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American Pacific Borates Limited
Emerging, Strategic Borates and Potash producer
ABR.ASX BUY
17 November 2020
ABR is developing its high margin, large scale, 100% owned
borate deposit located in California, USA. The Fort Cady Borate
Mine will produce boric acid with by-products of sulphate of
potash (SOP) and gypsum, with a focus on the US markets.
The Fort Cady Borate Mine has a boric acid reserve base of 4.8Mt
H3BO3 (at 11.7% grade) and inferred JORC resources of 4.9Mt
H3BO3 (at 11.4% grade), sufficient for an initial +20 year mine
life in full production.
The technical risk of the project is low as the deposit has been
previously mined and the process route for boric acid extraction
utilises off the shelf industrial chemical processing equipment.
The 3-stage development includes Phase 1A startup in DH21,
followed by Phase 1B/2 in JH23, increasing production to
245ktpa of boric acid and 218ktpa SOP, and a Phase 3 startup in
DH25, increasing total production to 408ktpa boric acid and
363ktpa of SOP.
Fully funded, low capex, low cost startup
Phase 1A capital costs of US$50.3m (A$70.8m) is fully funded and
on track to commence startup in SQ21 ramping up to 8.1ktpa of
boric acid and 36ktpa of SOP.
This starter project will deliver borates and SOP product for ABR
to build markets and secure offtakes to underpin the staged
development plan.
Complementary product mix provide strong earnings
Our earnings forecasts are reflective of strong cash margins
resulting in an A$ adjusted eps of 3.1c in 23FY building to 28.6c
in 25FY with Phase 1B/2 and 50.5c in 27FY with full Phase 3
production.
Our estimates see ABR trading at less than 1.3 times our
EV/EBITDA ratio from the first full year of Phase 2 production in
25FY, after accounting for dilution from our equity assumptions.
Recommendation
ABR is an emerging long-life strategic borates and SOP producer
with significant value upside. The project will provide security of
supply to a parochial domestic market, replacing imports of SOP
and borates into the US.
We recommend a BUY and value ABR at $5.06 per share based
on a Phase 3 startup in DH25 on a fully diluted basis, including
our equity assumptions. Our 12-month price target of A$2.28 per
share aligns with a successful commissioning and ramp up of
Phase 1A during DH21 and completion of funding for Phase 1B/2.
Price $0.86
Price target $2.28Valuation $5.06
Valuation Method DCF
GICS sector Metals & MiningMarket capitalisation* $m 454Shares on Issue* m 527Enterprise value $m 415Previous rating Initial
*Fully diluted, including equity assumptions
Year Ended June 30 21e 22e 23e 24e
Boric Acid Produced kt 0 7 8 129SOP Produced kt 0 29 36 115Sales revenue $m 0 45 57 289EBITDA $m -3 16 28 176EBITDA margin % 35 48 61Reported NPAT $m -5 3 16 68Adjusted NPAT $m -5 3 16 68
EPS adj c -1.2 0.7 3.1 13.2EPS adj growth % 374 322DPS c 0.0 0.0 0.0 1.0Franking % 0 0 0 100PER x na 130 27 6Dividend yield % na na na 1.2
EV/EBITDA x na 26 15 2ROA % na 2 6 28ROE % na 1 6 20Debt / Debt + equity % 40 14 60 51
ABR Vs ASX Small Resources (XSO)
Source: FactSet
Piers Reynolds
+61 (0) 3 8601 1196
0
100
200
300
400
15-Nov-19 15-Feb-20 15-May-20 15-Aug-20 15-Nov-20
American Pacific Borates Ltd. S&P ASX Small Resources
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American Pacific Borates Limited Share Price $ 0.86 $ 5.06
$ 2.28
Profit & Loss (A$m) Market Measures
Year ending June 2021e 2022e 2023e 2024e 2025e 2026e Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Total Revenue 0 45 57 289 525 750 EPS adjusted cps -1.2 0.7 3.1 13.2 28.6 40.7
Op. costs 0 26 26 104 189 286 EPS growth % 374 322 116 43
Royalty 0 0 0 1 3 4 PE multiple x na 130 27 6.5 3.0 2.1
Corporate 3 4 4 8 8 12 CFPS cps -1.5 2.1 4.6 26.2 47.8 70.2
Exploration Writeoff 0 0 0 0 0 0 CF multiple x na 41.9 18.6 3.3 1.8 1.2
EBITDA -3 16 28 176 325 448 DPS cps 0.0 0.0 0.0 1.0 4.0 10.2
