The Christmas countdown is on. Two weeks to go but we ain't stopping now. We've got an eye look at Iniaba Deep Love Spectacular today you boys, It's all happening alright. It's one of those, one of those stories earlier that just makes me angry, mad, disappointed, frustrated. All of the feelings. A lot of feelings, yeah. Just it's a, it's a head scratcher on a whole bunch of levels, which we're gonna get
into. But yeah, one thing that maybe didn't make you unhappy or or us unhappy was your weekend. How was your weekend, Ellie? It was. Good. So I was at the the CBH over the weekend. So for our non Western Australian listeners, that's the Cottesloe Beach Hotel, right in the heart of the infamous 6011. And I was waiting in line for a drink at the bar when I saw something very peculiar on the back wall which I didn't think to say. So here's a picture. Can you guys spot it?
Am I looking at a hat with a little blue logo on it, Ellie? I think that might be the one. Wildcat. There's a Wildcat hat on the back of the bar, which is you'd only say that in the six O1 1, so I love that. But there's actually something else in that picture. So if you take a closer look. Look at that. It's true, but having a tuner so drew from K Drill, he can meet up with you anytime, anywhere in the six O1 one or beyond to help sort out your 2025 drilling contract.
With K Drill. It's been a bunch of ASX small caps. We've been saying doing the heaps of last last minute raises for the year to sort of set themselves up for a strong start to 25 S to all of those companies. Make sure you've got Rhino, Sullivan and the rest of the casual tape up at your site in the new year punching RC and Diamond. Holes, Ellie, It's like Patrol's colours are red. It's Christmas. It's Christmas theme. Yeah, you've got Rhino doesn't take a break over Christmas.
He he's punching RC and Diamond holes through Christmas. He's punching them every day of the week, punches them in his sleep. So make it your new New Year's resolution to get K drill up in your site punching RC diamond holes. Get in contact with Juba. His details in the show notes. Thanks for your support K Drill. Go K drill. Alrighty, let's talk about Iluka resources, guys. This was a big one on Friday.
The funding package that has been sort of long negotiated between Iluka and the government came through and the market did not like it down 10 percent. So wow, it, it was fascinating, right? The the call had a lot of interesting questions. Analysts trying to piece through the call was put on a relatively short notice with a lot of info, a lot of assumptions baked into it, a lot of footnote footnotes that you have to go and read. So we've got we've got plenty to
chat about on this one for. For context, JD like what? What is like the, you know, the background to this whole, you know, any other railroads facility in the funding package with the government? Yeah, Let's give a bit of a recap on everything that's kind of happened because it's been a few years in the process now, right. So in early 2022 you had I look at pressing go on the Enieba rare earths refinery to the north of Perth in WA.
Now final investment decision was taken with the aid of a 1 billion and 50 million non recourse loan from our government. So this was done through the government entity of Export Finance Australia. Now I look at the time would contribute $200 million plus the any other any ABBA stockpile. So that is a stockpile that had been building for a number of years goes back quite, quite a while now. So this refinery importantly would be designed to handle not just the any other stockpile,
but any other Aluca feedstock. So we've got a few projects in the works which which had about there plus potential third party feed. That was, yeah, that was, it was, it was, it was interesting at the time. I don't know if too many people were expecting this FID. It kind of just popped up out of the blue, and I think it was it popped up the week before the standing government went into caretaker mode. So kind of go figure.
And the the whole, you know, the, the loan that was provided at the time by the Australian government was so like the terms were so out of market with any concessional finance that had been kind of provided at all in any, you know, critical minerals like area whatsoever by a mile. It was, it was, you know, kind of remarkable at $1.05 billion non recourse loan terms were
sweet as all hell. You know, I didn't have to repay it forever, but it was just everything was was honky Dory about it. But interestingly, at the time when they when they did announce that, that FID, they talked up the prospects of also being able to process their, some of their, their, their deposit at Wimmera through this reverse facility as well. Wimmera, these are the Wimmer project is 1 of it. Like, you know, they've got a bunch of these Wim style deposits in their portfolio.
