American Pacific Borate & Lithium Ltd (ASX:ABR) managing director and CEO Michael Schlumpberger has highlighted the low capital expenditure of the company’s flagship project in California after publishing the project’s definitive feasibility study (DFS) on Monday.
Key financial metrics included an unlevered after-tax net present value (NPV10) of US$1.25 billion ($1.7 billion) at a 10% discount and phase-one capital expenditure of US$138.2 million
The Fort Cady DFS puts the project’s internal rate of return at 41% and is based on free-on-board prices of US$800 a tonne for boric acid and US$725 a tonne for sulphate of potash (SOP).
The capital estimates for the project’s three phases of capital expenditure add up to US$516.1 million, while US$245.2 million is the maximum negative cash position tipped for project build-up.
American Pacific’s MD & CEO spoke to Proactive Investors’ Stocktube video channel this week, saying the company believed the “borate market is an exciting place to be”.
He highlighted the borate market had few competitors and the company’s DFS for its flagship project had delivered strong financial metrics.
Schlumpberger revealed in the interview published on Wednesday: “Unashamedly, we’re looking to become a significant producer of borates.”
Fort Cady is the world’s largest borate resource not owned by the current borate industry duopoly players, big miner Rio Tinto plc (ASX:RIO) (LON:RIO) and Turkish state-owned borate company Eti Mine Works.
The site was mined by Duval Corporation in the 1980s.
The planned route for American Pacific’s boric acid, sulphate of potash, gypsum and hydrochloric acid to be transferred to Los Angeles port for export
American Pacific’s Fort Cady DFS models a project where borate acid could be solution-mined below ground then brought to the surface to be upgraded with a solvent extraction and crystallisation process.
The company would produce gypsum as part of its extraction process, and sulphate of potash during processing, with hydrochloric acid then being a by-product credit to be used to again mine the project’s borate resources.
Schlumpberger outlined why the company viewed the project as low risk, saying, “We think that the risk profile associated with the project is very low because not only is it technically proven there are not a lot of special things that need to occur, it’s an off-the-shelf kit.
“We’re largely permitted and certainly the geopolitical space of the United States as well as California are an interesting place to be.”
High expected margins
American Pacific’s MD spoke of the margins the company expected to achieve at the project which has a modelled life of 21 years.
Schlumpberger told Proactive, “Across our entire portfolio you’re basically looking at, without by-product credits, about a 50% margin.
“By the time you add in all the by-product credits you’re looking at margins upwards of 75%.
“So certainly that is what allows us to return such strong financial metrics.”
The earnings before interest, tax, depreciation and amortisation (EBITDA) in the first year of operation is targeted to be US$321 million.
Fort Cady’s net direct cash cost (C1) operating expense (opex) estimate has been put at US$367.34 a tonne with no by-product credits, while the C1 opex estimate is US$148.84 a tonne with the credits.
The project’s proven and probable reserves, published earlier this month, are 41 million tonnes grading 6.6% boron and 4.81 million tonnes of boric acid.
Contained resources sit at 7.8 million tonnes boron or 13.9 million tonnes boric acid equivalent.
Life-of-mine from production is 21 years, with the company to draw on reserves for the first 14 years.
Key metrics from American Pacific’s Fort Cady DFS, published this week
Customers signed on or interested in offtake
Schlumpberger confirmed the company was targeting domestic and international markets after attracting interest in Fort Cady’s expected outputs.
He said, “Some of the agreements that we have are strategic agreements, and two Chinese majors, (Fortune magazine global 500 companies) Sinochem and Sinomach, are people that we’re in discussions with at this point in time.”
Wholesale trading company Sinochem Group (SHA:600500) had annual revenues of US$76.765 billion in 2017 while industrial machinery company Sinomach (SHA:600444) (SHA:600335) had US$42.638 billion revenues last calendar year.
Schlumpberger said, “One of our unashamed goals within the company is to become a globally significant producer of borates.
“And certainly over the last year, half-year for sure, we’ve been working very hard to make sure that that happens.”
Earlier this year, American Pacific raised $4 million from sophisticated investors to support the Fort Cady project.
Schlumpberger and the company are keen to get cracking after sharing the company’s DFS, saying, “Over $50 million has already been spent on this project and we’re able to advance it very quickly.
The company reported in August 2018 it planned to use the funds it raised to enable construction-related workstreams that it expected would follow a final investment decision.
At the time the MD said the placement would ensure the company could quickly move the Fort Cady project from studies to construction-ready activities after completion of the DFS.
Schlumpberger said in August 2018: “We have a very unique project that combines low capex, high margin, low technical risk and an EBITDA profile of more than US$150 million per annum in full production into a borate market growing at 6% per annum, with limited visible supply.
“With borates non-substitutable in new world applications like electric vehicles, wind turbines, space shuttles and agriculture, we can only see our project becoming more valuable as the reality of a tight ongoing market with one dominant supplier continues.”
The company also holds an exploration portfolio in Nevada, at the Salt Wells boron and lithium projects, in which American Pacific can earn a 100% stake.
American Pacific's projects in California and Nevada
About the company
American Pacific first listed on the Australian Securities Exchange in July 2017 after an oversubscribed $15 million initial public offering.
The company is headquartered in Perth, Western Australia, with a US office in Apple Valley, California.
Non-executive chairman Harold ‘Roy’ Shipes leads the company board and has more than 50 years experience in metals and mining.
Shipes is the president & CEO of Altair Resources Inc (CVE:AVX) (FRA:90AA) (OTCMKTS:AAEEF) and founded Atlas Precious Metals Inc and a number of other mining companies.
He also led OK Tedi Mining Ltd as chief executive officer.
California-based MD Schlumpberger is a mining engineer who joined American Pacific in June 2017.
He has more than 30 years experience in the minerals industry and held senior roles with Potash Corporation of Saskatchewan, Passport Potash, and Highfield Resources Ltd (ASX:HFR) (FRA:23H).
Australia-based company executive director, commercial lawyer Anthony Hall, has more than 20 years commercial experience.
Hall was previously MD of Highfield Resources, as the Australian-listed company progressed potash projects in Spain.
American Pacific management personnel held 39% of the company in October 2018, while its other investors had a collective 61% stake in the company.
— with Danielle Doporto