Tim Treadgold: Clean TeQ starts to recover after last year’s big sell-off
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Investor interest is returning to Clean TeQ Holdings after a tough 12-months.
But a 27 per cent share-price rise over the past few weeks does not guarantee that the small company with big ambitions will be able to deliver its high-tech nickel and cobalt project in western NSW on the current timetable.
Hurdles remain for Clean TeQ (ASX:CLQ) to clear, not the least being the need to raise $1.5 billion in difficult financial conditions to fund the development of the Sunrise project near Fifield.
They also need metal prices to rise back to levels seen mid-last year to meet feasibility-study targets.
If it can join the dots in a complex picture, Clean TeQ could become a globally important producer of metals with a bright future in new technologies, with nickel and cobalt riding the battery revolution and a third metal, scandium, an important element in high-strength alloys such as those used in aviation.
A metal cocktail
The potential for Clean TeQ to become a major producer of a cocktail of metals is what attracted Robert Friedland, one of the mining world’s richest investors, to its share register and the chairman’s job.
But even the skills of Friedland in making things happen when others have given up cannot overcome the forces weighing on the ambitious Clean TeQ project which has spent decades in the wings, first when known as the Syerston nickel project and now as Sunrise.
If all goes well, Sunrise is expected to produce an average of 21,780 tonnes of nickel a year and 4620 tonnes of cobalt in the first six of what should be 40 years of production, with output declining modestly in the outer years.
The numbers aren’t adding up
The product mix, with cobalt and scandium as the cream and cherry respectively on the Clean TeQ nickel cake, should see Sunrise produce nickel at a cash cost of “negative” $US1.46 a pound after crediting income from cobalt and scandium and $US4.68/lb before credits.
That second figure in the definitive feasibility study released last June has worried some investors because while the nickel price at the time was above $US7/lb it has since retreated to around $US5.26/lb and was last month down to $US4.81/lb – just above the pre-credits cost forecast from Clean TeQ.
But, and this is the key to Sunrise, there will be credits because the cobalt and the scandium will be in the product stream which means that at an operational level the mine and its all-important processing plant should produce at a highly-attractive nickel equivalent cost.
Other worries for investors since the release of the feasibility study include product price assumptions which are now “underwater”. Nickel, for example, was assumed to have a long-term price of $US7/lb and cobalt $US30/lb.
The markets for both nickel and cobalt have not been kind to Sunrise. Nickel at the current $US5.26/lb is clearly well below the price assumption in the feasibility study and cobalt is reportedly selling for around $US20/lb, also below the feasibility study.
Big friends in the right places
Despite the challenges confronting Clean TeQ it has friends in high places and is pushing ahead with its project development plans.
In its December quarterly report released last week Clean TeQ said a formal front-end engineering and design contract had been signed with the Chinese metallurgical plant specialist MCC, a company with deep experience in complex projects.
Project financing and metal offtake discussions are continuing with a number of potential partners including big car companies and consumer electronics manufacturers.
Despite the challenges…
For investors Clean TeQ is a tempting target even if it does have ongoing challenges, such as raising the required $1.5 billion and building a process plant which would challenge much bigger companies.
At its current share price of 45c the company is valued at $350 million, a long way from the time when Clean TeQ’s stock-market valued at more than $1 billion.
Investment banks which follow Clean TeQ are maintaining the faith.
Canaccord Genuity has a speculative buy on the stock and a 12-month share-price target of $1.15 – a price which implies a rather handsome potential capital gain of 144 per cent.
Canaccord noted that the project development timetable had slipped slightly with an extra six months added to the expected construction start time.
“Project delays are not surprising, given the technical complexity and scale of the high-pressure, acid-leach circuit at the Sunrise project,” the bank said.
“Key potential catalysts in the short-term will be progressing offtake (deals) beyond the 20 per cent over the first five years secured with Beijing Easpring.
“We currently model a 20 per cent project sell-down as part of the offtake-linked financing with increased debt financing expected to be announced.”
Not a stock for risk-averse investors, Clean TeQ is a business which could deliver impressive returns as it continues to de-risk planning and design issues, secures development finance and moves towards a construction start.