Financial Modelling

Base Case Key Financial Assumptions

Modelling for the Updated FS was undertaken using monthly physicals and cash flows and includes movements in working capital.  Modelling has been undertaken on a pre-tax, ungeared, real-dollars basis using a discount rate of 8%.  All amounts are expressed in A$ unless noted otherwise.  Input costs are as at September 2017.

Commodity prices and the US$:A$ FX rate used in the Base Case are shown in Table 8 and are close to current prices.  Marketing terms are based on recently received indicative terms based on specifications provided by the Company and derived from the 2017 metallurgical testwork program for a concentrate grading 8% Ni.

Standardised Reportable Costs

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 Updated FS are significantly lower than the February 2017 FS 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 Updated FS Base Case are shown in Table 9 and Figure 8. C1 cash costs are expected to lie at the bottom end of the second quartile of the global nickel mining cost curve (Figure 9). 

Base Case Cash Flow

The Updated FS shows a positive financial outcome, at the Base Case price lines adopted for the study.  Revenue is estimated at $1,470M over life of mine, or ~$180M on an annual basis over the 8.3 year period of production.  EBITDA is $570M over life of mine, or ~$70M per annum.  Undiscounted pre-tax free cash flow generated over life of mine is $330M.

In the Updated FS, cobalt is an important contributor to revenue, comprising over 20% of gross (mine gate) revenue, over life-of-mine (Figure 10). 

At the price lines assumed for the Updated FS Base Case, maximum cash draw down is approximately $40M, which occurs during the three-month ramp-up period after commencement of production.  The Project becomes sustainably cash flow positive 14 months after recommencement of production and project payback is achieved less than two years after the commencement of production.

The Key financial metrics for the Base Case are shown in Table 10. The pre-tax NPV generated at 8% discount rate is $210M and the IRR is 100%.  Annual and cumulative cash flow is shown in Figure 11. 

Sensitivity Analysis

The Updated FS Base Case uses a nickel price of US$5.50/lb, over the 8.3 year life of mine.  Importantly, the consensus view of commodity price forecasters is for a return to higher nickel prices, partly driven by increased use of nickel in batteries by the rapidly emerging electric vehicle industry.  Accordingly, the Project is highly leveraged to any future recovery in the US$ nickel price.  At a nickel price of US$8.00/lb and US$:A$ FX rate of US$0.75 (Long Term Real (2017$) FX rate), the Savannah Project would generate a pre-tax NPV of ~$600M. Project NPV sensitivities at a range of US$ nickel prices and US$:A$ FX rates are shown in Table 11.  Sensitivities to a range of internal and external factors for a +/- 20% movement from the Base Case parameters are shown in Figure 12. 

Funding Requirements

A funding requirement (i.e. maximum negative cash draw down) of approximately $40M inclusive of working capital, but excluding contingency, is estimated for the price lines modelled, peaking during the three-month ramp-up period after commencement of production.  The Company is continuing 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 funding will be available for the project.  Financing activities are on-going.

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