Newest quarterly has been released.

At a quick glance, the sales at the Korean Metal Plant aren't ramping up as needed. They are continuing to put money into Dubbo, but barring massive government investment (which is possible in the geopolitical circumstances and could result in a substantial rerate), I struggle to see how they will finance the mine.

I'm not sure precisely why they are struggling to find buyers for their products given China's dominance of the market. I wonder if there could be dumping by China or something, but this is 100% speculation.

Going forward I want to see.

• Significant Sales at the KMP.
• Significant progress towards funding Dubbo.

Well it looks like they finally made a decent sale.

Will need more research to work out how much it is worth. Hot Copper was saying anywhere from 30-80 mil, who knows.

I don't currently hold.

They've managed to sign a contract for 100 tonnes of NdFeB alloy. Very good news for the company, but they will need many more deals like this in the short to medium term.

https://hotcopper.com.au/threads/ann-asm-signs-agreement-for-sale-of-ndfeb-alloy.7384513/page-2#post-67798225

It seems ASM managed to get a binding deal for some feedstock for the KMP. Still no word on sales though, which I think is a bigger issue.

https://hotcopper.com.au/threads/ann-asm-signs-binding-agreement-with-vietnam-rare-earth-company.7358479/?source=email

Latest quarterly report out.

https://hotcopper.com.au/threads/ann-quarterly-activities-appendix-5b-cash-flow-report.7348576/

It looks like things are progressing as management has recently suggested, except for a lack of customers.

For me the two major questions still are:

1. Is the Korean Metals plant going to find customers? Why don't they have them yet?
2. Will Dubbo get funded. They are continuing to progress work to get Dubbo ready, but it's a steep funding curve.

Disclosure - I sold my position a month or few ago.

There's been a bit of price action, which has prompted me to take another look at ASM.

The main thing that has changed as far as I can see is that Hafnium Prices recently have increased to ~$4500 to $5000 per kg from maybe $1k per kg depending how far you go back. What is Hafnium? It's a minor metal with a total global supply of probably <100t per year - no one seems to know precisely.

Is the price increase significant for the company? Yes as ASM has a significant amount of Hafnium, but I don’t think it’s a game changer. The main reason being that I can't see a price of $4k being structural.

Zirconium usually occurs naturally with Hafnium, mostly in a ratio of 50:1. Google suggests there is ~ 1 million (or significantly more) tonnes of zirconium produced worldwide, which at this ratio means there is theoretically about 20 000 tons of hafnium being sent out with that zirconium. If the price goes up, it would make sense to me for more companies to bother to separate the zirconium from the hafnium (it does already need to be separated for nuclear use), though I think this is a complicated process. The main point here being that it doesn’t seem like hafnium is particularly rare compared to the quantities used, but more it’s rare for it to be separated from the zirconium. In addition to this, the Dubbo project could theoretically produce 150-200t per year, which is around double the current supply. Consequently, it seems to me that the current high Hafnium price seems to be more of a bottleneck in availability/separation rather than a long term structural situation. 

I currently hold ASM, but may sell at some point. There seems to be a bit of excitement on Hot Copper around the Hafnium price, so we'll see what happens.

I may be wrong in my analysis above, there's not much out there on the topic, DYOR.

Further reading

https://www.youtube.com/watch?v=gzV6uOsqLTc&t=1s

• General overview of Hafnium

https://www.asx.com.au/asxpdf/20170512/pdf/43j6znb47kwyt4.pdf 

• Chart from above youtube clip. Hafnium supply ~2017 - 35T Areva (French nuclear), 20T ATI Wah Chang,10T recycled, 6T other. Also lists demand. 

https://www.reuters.com/markets/commodities/aerospace-electronic-demand-drive-hafniums-400-record-surge-2023-02-03/#:~:text=Aerospace%2C%20electronic%20demand%20drive%20hafnium's%20400%25%20record%20surge,-By%20Seher%20Dareen&text=Feb%203%20(Reuters)%20%2D%20Shortages,taking%20them%20to%20record%20highs. 

• Hafnium prices between $4500 to $5000

https://www.argusmedia.com/en/news/2400153-japans-nuclear-policy-shift-to-spur-metal-demand

• Russia + Ukraine account for 8% of supply. (Possibly accounting for a current shortage.)

https://blog.agchemigroup.eu/a-case-study-examining-the-supply-chain-of-2-key-rare-earth-elements/ 

• 60% of hafnium is used in maker superalloys that can withstand extreme high pressure and high temperatures. Some use in silicon circuits also. Also welding, nuclear control rods, and catalyst precursors. 
• Ian Chalmers claims that Dubbo could produce ~150 to 200 tonnes per year, where the total market is predicted to total 100 to 160 tonnes per year by 2025. 
• Alternatives may be found if the price is too high.

https://hotcopper.com.au/threads/ann-dubbo-project-optimisation-delivers-strong-financials.6470750/

• Latest optimisation study. Hafnium figures are based on 30t per annum at $1010 per kg for a total value of $30 300 000, which would be ~4% of revenue. 30t at $4000 is $121 200 000.

