its superior properties, is anticipated to fuel its utilisation among the millennial population - further supporting kaolin demand in the coming years.

Project NPV(7) LOM is calculated to be $257 million, with an IRR of 47%. for the expanded project.

Target markets and offtake agreements

The Asia Pacific region is the company’s target market and the target sector during the first three years of its operations are the ceramic, fibreglass, paint and rubber markets.

Sales revenue from these three applications in 2017 was US$630 million, being 37% of the Asia Pacific kaolin market.

This revenue is forecast to grow to US$1.6 billion by 2025.

To date, the company has successfully negotiated offtakes with a number of customers in Asia, including a Taiwanese distributor, which includes a six-year agreement for 432 million tonnes.

This, along with LOIs from other customers, would cover around 83% of production for the first three years at Wickepin.

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