They're in Victoria. They were actually kind of delineated by Conzink back in the 80s. They haven't been developed yet for must have been a long time, right? But they haven't been developed for a few big reasons. First one is incredibly fine, which makes separation of the of the zircon really, really challenging. And the other one is that they've got high levels of impurities, which makes purification of a salable kind of zircon product really, really
challenging. On that first point I look at they figured out a, a solution to to separate the, the zircon in 2018. But the second point on, on the, on the impurities that they've done some kind of purification or zircon purification in a lab, but they still need to prove it up. It's sort of scale and they're doing a demonstration plan now. But there's no guarantees though. And the attractiveness of those of those whim style deposits is actually they're high zircon
great. So despite all this, and the challenge is to actually get a saleable kind of zircon product out of it. I look at they did put a reserve on Winrar in 2022 and that assumed that would mine it sell the kind of lowish value ilmenite products produce a rare earth concentrate which would go to any other. But the zircon product isn't assumed to be recoverable for the purposes of the reserve there.
And you Fast forward to Friday's announcement, we get a bit of an indication of how Luca might actually be thinking about its feedstock options here. Because you in the, in the interim since they announced FID, you know, a few things have happened. They did a deal with, with Northern Minerals in 2022 to, to try and get some supply from their Browns Range project to feed any other refinery. They also progressed their Bell Reynolds mineral sands project
in NSW. And hence the scenarios that I look actually put forward on Friday were impacted by these developments. So Trev, what the sort of three scenarios that Aloka have have put forward now in the context of all those what they had and those recent developments in the last few years? If you if you look at like you can see the the pictures of that kind of they show here.
So 3 scenarios, one just you know, 35 year life underutilised, you know, refinery because they're only assuming that it's using Aloka's any other stockpile, Al Reynold concentrate from Al Reynold and when there are I'm constant concentrate as well. The second scenario is the same as above, but now they kind of they throw in northern minerals, but look at what happens when they include northern minerals
as feedstock. It actually displaces Wimera to later in the refineries life and I think that's telling personally. And then the last scenario, they call this the financing case, which only processes any other stockpile and Bell Reynold, no Wimera. So just like look at those 3 scenarios have changed.
I think there is a read through that there are doubts about the economics or timelines or both of Wimmer, which makes a pretty big impact when that was kind of, you know, your big baseload long life part of the feed of of our Lucas. And Trev explained to me and probably the other money minders who are as clued up about mineral sands and the rest of it and and whereas Bell, Reynolds and Wimmer are mineral sands
projects. So why are they getting talked about in the context of a rare earths being feedstock for rare earths refinery? Is it some sort of byproduct? Exactly or absolutely yeah, when when you're when you're processing mineral sands that you're often times a typical byproduct of that process is a is a monocyte concentrate.
That monocyte concentrate is, is is is is often times, you know, rich in rare earth elements, which if you, if you plug it into a, a refinery, which is, you know, you're cracking and leaching and, and also also a hydro net plant, you, you can get some, some separated railroad oxides out of it. So to to round out on the assumptions put forward, the key point of the negotiations happening over the last year is
because the CapEx blew out. So initially that was pinned at 1 to $1.2 billion, hit a stumbling block in late 23, blew out to 1.7 to $1.8 billion with 320 million of that money being spent to date. So you had a bit of a stalemate as Iluka and the government battled over who's going to chip in and fund the the rest of it. And to clarify guys, this CapEx relates to this indie ABBA refinery.
So any CapEx to bring online this Wimera project which I think is currently at DFS stage, that would be in addition to that, right? Yeah, Wimmer's CapEx is not insignificant. It's like I think they're sort of PFS assumptions, nearly a billion dollars there from my memory. So yeah, that's they're actually this is exactly right. That's not included in this. Absolutely. This is just the refinery. And so that brings us now to last Fridays announcement.
So what's been the funding update that's come through recently? So to get them there, EFA are going to contribute for $400 million on the same terms as that 2022 agreement. And you've got Iluka adding $214 million in cash equity. That includes $82 million for working capital once the plant is built, but you're waiting for that first cash flow to come in the door. So in total, from an Iluka perspective, there's another $300 million that needs to go out the door because.
From their pocket. From their pocket because that initial 200 million is not all yet spent. So just looking at the, you know, in simple terms, the amount of money going forward versus the proportions that were paid up in 2022, Iluka is contributing a greater a greater portion. And if you start to look at of how cash flows are going to kind of be distributed, it gets pretty interesting The annual interest charges.
So like you said Travis super friendly, but you know we won't go through the full waterfall, but you still need to pay that back. And there will be an annual interest charge of about $116 million per annum on the fully drawn debt plus accrued interest that doesn't leave much cash flow from the sweep in the in the first four years. So that is just using the stockpile scenario, that scenario C as we showed in the chart just before.