ASM report

I found the recent AGM worth listening to (about a month old). It seemed to answer a few questions. Essentially I don't think much has changed. It seems to explain why the timetables from a few years ago were so off. From here it's very much a bet on management to deliver with both the KMP and Dubbo. A highly speculative stock. I still hold at this point.

https://www.youtube.com/watch?v=J3d9IxzL9bc

My notes from recent news

• Talking second half of 2024 for start of Dubbo construction (I’m doubtful). 
• Hyundai Engineering has started work on the design for Dubbo. 
• Ian Chalmers is still involved loosely. 
• The language around David Woodall and other executives leaving is very different. 
• Initial delays for KMP were delays in construction, some to do with covid. Following ones seem to be about sales. 
• Rowena made a comment about needing to be realistic about how quickly KMP stuff will ramp up. Essentially, the old timeline is completely out the window and things will happen slowly. This means that any of my prior valuations for the KMP are pretty useless at this point.
• Breakeven for the facility is 600t p/a. This means it is currently running at a significant loss. Pricing in the market is opaque. How do you price stuff? (What fair pricing mechanism). 
• Korean consortium has not been able to facilitate a strategic investor for Dubbo, but still appear to be trying. ASM seems to be engaging other groups also. 
• They seem to keep getting grants from the Australian and Korean governments. 
• The Hafnium price has increased substantially in recent times. Prices are at $3750/t up from $1500/t. Dubbo has an incredibly large potential to produce Hafnium compared to world demand from my earlier research. 
• Ian Gandel invested 4 million at the recent cap raise. (And sold Alkane shares)

Main things to look for in my view:

• Offtakes and funding for Dubbo. 
• Continued metal sales for the Korean plant. 
• Any further board instability would be a very bad idea. 
• Rare earth prices, including Hafnium and Zirconia.

There's an ongoing capital raise @ $1.73, with an accompanying presentation, which I think means my previous valuation will need to be revised downwards significantly.

Capital raise - https://www.afr.com/street-talk/bell-potter-launches-30m-deal-for-critical-metals-play-asm-20221031-p5bu9z

Presentation - https://asm-au.com/investors/presentations/

The corporate presentation seems to be resetting expectations somewhat and is a pretty substantial downgrade on previous guidance on timelines. Pretty significant is that they no longer have a timeline for the KMP to expand past 5200tpa. I am wondering if this resetting of expectations has something to do with the former boss leaving. Perhaps he was setting unrealistic expectations, which caused the share price to rocket and then crash?

I'm not sure how I feel about this cap raise. The good out of it is that they are raising 30 million, which should mean they now have enough cash to keep the KMP going and get Hyundai to do the EPCD work. The bad is that it is dilutive at this level - ~+10% of shares on issue.

As I was writing this, they've just announced the success of the SPP. They are also offering a SPP to current shareholders looking for a further 10 million. Ian Gandel seems to be putting $4 million in as well.

Details of SPP and targets below.

2022 Annual Report

Dubbo Project

“Throughout the year, to advance project financing, ASM engaged with Australian and Korean government funding agencies and commenced discussions with Australian, Korean and global project finance banks. ASM is encouraged by the support received to date, especially from the Australian and Korean Governments, as we continue to pursue these exciting opportunities.

ASM also progressed toward securing a strategic investor, and acquiring offtake agreements for the Dubbo Project, meeting with industrial conglomerates, product end-users, engineering companies and financial investors in Korea, the USA, Europe and Japan. I am confident these discussions will enable the Company to secure an aligned strategic partner for the Dubbo Project, and we look forward to progressing these discussions into FY23. “

“Over the year, ASM worked toward securing finance for the Dubbo Project. As ASM’s finance strategy is to deliver the project through a mix of equity and debt supported by export credit finance, this involved engagements with Australian and Korean government funding agencies, and engagement with Australian, Korean and global project finance banks. To assist with the procurement of government agency and commercial bank debt, ASM appointed the Australian and New Zealand Banking Group Limited (ANZ) as debt financial advisors.” 

• Significantly playing up both Korean and Australian support. 
• Still no go forward for Hyundai.
• Given the option for funding in Australia and Grant from Korea for the KMP, I think there is some substance to the support from the Australian and Korean Government. I am not sure if there is enough substance to get the mine funded or not.