Dep/Amtz 0 7 8 55 96 137 Dividend Yield % na na na 1.2 4.7 11.8
EBIT -3 8 20 121 229 311 Enterprise value $m 492 436 850 713 831 493
Net Interest -2 -5 -2 -33 -30 -28
Pre-Tax Profit -5 3 17 88 198 283 Profitability & liquidity ratios
Tax Provision 0 0 1 19 47 68 Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Net Profit/(Loss) -5 3 16 68 151 215 ROE % na 1 6 20 31 33
Abnormals 0 0 0 0 0 0 ROA % na 2 6 28 35 41
Reported Net Profit -5 3 16 68 151 215 NPAT / Sales % na 8 28 24 29 29
EBITDA / sales % na 35 48 61 62 60
Balance Sheet Gearing (D/[D+E]) % 40 14 60 51 47 20
Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Cash 4 60 32 99 49 120
Receivables 1 2 2 7 10 15 Valuation dr @ 8% dr @ 5%
Fixed assets 106 243 682 629 895 761 A$m A$ps A$m A$ps
Other assets 0 0 0 0 0 0 Fort Cady 2631 4.99 3997 7.58
Total Assets 111 305 716 735 954 896 Other 0 0.00 0 0.00
Creditors 4 5 5 11 13 18 Other 0 0.00 0 0.00
Borrowings 42 42 428 358 426 159 Exploration 15 0.03 15 0.03
Other liabilities 0 0 1 19 32 74 Options 27 0.05 27 0.05
Total Liabilities 46 47 434 388 471 252 Cash & other liquid investments 31 0.06 31 0.06
Net Assets 65 258 282 347 483 644 Total Borrowings -4 -0.01 -4 -0.01
Share capital 74 265 272 274 280 280 Corporate/Other -30 -0.06 -34 -0.06
Reserves/Retained earnings -10 -6 10 73 203 364
Shareholders Funds 65 258 282 347 483 644
Total Valuation 2,670 5.06 4032 7.64
Cashflow
Year ending June 2021e 2022e 2023e 2024e 2025e 2026e Production
Sales Revenue 0 45 57 289 524 749 Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Less Outflows 0 -26 -26 -104 -189 -286 Boric Acid (ktpa) 0.0 6.5 8.2 129.4 244.9 368.5
Prod. costs in exc. sales -3 -4 -4 -10 -11 -16 SOP (ktpa) 0.0 29.0 36.3 115.0 217.7 327.6
Net interest -2 -5 -2 -33 -30 -28 Gypsum (ktpa) 0.0 7.7 9.6 152.7 289.0 434.9
Income tax paid & other 0 0 0 -6 -40 -47
Operational Cash Flow -5 11 25 137 254 372 Operating Costs
Exploration -2 -2 -2 -2 -2 -2 Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Capex -71 -143 -445 0 -361 0 Boric Acid (US$/t) - C1 0 -1233 -1857 -171 -129 -125
Asset (Purchases)/Sales & other 0 0 0 0 0 0 Boric Acid (US$/t) - C3 0.0 -443 -1152 131 156 153
C/Flow from Investing -72 -145 -447 -2 -362 -2 Other 0.0 0.0 0.0 0.0 0.0 0.0
Dividends paid 0 0 0 0 -16 -32 Note: 22e,23e revenue breakup is 67% SOP, C1 after SOP, Gypsum & HCl credits
Debt (Repay)/Borrowings 42 0 386 -70 68 -267 Price Assumptions
Equity raised 0 190 7 2 6 0 Year ending June 2021e 2022e 2023e 2024e 2025e 2026e
Other 0 0 0 0 0 0 Exchange Rate (A$/US$) 0.71 0.70 0.72 0.71 0.73 0.75
C/Flow from Financing 42 190 393 -69 59 -299 Average Boric Acid price (US$/t) 750 809 860 834 860 809
Cash at Beginning 39 4 60 32 99 49 Average SOP price (US$/t) 675 729 758 784 733 758
Net Increase/(Decrease) -35 57 -28 66 -50 71
Cash at end 4 60 32 99 49 120 Reserves/Resources
Company Veritas estimate
Directors Major Shareholders Mt Mt
Chairman Atlas Precious Metals 15.5% Fort Cady reserves (P&P) 41.0 11.7% 41.0 11.7%
MD/CEO 13.5% Fort Cady resource (MI&I) 120 11.6% 120 11.6%
Exec. Director Other 0.0 0.0 0.0 0.0
Non-Ex. Director Other 0.0 0.0 0.0 0.0
Non-Ex. Director
Valuation
Anthony Hall
Stephen Hunt
John McKinney
Equity
100%
100%
100%
David Salisbury
Mayfair Ventures
0%
Michael Schlumpberger
Price target
-50
50
150
250
350
450
2021e 2022e 2023e 2024e 2025e 2026eEBITDA (A$m) NPAT (A$m) Cash (A$m)
0
100
200
300
400
2021e 2022e 2023e 2024e 2025e 2026eBoric Acid (ktpa) SOP (ktpa) Gypsum (ktpa)
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Investment Summary
We initiate coverage on American Pacific Borates Limited with a BUY recommendation and
value the Company at $5.06 per share. Our 12-month price target of A$2.28 per share is
based on a successful commissioning and ramp up of Phase 1A during DH21 leading to the
successful staged development of the next two phases to full production.
