Following the release of an updated definitive feasibility study (DFS) for The Great White Project (TGWP) of Andromeda Metals Ltd (ASX:ADN), both Curran & Co. and MST Access have released research reports on the company integrating the study results.
The updated 2023 DFS outlines several material changes from the April 2022 DFS, providing a detailed commercial strategy that closely aligns the project development with high-value markets.
Under the updated DFS, the project net present value (NPV) increases by 65% to $1,010 million, and average annual earnings before interest tax depreciation and amortisation (EBITDA) increases by 59% to $130 million.
Andromeda said the increased NPV primarily resulted from:
- Strengthened global prices driven by geopolitical risk and global and regional supply shortages;
- Enhanced product mix and partner portfolio;
- Established high value in use of Andromeda products in key market segments;
- An updated mine development plan (based on the mine to market response) that supports an accelerated sales profile and reduced costs across the life of min; and
- Improved weighted average product margin by 34% to $450/tonne of product
MST Access analyst Michael Bentley has a $0.21 per share valuation on the company – 600% above the $0.03 price at the time of the report’s publish on September 5, and above Bentley’s previous $0.16 per share valuation.
“The key component of our valuation is TGWP and the delivery of a staged ramp-up of production in line with offtake agreements. The updated DFS, with an improved product mix and higher margins, has driven our substantial valuation upgrade.”
MST Access’ investment thesis
The Great White Project is a rare and valuable asset – quality, location, mine life: TGWP is a world-class, high-quality kaolin deposit. The project is ideally located in the Tier 1 location of South Australia (SA), and has low-risk mining and processing and a minimum 28-year mine life, with further similar resources nearby.
Kaolin market seeks quality, and Andromeda can deliver: Kaolin is a white clay material used in hundreds of industrial applications. Andromeda’s halloysite-kaolin products will be targeting the higher-value end of the market, namely for uses in ceramic and porcelain tableware as well as a cement additive. The deposit has high levels of whiteness, brightness, opacity, purity and consistency, all characteristics customers desire in high-quality kaolin.
Strong near- and medium-term catalysts: With approval gained from the SA Government, Andromeda has a clear path to commence production. Upcoming milestones include final funding and commencement of construction, further signing of offtake agreements, commencement of production and then a staged ramp-up to full capacity of 300,000 tonnes per annum of kaolin.
Curran & Co: “A billion dollar, fully permitted project in a Tier 1 Jurisdiction”
Curran & Co analyst Doug Smith maintained a BUY recommendation on Andromeda and assigned a 12-month target price of A$0.15 per share — 417% above the company’s 3-cent share price on August 31.
Smith noted the significant economic improvements for The Great White Project in Andromeda’s updated 2023 DFS compared to its 2022 DFS amidst market disruptions due to the Russia-Ukraine conflict affecting kaolin supply.
“Since releasing the April 2022 DFS, the kaolin market has experienced a significant disruption, with the Russia-Ukraine conflict resulting in a supply shortage of high-quality kaolin that was previously supplied out of Ukraine into European tile and porcelain manufacturers.”
Curran & Co’s forecasts and company valuation
The Great White Project pre-production capital we estimate at A$63 million. We anticipate first kaolin production and sales in Q1 CY2025.
All-in sustaining cost (AISC) for kaolin production is forecasted to average A$260/tonne including sand sales credits, and we have used a kaolin price deck with a weighted average price over the life of mine being A$712/tonne. EBITDA and free cashflow averages A$120 million and A$85 million per annum respectively over the mine life.