Pure Minerals better placed than other nickel-cobalt hopefuls: report
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Special Report: A research report on Pure Minerals (ASX: PM1) has tipped the company to be more likely to attract a heavyweight financial partner for its Townsville battery metals refinery than others pursuing similar developments but using less “eco-friendly” processing technology.
Independent Investment Research (IIR) published its report on Pure Minerals this week, noting the pace with which the company was pulling together the building blocks for its Townsville Energy Chemicals Hub (TECH) Project in northern Queensland.
IIR’s analysis was based on the TECH pre-feasibility study completed earlier this year, which estimated the project would produce 26,400 tonnes of nickel sulphate, 3,100 tonnes of cobalt sulphate and other valuable co-products using Direct Nickel’s proprietary atmospheric leaching technology to process high-grade laterite ore imported from New Caledonia.
The research house said the TECH project had a similar capital intensity (~US$58,000 a tonne per annum of nickel capacity) to competing Australian projects such as Cleanteq’s Sunrise Project and Australian Mines’ Sconi Project that intend to employ high pressure acid leaching (HPAL) as their primary processing technology.
But the estimated capital required to bring TECH into production of $513 million (including contingency) is about 15% of the upfront cost required the bring the HPAL projects online. Still, Pure Minerals is likely to need an offtake partner to buy into the project as part of the funding solution.
“Such a buy-in is likely to be the most important re-rating catalyst from the shareholders’ point of view,” IIR said.
“Because the project is designed to produce speciality chemicals for sale directly to battery makers, and has eco-friendly credentials, it is much more likely to attract a strategic partner from the battery or automobile manufacturing sector than would an HPAL [project].”
IIR added that a sell-down to a strategic partner would be the most preferred form of equity raising for the project in that it would provide potential lenders with a level of comfort around sales contracts.
The research house was able to generate valuations of between $47 million and $585 million for the TECH Project, a wide range that took into the highest and lowest prices for nickel, cobalt and the Australian dollar over the past three years.
“What is relatively comfortable to forecast is that the project is worth substantially more than [the company’s] current $16.1 million market capitalisation,” it said.
Pure Minerals is pitching the TECH project as a “one-stop shop” for battery manufacturers, producing nickel and cobalt sulphates as cathode active material and high purity alumina for use in coated ceramic separators that stop cathode and anode material from short circuiting.
The company delivered a scoping study on the HPA aspect of the project last week, underlining the significant contribution it could make to overall project economics: the study showed a post-tax net present value (NPV) of $849 million and an internal rate of return (IRR) of 80% for the HPA plant alone.
IIR didn’t include the HPA plant in its valuation of Pure Minerals but saw it as one of the main areas of potential upside.
The research house said Altech (ASX: ATC) had a market capitalisation of $68 million and owns 51% of a just completed 4500tpa HPA plant in Malaysia and a kaolin mine in Australia.
With Pure Minerals’ HPA plant anticipated to produce 4007tpa, the read-through valuation upside for the company using a simple comparison would be $118 million.
But Pure Minerals’ plant costs as detailed in the scoping study are much lower than Altech’s because the feedstock is high purity aluminium hydroxide generated as a by-product directly from the TECH Project rather than raw kaolin ore. This delivers a significantly higher EBIT margin, potentially supporting a higher valuation.
Pure Minerals has further work to do on the HPA plant to bring it to a level of confidence that is appropriate for inclusion in the TECH definitive feasibility study, which will lead to a decision to move ahead with development.
IIR noted that Pure Minerals’ senior management team, who were also responsible for vending TECH into the company, are strongly incentivised to deliver the project by the end of 2022.
They hold 250 million deferred consideration shares that will only be paid upon delivery of the DFS, receipt of all regulatory approvals and upon a decision to proceed with construction.