I made a couple of posts over the past few days across at the STT and BT threads. I'll post them below as they should be good material for any new investor interested in APC. Apologies if its repetitive at all...
STT:
APC now in trading halt for scoping study results of the Lake Wells project. Interesting to see how the pure bore setup stacks up against the neighbour SO4 who are trenching (more expensive) and boring. Economics of the project appear pretty compelling - they look to be on track to produce at a cost of ~$180/t (assuming slightly cheaper than SO4 which shouldn't be a stretch) and as per the screenshot below the typical farm-gate costs in WA equate to over $1000/t. Just 1kg of the stuff will set you back over $10 at Bunnings.
With a production estimate of approx 100,000 initial tonnes per annum, rising in later years as the capex is paid off (which compared to peers will be small as a result of the brine based bore production), it doesn't take a genius to figure out just how profitable they will be down the track. Oh, and "down the track" won't actually be that long, in fact APC is likely to be the first Australian potash company to sell their product in the domestic market.
Also a couple of extra points to keep in mind:
- Creasy the major SH.
- T20 very similar to that of Sirius Resources before its giant move.
- Just about the smallest market cap potash player around, despite the fundamentals above and a cash balance of circa $4m.
- Producing the premium version of potash (SOP as opposed to MOP). Less arable land and rising population = more demand for higher yielding crops which = more demand for SOP over MOP.
- Massively backed by Hartley's. Their clients own approx $5m in the company and have been accumulating for over 12 months now. The data is quite phenomenal...not a week goes by without more Hartley's accumulation. They can let the brakes go at any time on this. Here is a snippet since they changed the company name:
Add in about $2m bought on market prior to the name change and Hartley's acting as the underwriter on the 8c options to collect around $3m in stock and you end up with an equation that leads to something along the lines of they have an F load of stock. They really have no option but to see this SP higher.
BT:
I keep coming back to this slide in APC's presentation from May last year. It spells out the profitability of their project which utilises the bore hosted brine evaporation model, as opposed to their competition which all utilise more expensive methods of production.
Average cost of production of $275/tonne with a farm-gate price of $1,100 !
Now APC will be significantly below that 'average' figure given their SOP will be 100% brine evaporated, rather than the most commonly used mannheim process. Granted, they won't be able to directly sell it for $1,100/tonne, although the margins APC will have on this project are astonishing. A farmer walking in to Bunnings will be set back $10 for a kilo of SOP. The main reason being for these higher prices is the fact that 100% of SOP is currently imported into Australia, with APC likely to be the first or one of the first domestic producers of SOP with the opportunity and the added cost benefit of being able to sell directly to Aussie farmers. This will remove the supply risk and exchange rate risk associated with buying SOP for Aussie farmers.
The Lake Wells project being a brine project is essentially all about the ability to abstract brine. They need to be able to produce a significant amount of brine in order to get the volumes needed to produce the minimum level of feasible SOP. This is why APC sets itself up nicely as they have recorded extremely good concentrations of brine in their paleochannels at all depths, including striking multiple basal layers which indicate permeable sandy material from which they have the ability to maximise brine extraction. The pump data results out a few months ago were another indicator of the quality, reliability and safety of the project APC has at hand.
Further, SO4 as the neighbouring SOP soon-to-be producer is capped at ~$90m with a production model that uses both trenching and bores. The trenching makes their project less viable, as the scalability and initial capex becomes an issue. With APC utilising the bores it becomes simple, small capex and profound economic scalability - want to expand production in later years? easy, just install more bores using the profits from the enormous margins in the earlier years of production. With similar size and grade resources, with APC likely to be well under that $250/t average price of production and capped at a measly $25m, it should be easy to see why APC is a screaming buy right now...
It's also backed with Creasy as the substantial shareholder and others from the early Sirius Resources days. The market is well and truly asleep on this one with the scoping study out tomorrow or friday to spell the project economics out very clearly for the market to see. I'm sure it will also bring along some high profile funds/clients with money to splash around on a derisked project with underlying fundamentals to boot.
(20min delay)
