Financial Modelling

Key assumptions

Modelling for the Savannah FS Optimisation was undertaken using monthly physicals and cash flows and includes movements in working capital.  For the optimised case financial analysis, spot US$ commodity prices and US$:A$ FX rate as at 30 June 2017 were used (Table 6).  Modelling has been undertaken on a pre-tax, ungeared, real-dollars basis using a discount rate of 8%.  All amounts are expressed in A$’s unless noted otherwise.

Table 6 – US$ Commodity price lines and US$:A$ FX rate used for the Savannah FS Optimisation, and corresponding values used in the Feasibility Study

Standardised Reportable Costs

The optimisation work has resulted in a significant reduction in unit costs per pound of nickel, compared to the Feasibility Study results.  Forecast average operating cash costs of US$2.40/lb Ni (payable nickel basis after by-product credits) over the life of the project derived from the Savannah FS Optimisation are significantly lower than the Feasibility Study estimate of $US3.30/lb.  In addition to the cost initiatives discussed above, the other significant contributor to the reduction in payable cash costs is the higher US$ cobalt price, which results in an improved by-product credit attributable to this metal.  Standardised reportable costs for the optimised case are shown in Table 7 and Figure 9.

Table 7 – Standardised reportable unit costs for the Savannah FS Optimisation compared with the Feasibility Study (rounding to two significant figures)

Definitions:
C1 cash cost:
Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, less by-product credits, divided by nickel in concentrate produced.
Operating cash cost:
Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, plus royalties, less by-product credits, divided by payable nickel produced.
Sustaining cash cost:
Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, plus royalties, plus stay-in-business capital expenditure, less by-product credits, divided by payable nickel produced.


Figure 9 – Annual unit operating and sustaining cash costs
(US$ per pound payable nickel)

Cash Flow

The optimised Savannah Project shows a positive financial outcome, even at the conservative spot price lines adopted for the optimisation. Revenue is estimated at $1,200M over life of mine, or ~$140M on an annual basis over the 8.5 year period of production.  EBITDA is $340M over life of mine, or ~$40M per annum.  Undiscounted pre-tax free cash flow over life of mine is $120M.

In the optimised case, cobalt is an important contributor to revenue, comprising 25% of gross (mine gate) revenue, over life-of-mine (Figure 10).

Figure 10 – Percentage contributions to gross (mine gate) revenue of nickel, copper and cobalt

At the spot price lines assumed for the Savannah FS Optimisation, maximum cash draw down is under $40M, which occurs 14 months after commencement of production.  The Project becomes cash flow positive 15 months after recommencement of production and project payback is achieved less than three years after the commencement of production.

Pre-tax NPV at 8% discount rate is $60M, and due to the low up-front capital requirements and rapid restart timeframe, the IRR is 40%. 

At the assumed by-product US$ commodity price lines and US$:A$ FX rate, the US$ nickel price required to achieve cash break-even is US$3.65/lb, down significantly from US$4.40/lb in the Feasibility Study.

Key financial metrics are shown in Table 8.  Annual and cumulative cash flow is shown in Figure 11.

Table 8 – Key Financial Metrics


Figure 11 – Annual and cumulative cash flow at spot US$ commodity prices and US$:A$ FX rate

Sensitivity Analysis

The Savannah FS Optimisation uses an historically low nickel price of US$4.21/lb, over the 8.5 year life of mine.  Importantly, the consensus view of commodity price forecasters is for a return to higher nickel prices, because at current nickel price levels a significant proportion of the world’s nickel producers are cashflow negative, which is unsustainable over the medium to long term.  Accordingly, the Project is strongly leveraged to any future recovery in the US$ nickel price.  At a nickel price of US$6.00/lb and US$:A$ FX rate of US$0.75, the optimised Savannah Project would have a pre-tax NPV of $360M.

Project NPV sensitivities at a range of US$ nickel price and US$:A$ FX rates are shown in Table 9.  Sensitivities to a range of internal and external factors for a +/- 20% movement from the Base Case parameters are shown in Figure 12.

Table 9 – NPV sensitivity table for a range of US$ nickel prices and US$:A$ FX rates


Figure 12 – Sensitivity of NPV to a range of internal and external factors

Funding Requirements

A funding requirement (i.e. maximum negative cash draw down) of approximately $36M inclusive of working capital, but excluding contingency, is estimated for the price lines modelled, peaking 14 months after commencement of production.

The Company is currently in discussions with a range of potential financiers including offtake partners, traditional resource banks and other resource financing organisations.  Indicative financing proposals have been received covering a variety of funding options, including:

  • Traditional bank resource project financing;
  • Offtake financing / prepayments; and
  • Streaming mechanisms.

The Company is working through the range of financing options to determine the optimal quantum and structure.  As a result of the level of interest received to date, the Company is confident that appropriate financing will be available for the project at the current US$ commodity prices and US$:A$ FX rate.  Financing activities are on-going.

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