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23/08/17
06:45
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Originally posted by Bikida
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Both sites are using contractors.
But here's the thing: the bigger the operation you have, the lower the unit cost/t becomes. That's how economy of scale works.
So why doesn't TAW just make a bigger mine? Capex.
Bald Hill is a very low capex operation. This means no debt, fast payback, high IRR. Cash!
And with that cash, they can then use that as capital for an expansion down the road. The result is that Bald Hill is basically free carried to a large low-cost operation by a completely different pathway to ones used elsewhere (bonds, expensive loans, etc)
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Compare it with other cases:
* Mount Marion - NMT sold down equity to partners who had technical production/operation/management skills and guaranteed offtake.
* Mt Cattlin - GXY funded it by asset sales - they sold the refinery to get the mine operating again
* Mt Holland - KDR sold down equity
* Pilg - PLS went for bonds and other financial mechanisms including CR to fund the capex
* Pilg - AJM went for debt
* Wodgina - MIN have gone for DSO in order to get early revenue to pay for a later new plant capex spend. Their cost is the markdown they get for selling a 1.5% product instead of 6%. But they will start rolling out the 6% from about July 2018...
* Bald Hill? - AMAL sold down equity. TAW and AMAL are now leveraging the existing mine and mill to produce low capex high cost 6% product and can turn that into low cost 6% product later.
So when you look at those, Wodgina and Bald Hill are similar. Both are using the on site assets to get quickly into production and get revenue as early as possible. Both will have very short paybacks and I am certain high IRRs for this initial phase of operation.
The difference is Bald Hill will have a slightly higher initial cost and Wodgina will have a massively lower revenue per tonne. The downrating of Wodgina's product is so severe that they are working to get a plant build ASAP to make up for it... but they had the opportunity for some quick DSO cash and they took it. Some cash is better than accumulating debt on loans when you aren't producing anything yet.
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I think I have read that TAW production will equal GXY production when its at full pelt. I never followed GXY so am not familiar whether this is true or not. By when do we expect TAW to be ramped up to these levels, middle of next year?
Now what comparisons can be made from this to infer some sort of value that might be attributed to TAW in comparison to GXY at that point in time?
GXY reached over $1B MC around time of first shipments.
Right now with TAW LOM is 3.7 years but is likely to be increased to ~10 years.
Perhaps GXY have other prime assets but whether they have much value right now with production a while away I'm not so sure………….?
Sorry this is a rushed post