And that's also making a big assumption which we're going to talk about a good bit that the ramp up goes smoothly. We've said it many times in the past, rarest, rarest processing, just not simple by any stretch of the imagination. And I think you could almost comfortably take the other side. That ramp up is going to be a smooth process here. Yeah, well, that's that's the interesting point though, right? Is like it is, it is a big interest rate.
You do have to pay that back. But keep in mind this loan is non recourse. So it's like to the extent you know, the Australian government has a has a claim, it's it's it's I think it's limited to that refinery code. It doesn't extend to other good other assets.
Yeah, which you know the management are keen to keen to point out and I think one of the analysts sort of called it, you know, in a sense it's an it's an option on rare risk prices ticking up because you don't have that recourse to the rest of your balance sheet. Yeah, I described that tweak to the funding. It's kind of like, yeah, there was this, this relative relatively kind of, you know, commercial adjustment which allowed for more money to go
away. But it wasn't, it wasn't skewed entirely in the government's favour, but it was, you know, you're making this commercial adjustment on an already kind of completely out of market concession it. Was so, so friendly to, to put it lightly, it was order of magnitude above any of the other cheques we've seen written in, in Australia at least, you know, the US, they throw about a fair bit of money to just round out on that funding piece as well. There's $150 million cash overrun facility.
You know, it's worth mentioning because we've already seen a not insignificant uptick in the CapEx. So that would be split 5050 between Iluka and the
government. And then there's an important caveat as well that additional funding is subject to offtake agreements that the Australian government is happy with trading between the lines, not China. So there was a good question that was asked about this in the call that happened right after the announcement from a UBS analyst asking where will the buyers emerge from? And, you know, it's the right
question to ask. So Alluca came back and said there's a number of EV manufacturers around the world looking at Korea, looking at the US, there'll be a range of markets that we can sell into. But you know, really thinking about who is going to buy this, that there are no industrial buyers in Australia of this project and the company. Of the product from the project. Yeah, yes, yeah, yeah, that's right. So the company said we're going to come out and announce these off takes closer to the
completion of the plant build. But just looking around the world, right, you've got China, we can't sell, but that is 8590% of the market. Then you've got Japan. Japan is wrapped up by Linus. Linus do everything they can to sell into Japan or sell into Vietnam, which is kind of Japan owned facilities there as well. Plus you've got MP materials the the US rail rest maker who are very eager to sell into Japan too. Korea and the US, they're just
not there yet. You know, you'd be making a big assumption that their markets grow as you build this project and you can sell into them. But that again is a big, big assumption. So I mean, it kind of brings us to the Aussie government and are they going to be the ones on the hook for putting up an off take agreement and buying this after they wrote the massive loan? I'm not sure if you guys have like thoughts on that, but it's it's delicate situation, right?
This is this is a big head scratcher. How do you how do you, how do you draw down your debt without off takes in place? When it comes to niche commodities you need, you need an off take that has some, you know, some degree of comfort for the financier, which usually means it's got to be, you know, the price link price flaws or
something like that, right? You know, you're not financing is not going to be comfortable unless unless you've got like some degree of certainty around what your price is actually going to be on on this. I don't see where I don't see where they're going to be able to get this off take from. But I but I have a I've been putting together some dots and yeah, this is part of the reason I get sick in my stomach about what could really be going on here.
Run us through it. The whole financing case is is is based on bifurcated markets by not not selling to to China. So what they assume these long term Atomus Atomus like forecasts of NDPR, which is like what like three times the current spot price, their thereabouts of NDPR, which is like, go figure. But I'm not I'm not sure if you like read the news about the the change in the future funds mandate a few weeks ago, JD and Ellie, but this was like a
pretty divisive topic. The future fund, Australia's, you know, sovereign wealth fund supposed to be kind of changed its mandate to include funding national priorities, including building more housing, supporting the green energy transition and improving infrastructure. And while that sounds a little bit, you know, innocuous, this
is a a big deal. And it was understandably kind of divisive because of the perception the money gets to go towards potentially uneconomic pet projects of the government of the day. And a few months before the future funds mandate changed, I had a had someone give me a call and they, they, they told me something that they'd heard on the Grapevine or, or word on the decline. I even put it in in Word on the decline in our daily email a few
months ago. But you know what, what I was told is that a vehicle is expected to kind of pop up backed by you know money of the future fund which will explicitly underwrite the off takes of rare earth projects.