The 100% owned Fort Cady Borate Mine in California, USA is to become only the third
producer of borates and second producer of SOP products in the US. We forecast
production building, with each stage of the 3 staged development, to full production of
408ktpa boric acid and 363ktpa of SOP from JH26.
The Fort Cady Borates Mine currently has sufficient reserves and resources for a +20 year
mine life at full production. Current combined recoverable reserves and resources are 7.5Mt
of boric acid insitu.
Increased uses of borates and higher demand for specialty SOP including boron enriched
SOP fertilisers are supportive of a successful entry of the Fort Cady product into a growing
market. The United States is a net importer of SOP with the fertiliser being listed on the
United States list of its 35 most critical minerals.
Long life project with strong earnings
We forecast strong A$ eps with full Phase 2 production in 25FY of 28.6cps and 50.5cps in
27FY with Phase 3 full production. Based on our earnings estimates ABR is currently trading
at a significant discount with an EV/EBITDA in 24FY of 2.4 times and less than 1.3 times
from 25FY, the first full year of Phase 2 production.
Key Investment Drivers
Emerging and strategic US borates and SOP producer
Phase 1A development fully funded and under construction
First production an enabler to build market and offtakes to underpin further stages of
development
Strong earnings forecast with each development stage
Long mine life supports significant value upside
SWOT analysis Strengths Weaknesses
* High margin complementary product mix, with multiple
revenue streams
* Long mine life with low technical risk
* Proven and successful management team
* Close proximity to customer markets and infrastructure
* Single asset company
* Exposed to boric acid and SOP prices
* Commissioning delays of staged development
Opportunities Threats
* Refinement of process to increase production without
capex increase
* At the door step of the United States market
* Domestic security of supply
* Emerging producer exposed to markets that require
product acceptance
* M&A interest from large entrenched corporates
Fort Cady has a +20 year LOM at full
production
Early production will be an enabler for the
staged development scenario
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Company Overview
American Pacific Borates Limited was incorporated in Australia in October 2016 and
commenced trading on the ASX in July 2017, after successfully raising $15 million at $0.20
per share in an IPO. The Company is focused on advancing its 100% owned Fort Cady
Borate Project located in Southern California, USA.
The Fort Cady Borate Mine, which has commenced construction of the Phase 1A
development, is located in an area with existing sealed roads, a gas pipeline, rail line and
power lines. The Project is to produce boric acid via insitu solution mining at >400m below
surface. Sulphate of potash (SOP) is produced as a by-product of the production of HCl acid
that is used in the solution mining process for boric acid extraction.
Fort Cady Borate Project (100%)
Location: The Project is located near the town of Newberry Springs, approximately 50 km
east of the city of Barstow and 4 km south of Interstate 40 (I-40). The Project area is
approximately 200 km from Los Angeles and Las Vegas in the Barstow Trough of the central
Mojave.
