There’s been a lot of love for small cap kaolin explorer Andromeda Metals (ASX:ADN) recently.

The stock is up an incredible 1380 per cent over the past 6 months, as its Poochera halloysite-kaolin project in South Australia moves rapidly toward a development decision.

Halloysite-kaolin is a special type of aluminous clay can be used to create high purity alumina (HPA), which is in demand because it helps stop lithium-ion batteries from catching fire.

That’s not Andromeda’s plan though. Initially, it wants to supply the burgeoning the ceramics industry – which is less sexy, but still pretty lucrative.

Supplying the HPA sector and halloysite nanotechnology research were not considered as part of a newly released scoping study but represent “potential future opportunities to be evaluated”, Andromeda says.

While the projections looked solid, ADN jumped around into midday trade, falling by more than 10 per cent before clawing back ground:

Running the numbers

ADN reckons the mine will have an initial 15-year  life and generate gross revenues over that time of more than $1.9 billion.

It modelled an all-in cost for fully-refined kaolin of $396 p/t, against a sale price of $700 p/t. That’s a nice margin.

Based on those projections, it forecast free cash flow of $800m over the life of the mine and calculated a discounted net present value of $413m.

Andromeda said it plans to complete the regulatory approval process by mid-2020 and commence operations in Poochera in 2021.

The company forecast a maximum cash outlay of $25m to get the mine up and running, with the payback period “estimated at 15 months from start of mining”.

To source the funds, Andromeda will raise a combination of debt and equity from existing shareholders, new investors and debt providers.

“In addition, the company has received signed Letters of Intent from a number of potentially large Chinese customers, that may enable Andromeda to negotiate early receipt of sale proceeds,” Andromeda said.

It also flagged another $8.4m it could access via exercising 8.4m listed options with an exercise price of 1.2 cents and an expiry date of November 2020.

For now, Andromeda has enough stage to complete the next stage of the surveys and studies for the project, including an aircore drilling program.

READ MORE about Andromeda:

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