FMS Estimate Updated I’m waiting now with high expectations for the FMS PEA. NGC had their BFS out last night, which is for me a good indicator of cost levels for FMS. The operations are very similar in terms of processing techniques, equipment requirements, open pit method, low over-burden etc...
Last night I took the NGC costs and again tried my best to apply them to FMS. We have all had various discussions on the merits or otherwise of the ore/deposits, so I did increase the costs for FMS to provide a very cautious approach. To qualify, this is not an NGC knock down exercise (their NPV and IRR are fine, although the 8% discount rate is a bit cheeky imo). It is FMS DD exercise for me.
That said, I really do think FMS looks high attractive compared to its competitors, hence my investment $ are here.
| Source | NGC | | FMS | |
| From BFS | 5.79 | Mining | 8.69 | Mining +30% |
| From BFS | 9.60 | Processing | 14.40 | Processing +50% |
| From BFS | 2.94 | SG&A | 3.82 | SG&A +30% |
| Calculated | 18.33 | Total/t Ore | 26.91 | Total/t Ore ave +47% |
| Calculated | 52.81 | Ore/Finished ratio | 6.38 | Ore/Finished ratio |
| Calculated | 1.89% | Mine Life Grade | 15.67% | Mine Life Grade |
| | | | | |
| From BFS | 968.00 | cash cost per tonne | 171.71 | cash cost per tonne |
| | | | | |
| From BFS | 15,900.00 | Finished Production | 15,900.00 | Finished Production |
| Calculated | 839,672.67 | Ore Processed pa | 101,467.77 | Ore Processed pa |
| | | | | |
| Calculated | 33,390,000.00 | Revenue @ $2,100/t | 28,620,000.00 | Revenue @ $1,800/t |
| Calculated | -15,391,200.00 | Cash Cost @ $968/t | -2,730,193.36 | Cash Cost @ $171/t |
| Calculated | 17,998,800.00 | Profit pa | 25,889,806.64 | Profit pa |
| Calculated | 53.90% | Margin % | 90.46% | Margin % |
| | | | | |
| First 5 years | 18,600.00 | Finished Production | 18,600.00 | Finished Production |
| | 2.20% | Initial Grade (5 yrs) | 15.67% | Initial Grade (5 yrs) |
| | 845,454.55 | Ore Processing tpa | 118,698.15 | Ore Processing tpa |
| | 2,316.31 | Ore Processing tpd | 325.20 | Ore Processing tpd |
| | 2,500.00 | Plant capacity tpd | 2,500.00 | Plant capacity tpd |
| | 92.65% | Availability | 13.01% | Availability |
| | | | | |
| FMS Production Capacity (2,500tpd max/365 days) | 132,979.54 | at 93% Capacity |
COMMENTS
+30% to FMS mining costs, we mine less ore so you would expect NGC to benefit from economies of scale.
+50% to FMS processing costs. The ore body is different to NGC, the ore is a little harder on MOHs scale and we may have to undertake more processing due to the flake distribution.
+30% to FMS SG&A costs. Again economies of scale. Some jobs in the plant will be required (eg; Safety Manager) regardless of the amount of ore processed. So cost will likely be higher per/t.
+47% is the average additional cost per tonne applied to FMS production across mining, processing and SG&A per tonne, a significant premium. A highly prudent approach taken here and certainly cautious enough in my opinion to mitigate the risk from not yet having production standard locked cycle testing recoveries (figures coming in the PEA).
+17% revenue uplift to NGC applied vs FMS, for larger flake distribution. I have trimmed down from the IM prices for both companies. We know from Chris Berry’s research that off-take arrangements usually do not attain the headline price. Factor in Europe and a confirmed slow-down in growth in both India and China, I do feel we may see continued softening of prices in line with Steven Riddles’ recent comments.
OBSERVATIONS
Even with the increase in costs (+47% per tonne of ore mined/processed) FMS comes in at $172/t cash cost. On this basis it may achieve up to 90% margin and profit of $26m per annum, on the same 15,900tpa production scenario . This is a potential 44% profit premium per annum over NGC for considerably less activity/use of resources.
There is something else very important to consider here for FMS. We know from the HQ agreement FMS intends to produce higher grades 99.9% and potentially battery anodes etc... We have no detailed costs for these processes as yet, but if these can be produced for an additional $800 per tonne from the base graphite production cost, FMS may well be looking at a cash cost for the premium products commanding +$4000/t minimum, at a cost of production similar to our competitors base graphite production cost @ 95%.
As we know, such production of upgraded graphite products wastes a proportion of the inputs (upgrading to 99.99%, anodes or spherical 70% losses) so a project must also be scalable to have the capacity and flexibility to effectively break into these newer high value markets and to maintain a strong presence there.
NGC at 92.65% availability look to be installing a 2,500tpd plant to process 2,300tpd. NGC therefore will have to operate 365 days per year to achieve even the base 15,900t per annum at a mine life grade of 1.89%. NGC effectively has no ability to increase capacity with the plant as currently costed. NGC has zero scalability from the 15,900tpa mine life base in the BFS.
FMS in contrast will likely have a myriad of options in production due to the higher grade. If FMS also chose to install a 2,500tpd plant they would be running at only 13.01% capacity, as they only need to process 325/t of ore per day on a 365 day cycle for 15,900tpa production. Therefore FMS may choose to install a lower capacity plant, at less capex cost.
Alternatively, they have the flexibility to increase production up to 132,000t per annum of finished base product with the equivalent 7% idle time, with no further investment in capex.
The final alternative is FMS may also choose not to produce 365 days per year, avoiding production on weekends/public holidays with the cost premiums that working attracts (if plant shut down/start up is feasible), which may mean the costs I use above are overstated.
We may well in reality see a mix of these options, as FMS still has considerable scalability with a 1,500tpd plant.
FMS certainly continues to have the potential to be the leader in the space here. Low operating costs on standard production, or the ability to produce premium products with costs potentially in line with those competitors can produce standard products for. The opportunity to incur materially lower capital costs, achieving quicker payback, with less debt/dilution for shareholders (also consider cash in hand at $22m versus $11m) Finally scalability – 7 times production on a 2,500tpd plant basis, or 5 times production on the cheaper 1,500tpd plant.
Management do though need to now deliver the PEA to shareholders, I certainly do not want a wait like we had for the NI43-101. This would be my only criticism.
GLTA, IMO, DYOR. As always, my approach and assumptions are my own and apologies for any errors.