Figure 1: Fort Cady Project location
Source: American Pacific Borates
The Company is well located in California to
markets and infrastructure
Fort Cady is well located near infrastructure
and ports
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Background: Since discovery in 1964 over US$60m (A$83m) has been spent at Fort Cady,
including resource drilling, metallurgical test works, well injection tests, permitting activities
and substantial small-scale commercial operations and test works. The first limited scale
solution mining commenced in 1981 with pilot scale production in 1987-1988 using HCl as
the leaching agent being deemed commercially viable.
In 1996-2001 a second phase of production was undertaken using sulphuric acid as the
leaching agent. The use of sulphuric acid however proved to promote the precipitation of
gypsum underground and in the piping, which impeded a decision to commence full
commercial production at the time, as well as low commodity prices.
Project development: American Pacific Borates completed a DFS in December 2018
which includes a 3-stage development scenario (Phase 1, 2 and 3) leading to full production
in Phase 3 of 408ktpa boric acid (H3BO3) and 108ktpa of SOP (K2SO4). In April 2020, the
Company released an enhanced DFS (eDFS) which maintained boric acid production in line
with the DFS but increased SOP by-product production to 363ktpa in full production due to
improvements in leaching and process extraction, requiring more HCl acid generation, whilst
providing boric acid operating cost benefits. The enhanced DFS includes the following
staged developments for financial flexibility:
Phase 1A – a low cost startup with capex of US$50.3m to produce 8.1ktpa of boric acid
and 36ktpa of SOP to build markets and offtake for the product, as well as demonstrate
commercial scale production. This phase is fully funded with production to commence
in SQ21.
Phase 1B and 2 – combined capex of US$420.5m to increase total production to
245ktpa boric acid and 218ktpa of SOP. We anticipate this phase to be up to 65% debt
funded.
Phase 3 – capex of US$263.2m to increase total production further to 408ktpa of boric
acid and 363ktpa of SOP. We forecast this phase to be funded from cashflows.
Reserves and resources: The Fort Cady reserves and resources at a 5.0% B2O3 (boric
oxide) cut-off are shown in Figure 3. Total conversion from resources to reserves is based
on a 70% extraction ratio for the ore utilising insitu solution mining. The future upgrade of
the inferred resource into measured and indicated will enable a proven and probable reserve
extension to the deposit. The current combined mineable horizon provides for a +20 year
mine life (MI&I) based on Phase 3 production levels (+30 years if only Phase 2) before
additional resource extensions.
Figure 3: Fort Cady reserves and resources
JORC estimate Category Mt B2O3 % H3BO3 % B2O3 Mt H3BO3 Mt
Reserves Proven 27.2 6.7 11.9 1.8 3.2
Probable 13.8 6.4 11.4 0.9 1.6
Total 41.0 6.6 11.7 2.7 4.8
Resources Measured 38.9 6.7 11.9 2.6 4.6
Indicated 19.7 6.4 11.4 1.3 2.2
Inferred 61.9 6.4 11.4 4.0 7.1
Total 120.4 6.5 11.6 7.8 13.9
Source: American Pacific Borates
The deposit has been successfully mined
via insitu solution mining previously
Figure 2: Fort Cady Project enhanced DFS
Source: American Pacific Borates
A reserve extraction ratio of 70% is
applied to resources
The deposit remains open to the southeast
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Geology and mineralisation: The deposit is a large colemanite deposit (calcium borate)
formed in mudstone from evaporitic processes during sedimentary deposition into lacustrine
lakes. The deposit mineralisation (>5.0% B2O3) strikes northwest-southeast for 3,400m, is
800m - 900m in width and 20m - 80m thick at depths ranging from 400m to 550m below
surface. The deposit remains open to the southeast.
Figure 4: Fort Cady typical sections
Source: American Pacific Borates
Mining: Solution mining will see the injection of a heated (by natural heat of reaction to
50oC) aqueous 2-4% HCl acid solution into the colemanite ore zones to form a leachate
solution with 3.7% boric acid content and 20% or higher calcium chloride, that is returned
to the surface by airlift and then pumped to the processing plant for extraction. The wells
are to be located 60m apart and will initially be in production with a “push and pull” method
to extract the borate, followed by the co-joining of wells as production progresses to
separate injection and production wells. The vertical wells will be developed in sequence
with each well producing approximately 1,700tpa of boric acid over a well life of 8 years. In
Phase 2 onwards the use of horizontal wells will be evaluated.
