Originally posted by Furnaces
A Poor Quarter But With a Silver Lining
The last quarter was bad and some could describe it as horrendous. No excuse from the management, they were doing a poor job last quarter. Production was down 20% q-o-q to about 22.7kt and shipped only 22.4kt. Production cash cost was running high at about US$824 per tonne. Tantalum production was down 9% as well. If it continues at such a rate, we would be making huge losses quarter after quarter.
Luckily(or not), the production rate vastly improved in December after fixing the water problem and grade issues etc. The increased production rate continues into January and accelerates higher by the end of January. In the quarterly, the company announced production of 13255wmt grading 6.16% from 1st Jan to 29th Jan. This gives us an average of 13255/29 = 457tpd. We also know from the previous announcement(offtake restructuring) that the company produced at 410tpd from 1st Jan to 13th Jan. Doing a simple calculation, the period from 14th Jan to 29th Jan, the mine is producing at (13255 - (410x13))/16 = 495tpd, which is very impressive. This translates to an ACTUAL production rate of 180ktpa, which is about 14% higher than our nameplate capacity (155ktpa). Note this is actual production rate and not baseless projection. It seems that the appointment of Mark Turner as COO certainly turns this around. Whether this is a coincidence or not remains to be seen.
Strip ratio reduction to 6.4 times in the first 23 days of January. This is great news, and will certainly reduce the cost by a significant amount.
Shipment of 23kt in early Feb. We know that Baojiang Lithium has agreed to purchase 18kt from last year production at US$880 per tonne and the 5kt (AAL Nanjing) is supposed headed to South Korea. Our potential new offtaker is most likely a South Korean company, probably Posco, SK or Lg Chem. From previous announcement, Baojiang also agreed to take in a batch of 10KT in feb at new offtake pricing, which means by the end of Feb, we are likely(or not) to have shipped 18kt+5kt+10kt = 33kt. Since production rate went up significantly, the next thing to take note is the shipment. Revenue only comes in when product is shipped, so we need to track the shipping to make sure it is on track.
Capital raising? Cashflow seems tight at the moment but early Feb shipment of 23kt should provide some relief. Thats about US$880 x 18.23kt + US$750 x 5kt=~ US$20m. The company may not need a CR if the new offtaker can provide a prepayment of sort. It is avoidable.
To conclude, the last quarter was a major disaster but we have a silver lining
1) production now running at or above nameplate capacity
2) Significantly lower strip ratio and higher production rate should ensure that the cost of production goes down this quarter
3) Shipping is so far on track and the revised offtake agreement should ensure that there will be regular shipments.
Unfortunately, the SP was smashed. The bad December quarter is history. The company seems to be improving. This quarter has signs of a turnaround on all front. Waiting for the next quarterly in April, a good chance that things will be drastically different by then.
Furnaces, great summary. Would like to just add a few key points.
A) The cashflow report that we have read today is for A40 only. 40F has some cash and cash equivalent in the balance sheet that has not been considered. So, the group probably have more cash than what we have seen.
B) Do we realise that - 1 day after the merger (ie 18-Dec 2018), Alliance announced that Mark Turner was made the Executive Director for Operations (and he was originally designated to be the merged co Chairman, for those who don't know the details). Why the sudden change immediately after the merger? IMO, it was not a sudden decision. Alliance had moved from Development to Production stage and needed someone very experienced to focus full-time on managing the Baldhill operations and MTurner is the ideal choice. But the company was unable to effect that while the merger drags on for 8-9 months.
MTurner is a very experienced COO and you can just look up his profile on google. Do we think it is simply a coincidence that our DMS started to run well since the later part of Dec 2018 (after his appointment as ED for Ops)? I choose to think that having MTurner to focus 100% of his time on Baldhill, he had a good grip of the operations very quickly and had successfully made his presence felt. Hence, I felt very comfortable going forward that the production will consistently running above nameplate.
C) In addition, with MTurner, it really takes the load off Mark Calderwood to focus on the commercial aspects of having renegotiated the Burwill offtake to free up half the output and now negotiating the new offtakes with multiple parties (for spodumene and tantalum)!
Yes, we have been punished for the not-so-great Dec 2018 quarter. I have confidence that this and the many subsequent quarters will be great. All IMO. DYODD.