So the future fund potentially agreeing to underwrite the price and volume of production to come out of presumably any other and potentially other facilities to to, to enable kind of that financing case to be comfortable at, you know, potentially, you know, absurd, absurd prices that could be up to like three times higher than whatever their prevailing spot prices for product in China, assuming that the green premium emerges in the West. That's just a a kind of a kind
of baffling, a baffling proposition, don't you think? I could not agree more. And it becomes a mechanism for one government entity to to sort of save the potential embarrassment of another one because they've made a hugely an economic bet. And it brings out the question, should the future fund be completely separate from the government just like a central bank should be? Or is it going to be used for the government of the day, whoever that might be, to fund any sort of project at their
whim that they want? And you know it, it sets off massive alarm bells because the future fund is, you know, it's the, it's the money of the Australian people. It should be invested in the future for the best return possible for the Australian people. You'd hope you get a fucking compound interest return on that, not just like throwing it at things that you know what
under it's anyway. Like this is still like weird on the decline that this would happen, but if it does come to fruition I'll be particularly fucking pissed off mate. Like as a taxpayer, what a fucking joke. If it if it sees the light of day, though, it's sort of would explain why our Luca may be so adamant about pushing ahead with the project. I think they've sold off 10%. I think a lot of the, the rhetoric and and commentary about it is this project uneconomic?
Why are you pushing ahead with, with financing? It makes no sense, right? And. Do they know something We. Don't do they know something we don't? I look isn't run by numbers like I look as directors for decades have had a lot of connections with W farmers, right? Tom O'Leary, the current CEO since 2016 ex W farmers and and as we can see report in the West last week, W farmers are even exploring for rare earths in the
gold fields themselves. Like none of this capital allocation makes much sense, and Wesley's pride themselves on being best in business at capital allocation doesn't make sense unless you have high conviction about the government underwriting higher prices, hence underwriting their
downside. So the thing like the thing that sort of confused me about all this and I guess a bit of a question a lot to put to you to is, you know, everyone's always banging on about Australia needs to, you know, invest and develop its downstream, you know, capabilities and industries and things like that. You know, which would inevitably involves some sort of, you know, government, you know, assistance or incentives or in some sort of form.
But then trying to reconcile and balance that with, as you guys have talked about, sensible capital allocation. If if this is not the right way or the best, the best way to go about setting up these industries and investing in these industries in Australia, how else, how else can we do it? Is there is there other ideas or ways we could go about it?
This is a picking winners strategy, right And I think the way we've spoken about it in the past which I stood a standby is setting up the infrastructure if you are going to allocate the capital to have. You know, it be to the benefit of a market based sort of system that can still sort of allocate capital effectively as opposed to just allocating 2 billion bucks to a project and saying here you go try and try and make
it happen. That's in in an in a nutshell, how I kind of think about it. The price mechanism is a tremendous tool at, at, you know, at filtering what is and isn't financeable and, and, and do we want to distort the price mechanism? Well, guess what, we're going to end up like regretting that with taxpayer money.
Like to your point exactly, there's, there's two things that we could do. And you know, we, we had a conversation like like before, before turning on to these exact two points #1 why, why, why would we be uncompetitive in this industry? A huge part of it is our nonsensical energy, energy black landscape in Australia and WA. It's baffling. Its bizarre. East Coast, no exception. East Coast, no exception.
We should focus on an energy abundance that actually gives us a, you know, a competitive downstream industry in the 1st place. There is no way we would have a competitive downstream industry in in WA with with our like without without cost of energy. Like unless you focused on like energy abundance, all forms of energy and like invested reduce the timelines to make that happen, like real capital investment in in energy projects.
Then like, like say goodbye to, to, to that proposition and the, the other, the other point is like on creating the settings that enable the private sector to make its own investment decisions which stack up on its own merit. What does that look like? Well, you know, an example is, is what Indonesia's done with, with Marwali, right?
We had 53 joint ventures. Are there they, they provided, you know, a special economic zone, which, which enabled like tax breaks for a tax holiday of like 7 years that encouraged phenomenal capital investment to really build out a downstream industrial sector there, which, which like, you know, it's, it's just got like that's the private sector moving. The private sector is, is, is like looking OK, the settings are right for us to make investment decisions in this
area. You saw that in, in, you know what the, what Rio Tinto and both BHP have talked about investing in, in Argentina in the, in the last six months. It's the policy settings in Argentina that are very attractive right now and it's why they're comfortable investing in, in that jurisdiction in that country.