The ore zones range from 20m to 80m in
thickness
Solution mining is the optimum mining
method for the deposit as it is:
1. Located deep below surface (>400m)
and below the water table
2. Confined vertically to impermeable
layers
3. Weak in structural strength
4. Bounded by faults confining the ore
zones
- 7 -
Processing: The flowsheet for processing is based on well-established chemical and
physical reactions utilising standard industrial chemical processing equipment. The leachate
solution containing 3.7% boric acid from the mine, will undergo solvent extraction to
upgrade the boric acid to approximately 9.0% and then cooling crystallization to further
separate the boric acid from impurities in the solution. The liquor, following extraction of
boric acid, will be regenerated and recycled back into the mine effectively providing a 99.7%
boric acid metallurgical recovery rate.
Modular Mannheim furnaces (used globally for +50% of SOP production) will be used to
produce a SOP by-product through the high temperature reaction of KCl (MOP) with
sulphuric acid to produce the feedstock HCl acid used as the leaching agent for the insitu
solution mining.
The process will produce a >99.9% boric acid crystalline product and a gypsum by-product
(calcium sulphate), and from the Mannheim furnace the production of SOP and surplus HCl
acid.
Figure 5: Simplified Fort Cady process flowsheet
Source: American Pacific Borates
Commissioning: We assume commissioning for Phase 1A from July 2021, concurrent
Phase 1B & 2 commissioning from July 2023 and Phase 3 from July 2025.
Boric acid sales: The existing global supply of borates is highly concentrated with
approximately 60% of supply from Turkey. The next largest supplier is the United States
with two current US produces of borates - Rio Tinto Borates located less than 100km from
Fort Cady, and a small operation at the Searle Valley mine owned by an Indian industrial
conglomerate, also located in California. The main uses of borates are in ceramics,
fiberglass and fertilisers (see ABR website https://americanpacificborates.com/about-
borates/). Uses are rapidly increasing with over 400 uses for borates globally with new
applications related to clean and efficient energy, urbanisation and food security.
These factors provide ABR multiple opportunities for the sale of boric acid into the domestic
and global borates market. Initial production of boric acid from Phase 1A will be used to
cement offtakes with end users to underpin future production expansions. We assume
100% sales of boric acid from all development stages.
Processing is utilising standard processes
The use of the Mannheim furnace to
produce feedstock HCl provides a second
high value product for sale
High value specialty products delivered to
the target Californian market
Five key products for sale:
1. Boric acid for industrial use
2. Boric acid for agricultural use
3. SOP
4. Boron enriched SOP
5. Gypsum
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SOP sales: The United States is a net importer of SOP with the market growing at around
5% CAGR and California consuming over 120ktpa. There is only one current US producer
supplying the local market, Compass Minerals International Inc. (CMP-USA, Mcap
US$2.1Bn). It is also significant that Potash is listed in the USA’s 35 most critical minerals list
highlighting that supplying the domestic market will resolve domestic supply security
concerns for consumers. We assume 100% sales of SOP from all development stages into
the Company’s target markets of California and the broader United States and Mexico.
ABR recently completed independent crop trials, conducted by the University of Connecticut,
on a specialty fertiliser mix of boron and SOP for use on high value crops that are either
sensitive to chloride or grown in areas with minimal rainfall, where the buildup of chloride in
the soil is problematic. In general, SOP improves quality and crop yields and increases
resilience to drought, frost, insects and disease. In adding boron to the SOP, the aim was to
outperform products for sale on the open market. The trials on broccoli and tomatoes were
highly successful, showing that ABR’s boron enriched SOP can outperform crops grown using
standard SOP in an agricultural setting. ABR is well positioned to introduce a specialty
agricultural product at a premium price into a market on its doorstep.
Operating Costs: We forecast high boric acid cash costs (before credits) in 22FY and 23FY
of US$2,750/t and US2,275/t during Phase 1A production, which reflects that 67% of
revenue is from SOP in this stage. From 24FY onwards with the commencement and ramp
up of Phase 2 we forecast cash costs (before credits) of US$569/t boric acid. The Company
will require a stable supply of consumables such as sulphuric acid and MOP to maintain cash
costs at these levels and not be exposed to fluctuations of pricing of these inputs.
Production: Our production assumptions are in line with the eDFS, however we have
assumed a longer ramp up for Phase 1B/2 of 12 months, otherwise 6 months as per the
Company’s estimates.
