Ann: Toliara PFS confirms a world-class mineral sands development, page-23

Hey Peppie,

This is a 30 year project but the prices (which as with costs are not indexed to inflation or USD volatility) just look way too high in the short and long term to be reasonable imo.


Consider Zircon and the historic price chart forstarters, and this slide from Iluka's last market presentation March 2019



2011/12 was the mother of all commodity bubblesbased on China's massive and somewhat unexpected stimulus post GFC, and the "stronger forlonger" mantra that got Oil, Iron Ore, copper and every other commodity all throthing at the mouth. Zircon demand collapsed as it was substituted out as a supply response was also implemented. Below is a slide from anexcellent Iluka presentation in 2018 explaining what happens at higher Zrprices, specifically supply side response, substitution and thrift.


I see that the price spike of 2018 in a similar light, initiallydriven by globalgrowth upswing but exacerbated by RBM mine strikes and closure. That price spike has already started to roll over down from a US$1600/t top end of 2018, due in part to swingproducers reacting to the increased prices. Iluka in this slide below make it clear that Kalimantan come in with extra supply above US$1400/t.




That is short term response of course, but one of the golden rules incommodities I like to quote is "the cure for high prices is highprices". That is, high prices ensure more new mining projects are fundeduntil eventually there is an over-supply and prices go back down. The seeminglyinexorable boom-bust cycle simply writ simple. Prices above US$1400 for Zircon will help make many mineral sands projects profitable, higher prices still very profitable. Yet BSE has used US$1822 for the first 8 years out to 2032, and only then dialled prices back to a still very high US$1650 and eventually down to a long term but still high US$1450.

Other than the well documented commodity mega boom of 2011/12, Zr prices have only gone above US$1450 late last year, and only then for a few months. Prices are now falling below $1500 and yet BSE have stuck $1822 into their PFS for the more than the next decade. Another Iluka slide, market in balance (Iluka and Kalimantan are the swing producers who keep things in balance) and China demand easing. Can anyone here honestly say that the world is not entering a growth slow down and wait with baited breath for China to pull out of their own slowdown? China will be doing a great job to keep their growth from collapsing, steady as she goes is the best outcome for commodities strongly linked to the Chinese commercial and residential property markets. $1822 Zr, really?



So OK you say, what about the "longer term" growth outpacing supply. For starters there is SFX Thunderbird on the verge of being built, averages 150t Zr production per annum, which is 12.5% of the 1.2Mt global Zr consumption. Toliara averages about 60kt which is another 5%, Image's new Boonanaring mine is another 60kt, so just between those 3 new projects is a lazy 22.5% increase in global Zr supply. Iluka isn't letting their 25-30% of global sales drop for a minute, Cataby just coming on line is another 60Kt Zr, RMB has had some strikes but still has many years profitable reserves left and I can't see SA killing that goose completely even if it gets sold to new owners. Then there are host of other likely new min sands mines to add to Zr production. Strand's Coburn deposit would be a possibility at historically lower prices, but at US$1822/t and the AUD at 71c it becomes a cash machine.

oliara and TB are a sure thingsIMO and add another 20% to global supply into a global downturn, but if prices go even higher and stay higher then how many other mines will get funded? Indonesia come in hard at US$1400/t as proven last year but Base has Zr priced at US$1822 for 8 years 2022-30...?? Nose bleed prices with no supply response just doesn't make sense. In 15 years time they have supply finally licking in and the price down to just a modest US$1450 if you don't mind. Between new Coburn and Fungoni mines Strand would bring another 65Kt pa of Zr to the table, where are we now... about another 33% Zr supply added in the above two paragraphs excluding Cataby on the assumption Iluka dials back Ambrosia to simply maintain there annual sales rate. Sri Lanka, murray basin, Africa, there are many other players who would be licking their lips to get going at $1822/t Zr, certainly $1650 and even $1450 long term if that is indeed the price floor.

Money has never been cheaper or more abundant for decent yielding projects in history I would argue. If the price stays anywhere near BSE PFS assumptions the world will get flooded in Zr by the second half of this decade. I have similar reservations of the Ilmentie prices but won't go into them right now. Look at recent presentations for the others min sand guys to see how much lower their price assumptions are, while still being optimistic because that is what management are paid for. As you say, at those prices Iluka, IMA, SFX and everyone else will be killing the pig which is precisely why those prices can't last.

I don't want to hang around raining on everyone's BSE parade here. It is a world class project run by a good company and the share price is heading north. But for those thinking about what price point they might buy more or take profits etc, the might want to look at the sensitivity analysis from the PFS below and consider what different price assumptions do to the NPV. Prices simply look at least 15% too optimistic from where I stand but I am not privy to as much due diligence as market professionals and might have missed something. Then again, it's not unknown for companies to apply overly optimistic pricing assumptions to flatter a PFS is it.

Cheers