We've got the exact opposite situation in, in most of Australia. It's completely unattractive to commit significant like private capital for projects when you have uncertainty, high cost of energy, like, you know, tax regimes and royalties that keep going higher and higher. There's there's there's no incentive for the private sector to like, like, you know, come up with it's private projects that
stack up on its own merit. Focus on that and you'll have an abundance of competitive projects that all want to like come and invest in their own, do their own thing. But if it doesn't stack up on private metrics, then you just like limit yourself to like perpetual subsidisation of of something that will never be competitive in the long run. Like that's not good for anyone. It's like, should the government pay people to just dig a hole? Like, no, it's got to be
productive. Yeah, agreed that the money's going to come somewhere at the end of the day and it comes from the tax base pocket. So to to continue on with that and to make it, you know, draw it back in with Ilook and the project, we should provide the, the economics and how they kind of stand in the scenarios that the company is given. There's a few really important pieces here. So obviously you've got the price assumptions, then plant
utilisation. It's different under each scenario as we've been through, but that is a super, it's a high sensitivity aspect of whether the economics stack up here and commissioning. Another one we'll touch on in a moment. We'll start quickly with the, the revised economics is Elucasies and just read out a couple points. So they're using 8.25% discount
rate. You've got 2 broad scenarios, pricing scenarios that is. The first one is this Adamus one, which we've commented on a few Times Now. They are a price forecaster and you know by and large they are higher prices than the second scenario, which is the 10 year average price. So just quickly, under scenario A, you've got $1.7 billion, under scenario B you've got 3.3 billion, and under scenario C you've got $870 million. Then under the 10 year average price assumption, the economics
fall back dramatically. You've got $650 million in scenario A, 1.9 billion scenario B and $230 million in scenario C noting that the scenarios exclude the $320 million that have already been spent, so they are MPVS from this point in time, not taking into account the sunk capital. Well, it's been already done, yeah. And to be clear, all these scenarios now include the processing of monozite concentrate from Bell Reynold as well. All of them. All of them include Bell Reynolds as well.
Ally. Yeah, yeah, yeah, yeah. And Bell Reynold isn't your usual kind of mineral sands mine, is it, Trev? It's it's actually, yeah. It's like different conventional mineral sands operation that the norm is, is like, you know, surface mining. You see that a lot like kind of be down South. The other, the other common some type of mining is dredge mining with with mineral sands. Like, you know, Tronox does a fair bit of that over E for example. But bell rental is is neither of those two.
It's it's, it's actually quite a lot higher grade than the the, you know, the typical mineral sands project that comes online these days, But it's that's because it's underground. Yeah, right. Underground mineral sands mine. Jeez, you want to make sure they've got some sand, big ground sport all over that joint. I would have thought so Ally, I would have, but the mining method is it's a bit bit funky to you know what we used to talk about. I'll read this from the DFS.
It says a novel internally developed underground mining method utilising directional drilling technology has been developed. It says underground mining will use mining unit plant MUP and ancillaries, mobile mining plant
MMP and subsurface equipment. So you're not, you're not like using a jumbo kind of thing alley these, you know, it's these big kind of bulks processing infrastructure, but you could be on to something I think because I also read this bit in the DFS, it says an area of poor geotechnical conditions has been identified in a geological zone above some sections of the ore body. Mining this material during T3 proved problematic and it's estimated that only 30% of ore
was recovered in the trial. There's also this bit here I read too. It said Stokes are designed with one metre pillars separating each stoke. Every 10 Stokes make a panel with one stoke left in situ for ground support between each panel Geo ticket issues leading to to poor or recovery in situ Stokes for ground support. If if anything can can fix that alley, you know what can. It's sandpit ground support they can do. It's in the name, literally ground support.
I mean, and then now they've even got that new odour free resin that Maddie's been telling everybody about. How good's that? Excellent points. It's not. It's not just meshing bolts, alley injection resins and foams, mineral products for rock reinforcement, resin, capsules and other chemicals. Love it. Hit up Derek Heard from Sandvik Ground Sport. Get one more Sandvik order in before Christmas. Go Sandvik. Thanks guys. Cheers, Derek. All righty. So we got to talk a bit more
about pricing. This is a super, super important detail, very pricing. Prices rather are very depressed at the moment. No secret. You listen to any Linus call or a Luca call for that matter over the the past few quarters, past couple years now. And yeah, you hear it all the time. So Aloka have been encouraging everyone. They said it again on the call on Friday. They actually contract with buyers.
