ADN 2.04% 4.8¢ andromeda metals limited

DYOR. The analysis below is provided for illustrative purposes...

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    DYOR. The analysis below is provided for illustrative purposes only and not intended to be advice.
    LTR published their PFS today. This is their cashflow chart.

    https://www.asx.com.au/asxpdf/20191202/pdf/44c5sl1f7dp8nv.pdf

    Screen Shot 2019-12-02 at 7.58.38 pm.png

    Screen Shot 2019-12-02 at 8.03.53 pm.png

    LTR's project is not expected to start construction until 2023 and that's with an initial CAPEX of AUD $240M.

    Remember that ADN's share of CAPEX for the project defined in the current Scoping Study is just $6.75M.

    Let's look at how the LTR's cumulative cashflows stack up with cumulative cashflows from ADN's 75% share of the Poochera Project.

    For LTR I have read net cashflows from the graph above ( which is from their PFS ).

    For ADN I've calculated approximate cumulative after-tax cashflows on a 75% basis:
    • Poochera Pre-tax cashflow on a 100% basis is approx $56.8M ( margin x 187 kt )
    • Poochera After-tax cashflow on a 100% basis is approx $39.8M ( tax off 30% for tax )
    • ADN's 75% share of after-tax cashflow is approx $29.8M
    • For ADN's initial year 1 to 3 cashflows I have read the values off the chart below from the latest presentation and reduced by 25% to determine ADN's 75% share.
    Screen Shot 2019-12-02 at 7.16.57 pm.png



    Current Poochera scoping study has the project commencing production in 2021.

    LTR's PFS has the project commencing production in 2024.

    See my chart below comparing cumulative after-tax cashflows ( Red line below for ADN, Blue line for LTR ).


    Based on project start identified in the scoping study, positive cumulative cashflow and hence payback for ADN will be achieved in 2022 ( 2 years from now and 1 year before LTR starts construction ). LTR payback won't be achieved until sometime (end) of 2027 ... that's 8 years away.

    (charts below are after-tax)

    Screen Shot 2019-12-02 at 8.51.54 pm.png


    Now the beauty of a nimble low-CAPEX project is that you can very quickly use cashflows to bankroll growth.

    Let's assume with additional resources at Poochera they define a new reserve and commence construction of a duplicate project in 2024 ... they will aggressively drill satellite prospects at Poochera soon.

    That allows 2020, 2021 and 2023 to adequately define the resource and define a mine plan. They will be able to reuse / copy elements of the design of the first project.

    Let's assume the cumulative cashflows for that second project (commencing with the CAPEX spend) start in 2024.

    The orange line below now shows how ADN would look with 2 projects at Poochera both mining 500 ktpa for a total 1,000 ktpa mined for 187 kt x 2 = 374 kt pa production.

    So from just $13.5M of CAPEX ( for 2 projects at 500 kt pa ), ADN cumulative cashflow would be growing at a similar rate to LTR's cashflow ... but ADN's breakeven occurs a full 6 years earlier ...

    You can see why ADN is the low-dilution opportunity of the century ... LTR and many similar high-capex projects have 5-6 years of spend to achieve positive cashflows and even longer to achieve breakeven. That's due to the high technical complexity driving both development time and CAPEX.

    Screen Shot 2019-12-02 at 9.05.30 pm.png


    Wait a minute ... we were discussing in another thread that ADN's NPV (and by implication cashflow) could improve by 62% for just a 15% increase in processing yield ...

    see https://hotcopper.com.au/posts/41751061/single and https://hotcopper.com.au/posts/41750055/single

    I've assumed that a 62% improvement in NPV corresponds with a 62% improvement in after-tax annual cashflow.

    Here's how that now looks! ... with 1 x 500 ktpa project and with 2 x 500 ktpa projects

    (as noted above chart below is speculative on a 15% improvement in yield driving a 62% boost to ADN cashflow)

    Screen Shot 2019-12-02 at 9.27.16 pm.png
    Point of all this ... don't just look at NPV.

    Cashflow together with early payback are a dynamic duo as the sooner that breakeven is achieved a company can sustainably grow to stronger cashflows.
 
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