Figure 6: Fort Cady production summary
Year to 30 Jun 21e 22e 23e 24e 25e 26e 27e 28e 29e
Boric acid (kt) 0 7 8 129 245 369 408 408 408
SOP (kt) 0 29 36 115 218 328 363 363 363
Gypsum (kt) 0 8 10 153 289 435 482 482 482
Source: American Pacific Borates, Veritas estimates
Boric acid production upside: The head grade of boric acid in the pregnant liquor
solution returned to surface averages 3.7% in the DFS. This concentration was achieved
during first pilot testing programs in the 1980’s, however the injection solution was not
heated. The DFS has shown that a slightly heated injection solution, from the heat of the
reaction in the process plant prior to reinjection of the regenerated liquor, will increase the
boric acid concentration of the pregnant liquor solution towards 5.0%. The difference has
implications for the well field size and the front end of the processing plant, as less solution
will be returned from the wells for the same amount of boric acid production. Thus if 5.0%
boric acid concentration is confirmed and Phase 2 front end plant design is unchanged, boric
acid production has the potential to increase by up to 35% to 331ktpa (from 245ktpa).
A section of the resource is excluded from the commercial scale Operating Permit region due
to the Southern California Edison (SCE) land corridor, where power lines cut across the
deposit. The addition of the resource located under this corridor (~25.8Mt of ore) to
reserves, by potentially relocating the power lines, will extend the life of mine by 5 years at
A branding strategy is being rolled out to
align product branding with customer
markets
Phase 2 cash costs of US$569/t before credits
Our production assumptions are in line with
the enhanced DFS
An increase in the boric acid head grade in
the leachate solution has the potential to
increase production or provide a decrease
in capex
Operating approval under an infrastructure
corridor would add an additional 5 years to
the mine life
- 9 -
the full Phase 3 production rate.
Exploration upside: The deposit is open to the south east where we anticipate a further
+5 years to the resource/reserves is likely to be delineated with extensional drilling.
Therefore, combined with the SCE land corridor we foresee upside production potential of
+10 years beyond the current life of mine.
Permitting: ABR has been awarded all substantive operational permits for the production
of both borates and SOP. These permits include, but are not limited to, air quality,
underground injection, water, plan of operations over the mining lease, stormwater and
waste discharge.
Taxation: The US accounts for a mine depletion allowance which excludes a portion of
gross income from being taxed. After accounting for the depletion allowance we estimate
an effective tax rate of approximately 26%.
The current corporate tax rates in the United States are;
Federal tax rate: 22.0%
State tax rate: 9.0%
The deposit is open to the south east
potentially adding a further 5 years to the
mine life
All substantive operational permits have been
awarded
- 10 -
Salt Wells Project
The Salt Wells North and South Projects are located in Churchill County, Nevada, USA. The
Projects are within short proximity to major highways and within 25 kilometres of the town
of Fallon that has a population of over 8,500 people. ABR have an earn in agreement to
acquire 100% of the projects by spending US$3.0m over a period of 5 years.
Figure 7: Salt Wells Project location
Source: American Pacific Borates
The Projects cover an area of 36km2 with surface salt samples in the Northern area
recording up to 810 ppm Lithium and over 1% Boron (over 5.2% boric acid equivalent).
The Projects lie in what is believed to be an internally drained, fault bounded basin that
appears similar to Clayton Valley, Nevada, where lithium is currently produced by Albemarle
Corporation, the only current production source of lithium in the USA.
The basin covers an area of around 110km2. Borates were produced from surface salts in
the 1800’s from the Salt Wells North site. With the exception of recent surface salt sampling
from the Salt Wells North project, no modern exploration has been completed. The Projects
are prospective for borates and lithium in the sediments (salt horizon) and lithium and boron
brines within the structures of the basin.
Salt Wells has significant potential to
add value with exploration success
- 11 -
Financials and valuation
Exploration expenditure: We assume an ongoing exploration budget of US$1.0m which
is a bare minimum, primarily for the Salt Wells Project.
Product acceptance: With the benefit of entering a domestic SOP market that seeks local
security of supply and with demand growing for borates and SOP, we foresee ABR quickly
securing a foothold in tandem with their brand awareness strategy. On this basis we
assume the Company will sell all product within the quarter it is produced.
Boric acid and SOP pricing: Our price forecasts are as follows.