Now that kind of gets back to the green premium and all these sorts of things that we've touched on already. But for those that don't follow rare earths closely, it's a highly, highly manipulated market. It is dominated by China. We're talking 90% China dominated. And the NDPI price right now is about US 58 bucks last time I looked per kilo. That includes VAT. That said, you've got to make a price assumption when you're putting out a study like this.
So at current prices, any Abbott does not make any money. And the question to ask is how do Iluka have the confidence that they will receive an economic price so that they can make FID or continue building the project. And I know they're getting a very, very friendly loan as we've touched on, but they are still putting hundreds of millions of dollars on the table here. And you hope they're not suffering from any sort of sunk
cost fallacy. I should say we rather, and I really hope we're not suffering from any kind of sunk cost fallacy here and I and I use the word we pretty deliberately because our government again is contributing hugely. Taxpayers should be asking the question, is it right for Australia to write a cheque of this sort of magnitude? The the life of mine NDPR price assumptions for scenario A&B are US $148 a kilo, bearing in mind I just said 58 bucks is where
we're at right now. For scenario C, it's US $129 a kilo, but that is more than double, you know, nearly sort of triple in the prices we're at. And as we kind of touched on, maybe the company pulls a rabbit out of the hat. It's it's very hard to see in terms of an off take. I just don't know where that kind of comes from. How does how does assuming like those those prices long term price assumptions? How is it a financing case to assume prices bifurcate? Like, how is that a financing
case? Like, like, like who who's making these decisions? It's just like it's nonsensical in my opinion. I think they the only reason they can do it is if they, if they have line of sight to. Yeah, like the government underwriting the off day. They just love to be a fly on the wall there and hear whether they actually seriously spoke about not going ahead with the rest of the build, $320 million has already been spent. It's not a negligible amount of money.
It's, you know, it would be to the detriment of Aluca as well as the taxpayer, but you, you don't really get the impression that that was seriously considered at all. There's just so many, like assumptions on assumptions on assumptions here. Like a lot. A lot of things have to go right. And who knows, maybe the rarest price will get that one day. Who will wait to comment or know that you know it's but the thing. Is your financing case like?
But it's yeah, to use that as your sort of base case price, you know, in a, in a model to, to make a decision on this where I don't know if you'd call it spot, but perhaps the whatever the current prices are today, it makes you a bit nervous, right? And that's yes, they've got this extra money in the door, which,
OK, that's all lovely. But all these, you know, projected economics and things like that are still on the basis of these prices two to three times without today, not as at today A. 100% your base case scenario is double. It's double it's and you know, the analysts were really touching on this in the in the questions they were asking.
So Glenn Lawcock from Barry and Joey, he asked some great questions and he was really quizzing management on these points, sort of getting at how long is the market going to be in the dark on whether this project makes money, IE when are we going to get an uptake, an update on the offtakes.
So you know, if you look at the the analysts, what they've kind of said or what they're reporting, any other is carrying a negligible or negative in some cases value in the NAV assessments that a lot of the equity research analysts have have put out and. That's even including the, you know, the the generous concessions. They're basically saying, yeah, the including the NAV to Iluka per share is negative. Yeah, and.
The the long term consensus for a lot of these analysts is 20-30 bucks higher from where we are today. So you know, let let alone at what spot is right now and it's. Still a fair bit lower than what seems to be assumed. Than what the company has assumed yeah, yeah, that that that's right. And the company again they'll they'll point to this growing market they put a number of slides in the the presentation comparing 2024 the size of the market to 2035. They spoke to this in the in the
Q&A. Again, like you said Ali, another big assumption to just assume that the market grows to this very, very big level. And you know what you're banking on massive EV adoption and wind turbine adoption amongst the other, you know, uses of these these magnets. And I mean, forecasting anything 11 years out is it's almost a mug's game, right? It's super, super hard. Like forecasting commodity prices is very hard. That's why we look at where we are in in the cost curve and in
the cycle. And you can't really do that with this stuff because there's not really a normal cycle. Very tricky because it's so manipulated. So yeah, again, I think we kind of come back to the point. Maybe there are details and maybe we're talking way out of school because there's things we're just not Privy to. Maybe, maybe there are agreements that the company has
come out with, you know, with. Well, even if that's the case, like it's either it either makes no sense from a capital allocation perspective from our Luca, or it makes no sense from a capital allocation perspective for the taxpayer. Either one, you've got to ask questions like, what the fuck's
going on here? Yeah. And, and, and if the government does like kind of underwrite it or the taxpayer underwrites it, maybe maybe that's because they, they can underwrite, they've got these agreements to distribute these strategic stockpiles to the West. And this is going to be the source of strategic stockpiles of like an NDPR oxide like and there's your bifurcated market. Yeah, great. Thanks. Cool. How about, how about telling
that to us? Like, just not, you know, there's a lot to be filled in here. That, that stockpile point is one that that comes up and up and up and it's something the Chinese have done, you know, very well. They've been great over the past two decades. It just hoovering up commodities when they're, they're at Lowe's. There's not, not the situation here. It's not really how it's been pictured. You wouldn't be scooping up
prices when they are super low. You know, the Australian government would almost do better. Just don't buy them now if they can be getting them, getting them a bit cheaper. So yeah, it's a it's a it's a
super interesting one, right? And it's even more fascinating in the context of the the news in the in the past week or so with gallium, germanium and antimony, again, you know, making headlines, just highlighting that these product, these byproduct minerals are, you know, strategically important around the world and China, their ideology, we'll use these as utensils as sort of pawns in a trade war.
So these things are important, but I'm not sure from the perspective of an ASX listed company Pressing Go on a project like this with these sort of assumptions makes complete sense to me. I think the other point you, you know, we should really hone in on, it's just like the assumptions on commissioning, Like JD, this is an area where there's a tremendous amount of risk in the spreadsheet, like not just not just commissioning, by the way, but also just CapEx
blowouts, like CapEx already blown out. Like these, these projects absolutely renowned for more and more CapEx blowouts. Wouldn't surprise me to see that blowout again. And what does that do to your Yeah, yeah, economics kills it. But on commissioning you, you, you guys know about McNulty curves? Oh. Gee, it's been a while since we've talked about them. Give us the rundown, Trev, for those who aren't familiar with those. McNulty curves in in, you know, mining ramp up.
They used to model like the time and efficiency required to to bring an operation from kind of, you know, like the point it starts that when the plants turned on into into full production, like how long does it take? So like. And importantly, the the steady state, yeah, you get to. Get to how? How long does it take to get to nameplate right?
Like ramp up typically follows this sort of like sigmoid S shaped curve starting sort of slowly as you know, equipment's tested in that commissioning and then and processes are refined, sort of accelerating as efficiency improves and then like eventually kind of levelling and tapering off at a steady state. Like you talked about JD, but the these McNulty curve, they put the time from the plant turning on versus, you know, the plant output percentage of
nameplate on the Y axis. And the research on these, you know, McNulty curves kind of categorises them into into four types of of curves. Top one curves model the the ramp up of well established processing facilities in locations where the technical expertise is abundant. It's a well Trotten path. You know, people, people who know what they're doing and doing the job. And and then they then you can expect these type 1 curves. Think conventional kind of gold plants in, in WA.
So you, you ramp up pretty fast to nameplate honky Dory. You know, it's happy, happy days. Then type 4 models the ramp up of complex processing techniques for advanced commodities or processing in in regions that also do not have inherent technical expertise in these areas. And, you know, built by contractors who maybe you know, haven't, haven't built something
like this before. Think, think the, you know, lithium hydroxide facilities in WA Type 4 curves are, are still in ramp up in, in year 3 and they're still in ramp up three years after the plant turns on. And they never actually get get to the name plate number that was supposed to, they get to like far, far, far left less of that over time, you know, processing methods and plants, they can become, you know, better understood. And a curve that was once a type
4 can become a type one. That's what happened with H pals, the 1st generation of those H pal plants. You know, I think the ones in WA Ravens thought Mara Mara and Coors Bulong, they were, they were type 4 big disappointments. But the Chinese built on that technology over decades, they got much better and efficient at building them and that's what they built in Indonesia in a phenomenally kind of efficient manner on tight capital budgets and ramp them up super fast.
Is these. So now you can say hey to bounce over type 1 curve. So apologies for waffling on about McNulty curve so much. But if I look as spreadsheet is assuming anything other than a type for McNulty for any ABA, they are kidding themselves. This is like the, the most advanced, you know, stuff when it comes like we all, everyone, everyone says where it's the most, this is the most challenging, like metallurgically challenging, like chemistry set stuff that there is in our industry.