Figure 8: Veritas price forecasts
Year to 30 Jun 21e 22e 23e 24e 25e 26e 27e 28e LT
Boric Acid (US$/t) 750 809 860 834 860 809 831 850 850
SOP (US$/t) 675 729 758 784 733 758 756 725 725
Gypsum (US$/t) 33 33 33 33 33 33 33 33 33
Source: Veritas estimates
Funding: The Phase 1A capital cost is fully funded from the A$32m equity funding in June
2020 and a US$30m (A$42m) convertible note (subject to a sunset date of 31 December
2020) which converts at the note holder election up to 31 December 2022 into 51.3m shares
(at $1/share, priced when the AUD:USD exchange rate was 0.65). The coupon on the note
is 11.6% per annum equating to A$10.8m (US$7.8m) in interest over the full 2 years of the
notes.
We anticipate the US$420m in capex funding to complete Phase 2 (Phase 1B and Phase 2
concurrently) is a split of 65:35 debt to equity. We assume an equity raising of 100m shares
at A$1.75/sh (US$120m) and US$274m in debt (at 8.0% per annum interest) with the
remainder funded from the Phase 1A cashflows. This stage of the project is the most critical
not only in size but also the first commercial large scale production.
In our dcf we forecast Phase 3 funding to be sourced from cashflows. Debt is repaid by
2027 upon full production after the ramp up of Phase 3.
Dividends: With a rapid buildup of earnings from the startup of Phase 2 in 24FY, we have
provided for a dividend payout ratio gradually increasing to 25%, however no dividend
policy is stated by the Company.
Earnings: Our A$ eps estimate in 23FY with full production from Phase 1A is 3.1c, 28.6c in
25FY with full production of Phase 2 and 50.5cps at full Phase 3 production in 27FY. On this
basis ABR is currently trading at less than 2.4 times our EV/EBITDA forward estimates from
24FY following commissioning of Phase 2 production and less than 1.0 times following full
Phase 3 production commencing in 26FY.
Making markets and product acceptance are
key to the economic success of Fort Cady
Phase 1A is fully funded
We assume Phase 1B/2 funding will be
secured in DH21
At full production we estimate ABR is
currently trading on EV/EBITDA multiples of
less than 1.0 times, providing significant
value upside
- 12 -
Figure 9: ABR earnings summary
Year to 30 Jun 21e 22e 23e 24e 25e 26e 27e 28e 29e
EBITDA (A$m) -3 16 28 176 325 448 499 487 499
Reported Profit (A$m) -5 3 16 68 151 215 266 260 269
Pre-Abnormal Profit (A$m) -5 3 16 68 151 215 266 260 269
Pre-Abnormal EPS (¢) -1 0.7 3.1 13.2 28.6 40.7 50.5 49.4 50.9
CFPS (¢) -1 2.1 4.6 26.2 47.8 70.2 76.7 74.6 77.0
DPS (¢) 0 0.0 0.0 1.0 4.0 10.2 12.6 12.3 12.7
Pre-Abnormal P/E (x) 130 27 6.5 3.0 2.1 1.7 1.7 1.7
Price/CFPS (x) 42 19 3.3 1.8 1.2 1.1 1.2 1.1
EV/EBITDA (x) 26 15 2.4 1.3 0.9 0.8 0.9 0.8
Yield (%) - - - 1 5 12 15 14 15
Franking (%) 0% 0% 0% 100% 100% 100% 100% 100% 100%
Source: Veritas estimates
Valuation: We value ABR at A$5.06 per share and place a 12 month price target of A$2.28
per share based on a successful commissioning and ramp up to of Phase 1A in DH21 and
the completion of funding for Phase 1B and 2.
Directors and Management
David Salisbury (Non-Executive Chairman) is a qualified electrical engineer with over
40 years’ experience in the global mining industry. David resides in the USA and is a former
Rio Tinto executive who was President and CEO of Resolution Copper Company, Kennecott
Minerals Company and Rössing Uranium Limited. David has been directly responsible for the
development, construction and production of four mines.
Michael Schlumpberger (President and Chief Executive Officer) is a qualified mining
engineer with over 30 years’ experience in industrial minerals. His background includes
management, operations, and maintenance in all aspects of mining, processing, reclamation,
and permitting. He has held senior roles with Potash Corporation of Saskatchewan, Passport
Potash, and Highfield Resources, and has worked in the United States, Canada, and Europe.