This is this is super advanced. And, and what they're going for is the full vertical integration shebang. It's not just the cracking and leaching bit, which Linus is done in Kalgoorlie and is struggling with big time, but they want to build a hydromet plant on top of that, which is like, you know, compounding the complexity, complexity in a lot of ways. So I just think what what happens here if inevitably ramp up takes way longer than expected. And so the working interim
working capital is massive. Like the cap explodes out to, you know, 2 1/2 billion plus and you're and you're and it takes what if it takes like six years and you're still not at at nameplate? Like who's on the who's on the hook for that? Right? Like does the does the taxpayer keep underwriting more advancements and more advancements because otherwise the economics don't stack up or does it leave other kind of precarious situation? I just like, I think that's why
the stocks come off. It's just like people have run the roller over this and just thinking like, what are you doing? So I think that the TLDR version of what you've sort of gone through, Travis, what I'm getting is essentially it's naive. It's not to say that it can't be done, but it's naive to think it's what without its complexities, challenges, you know, potential cost and time blowouts and things like that. So it's just important to keep that in the back of your mind.
Yeah. And because the government's picked a winner like when you have the the timing and CapEx like blow out like snowy hydride, does that mean the taxpayers on the on the hook for that? Like again, like I just think that this is the the where things get really. Like dubious in my opinion, by picking winners, like create the policy settings that encourage private investment. Don't pick winners.
It's just fucking an easy, it's an easy point to make, but it's also a very like easy philosophy to bring to the table when trying to like like address these complex problems I think today. And recoveries was one of the other assumptions you guys flagged as well to have a look at. Yeah. I mean credit to Rare Earth Observer for this one, but it just hammers home what what you've said there, Travan. I mean, maybe it goes one step kind of further.
The company gave this worked example on just the any other stockpile feed scenario and it's just a sort of simple 90% recovery assumption. That implies 90% overall, IE 90% after processing, after cracking, after leaching and separation. It's not 90% at each step of the way because that would be .9 * .9 and so on. It's 90% all up. That is a big, big assumption to make. Again, to your point, Ali, just
another assumption. And yeah, coming out the back of this, we've probably sounded pretty critical. I'm sure Iluka is well aware of of the challenges. They they would understand this. I mean, it's, yeah, it's very interesting from from their perspective because they have gone from just, you know, they go to mineral sands, play with iron ore exposure through their doTerra shareholding to now a kind of convoluted, you know, mineral sands, iron ore and this
wacky big rarest thing. It makes their investment proposition as a complete sort of side note, a whole lot different. And who knows what their their shareholders were. You know, what they kind of think. I mean, some of them voted with their feet last Friday what they think about that. So I'm sure some were hoping that this would have just gone on the back burner and they would have called this Enyabba for a bit of a day. But it's not been the case and
some of them have left now. Notice what They're not willing to part ways with JD. So, so they've, they own 20% of the terror, the dividends from the terror they they pass straight through to their own shareholders. So the dividend that I look at pays is basically what they're getting from the de terror royalty that they they still own. And they're not, they're not willing to monetize that stake because too expensive.
They said, well, whether it's too expensive or like, think of what happened, like there's a lot of. A. Lot of shareholders, old stocks in Australia, superannuation fast, blah, blah, blah, we'll be frank dividends, happy days. Do you get rid of that? Where's the cash flow in this business that actually goes back shareholders like it's it's not there. It's absolutely for a very long time. So like, I think, I think what happens to share price if you
got rid of that? It's, it's the, it's the more unnerving thing. Completely agreed. And yeah, I think that's that's enough said for that one. Wow, I've learned so much about mineral sands and rarest. Best way to learn, Ali, Just don't nurse yourself in it. Absolutely. All righty, We've got a couple
partners to thank. Thank you to Mineral Mining Services, Grounded Sandy Ground Support, who we had in the show, CRE Insurance, Kaydrill, Dasat, Saltbush Contracting and Get Wet Solutions. Hodoro guys. Hodoro The information contained in this episode of Money of Mine is of general nature only and does not take into account the objectives, financial situation or needs of any particular
person. Before making any investment decision, you should consult with your financial advisor and consider how appropriate the advice is to your objectives, financial situation and needs.