Anthony Hall (Executive Director) is a qualified lawyer with 20 years´ commercial
experience in venture capital, risk management, strategy and business development. He was
Managing Director of ASX listed Highfield Resources Limited from 2011 to 2016. During his
tenure the company’s market cap grew from $10m to over $500m and over$140m was
raised to progress potash projects in Spain.
Stephen Hunt (Non-Executive Director) has 25 years’ experience in the marketing
mineral products worldwide. His career includes 15 years at BHP Billiton where he spent 5
years in the London office marketing minerals to a global customer base. Stephen has built
his own minerals trading company, which has a strong Chinese focus. He brings 15 years of
cumulative board experience with four ASX listed companies. Two of those companies were
successful in transitioning from project development to production.
John McKinney (Non-Executive Director) has performed in senior management
positions in the mining industry for approximately 25 years. He is experienced in Corporate
Operations, Management and Business Development. John has co-founded a number of
mining companies, including Western Gold Resources, American International Trading
Company and Western States Engineering, an engineering company specializing in mining
Our 12-month price target is $2.28
The Company has a proven and successful
Board and management team
- 13 -
related engineering projects. His responsibilities have included overseeing operations in the
U.S., Mexico and Bolivia.
Aaron Bertolatti (CFO and Company Secretary) is a qualified chartered accountant and
company secretary with over 10 years’ experience in the mining industry and accounting
profession. He has both local and international experience and provides assistance to a
number of resource companies with financial accounting and stock exchange compliance. He
was previously Australian CFO of Highfield Resources Ltd (ASX:HFR) and acts as Company
Secretary for Red Emperor Resources NL (ASX:RMP) and Fin Resources Ltd (ASX:FIN).
Orgil Battogtokh (Project Engineer) has a degree in Minerals and Mining Engineering
and is tasked with the construction of the project. He has over ten years’ experience
including project management. This experience includes construction of a US$200m
greenfield mine and processing facility for an industrial minerals processing facility.
Joe Burke (Head of Product Development and Partners) was previously a senior
manager of Hunnu Coal and engineered their successful $500m takeover by Banpu plc. Joe
was also the CEO of Voyager Resources (copper and gold in Mongolia and Brazil) and on the
board of Avenue Resources (tin exploration in Brazil). He was also a Director and founding
Partner of Starboard Global, a natural resource PE group.
Cindi Byrns (Environmental Manager) has a master’s degree in Environmental
Engineering and an undergraduate degree in Geology. With over 35 years’ experience Cindi
has permitted four mines and has permitting experience in California and Nevada as well as
with the Bureau of Land Management (BLM). Cindi also has experience in safety and process
safety management (PSM).
Top 20 Shareholders
The top 20 as at September 2020 is shown in Figure 10 below.
Figure 10: Top 20 shareholders
Source: American Pacific Borates
Substantial shareholders:
Atlas Precious Metals 15.4%
Mayfair Ventures 13.4%
- 14 -
RATING
BUY – anticipated stock return is greater than 10%
SELL – anticipated stock return is less than -10%
HOLD – anticipated stock return is between -10% and +10%
SPECULATIVE – High risk with stock price likely to fluctuate by 50% or more
This report has been issued by Veritas Securities Limited, ABN 94 117 124 535, Australian Financial Services Licence Number 297043 (Veritas).
This report was written by Piers Reynolds on 17 November 2020. The views and opinions expressed in this research accurately reflect the personal views of the
analyst about the subject securities or issuers and no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion of
specific recommendations or views in this research. The analyst responsible for the preparation of this research receives compensation based on overall revenues
of Veritas and has taken reasonable care to achieve and uphold their independence and objectivity in making any recommendations.
Disclaimer. The information contained in this document is provided for informational purposes only and does not take into account your specific financial
situation, particular needs and investment objectives. This information does not contain sufficient information to support an investment decision and it should not
be relied upon by you in evaluating the merits of investing in any securities or products. Veritas recommends that you should consider your own circumstances
and consult your own financial adviser before making any financial or investment decisions. This information is not an offer or recommendation to purchase or sell
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Disclosure of interest. Veritas Parties may receive or may have received fees, commissions and brokerage by acting as corporate adviser or broker for
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the subject of this research. Veritas Parties have not received any benefits or assistance from the Company(ies) in preparing this research.
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