Korea

“Installation and commissioning of Phase 1 equipment to produce neodymium praseodymium and titanium fell behind schedule due to the ongoing impacts of COVID-19 and supply chain disruptions, however our team overcame these challenges with the installation of the neodymium praseodymium and titanium furnaces completed before the year end, with commissioning well underway.“

Management

“Following the close of the financial year, Managing Director and CEO David Woodall stepped down. I would like to acknowledge David’s contribution to ASM over the past two years.“

“In March, we were saddened to announce the retirement of Ian Chalmers as Non-Executive Director from the Board. Ian was one of the founding directors of ASM before its demerger from Alkane Resources Ltd and was responsible for bringing the Dubbo Project into the Company. Ian’s expertise and experience has provided significant value to the Company since its inception and I wish to extend my profound gratitude for his service. “

• Curious wording differences here. I wonder if David leaving was not entirely amicable. 

Cash 

Cash on Hand - 60 mil 30 June 2021. 

Grant - of 6.7 mil from the South Korean Government. 

Korean Metals Plant - Potentially Useful from Hot Copper from “Danielwhiterun”

“Got a phone call back from Rowena on Friday, clarified a few worries i was having, one factor which I'll share with you guys is that

- Ramp up in tpa will follow, not lead, sales, in order to conserve capital. There aren't any technical issues, simply the fact that the feedstock is expensive and theres no point producing loads of material and burning cash. Customer demand comes first.”

—

“I have no idea man, nothing sensitive was discussed, my question was regarding the robbin laird article.

answer was it's not in full production in order to save funds, as sales come in, ramp up to that level occurs.”

—

“I'm not necessarily sure its all in and complete, but the risk here is the process not working. She specifically said there were no technical issues, its simply a matter that in this environment and capital situation, theres no point ramping up production if sales arent ready to go. A capital raise at these prices would be a disaster.

another factor, she was in washington when we spoke, im sure to get customers”

—

“Another factor, Hyundai epcd contract is 2 inches thick... heaps of work gone in from either side, not something that's going to be canned over a small price dispute”

—

“4.80's me, hes 4.40, ive reiterated several times to me this is a $25+ share”

• I’m not sure what to make of this if true. It’s good because it means there have been no technical issues. It’s bad because it means that they might be having trouble selling their product. This is weird given rare earth metals are essentially a commodity - why the issues selling it? On top of this, given the friendshoring stuff happening now, I would think that there was a strong imperative to switch critical supply chains away from China. In addition to this, why not just produce and then sell? Is capital preservation a strong concern for management at the moment (quite possible given Hyundai contract) or are the margins not great? Is this a temporary thing due to market conditions or not?

Key things to look for going forward

• Funding regarding Dubbo.
• Sales and production for the KMP. This is critical and massively effects valuation. Failure to sell could result in losses and would certainly mean that the potential extension to the plant won't happen. A close eye is needed here and I may need to revisit my valuations as they are expecting the extensions to happen and even potentially future plants.
• Margins at the KMP.

There's been a resignation of the manging director/CEO. It seems to me that this often happens after a sharp drop in the stock price. The announcement is waffle and doesn't give a reason why. He's being replaced by the COO Ms Rowena Smith, who is an insider at least.

My thinking on non-personal reasons he may have left.

• Failure to secure funding for Dubbo in the short term.
• Failure to debottleneck (this would worry me more).
• There has been some people trying to start rumours of a takeover for ASM on Hot Copper. This is possible - it's a fairly strategic asset. I think this an unlikely reason for his resignation.

My current thinking is that I'm still quite optimistic on the metallisation plant. I think it will be profitable and make money, though they have spoken about debottlenecking and there hasn't been a solid update on that yet.

Long term I'm also optimistic that the strategic metals mine at Dubbo will get built, though it's not an open/shut case that it's going to be super profitable if there's a drop in prices. I just can't see that in todays strategic environment Australia/SK will let it go unfunded. China controls too much of the supply chain and that's a major risk. Short term I think it's going to be hard to build that mine with the nasty inflation that seems to particularly have affected mines. I think this resignation also might indicate that the hope for that funding deal with the South Koreans seems to have slipped through somewhat.

I feel like I am consistently be underestimating the risk of something not getting funded, though this is perhaps also due to the inflation stuffing around with the cost to build projects.

The stock looks cheap to me, but then I said that at $8 and it seems we've hit some of those risks of funding. I'm hopeful the metals plant business will come close to justifying the current share price by itself. I think I'm going to sit back a couple of weeks though and see if there's more bad news - might be scared from Magellan, but seems to follow resignations... Essentially, I'm still very hopeful for the metallisation plant, but it's possible the mine will end up on ice for a few years.

This announcement is a bit of a doosey to work out. There's a lot in there and some odd stuff. Would value some more experienced thoughts. https://hotcopper.com.au/threads/ann-usd-15-m-subscription-agreement-at-aud-8-90-per-share.6746149/

After going into a trading halt with a share price a bit over $5, ASM has secured an agreement of 15 mil @ $8.9 per share.

• Negotiations are ongoing for a five-year offtake agreement for 2800 dry metric tonnes of NdFEB alloy from the KMP (Korean Metals plant).
• Framework agreement has been revised.
• Facilitate a strategic investor to acquire 10% of ASMH (the rare metals mine) for USD 125 mil.
• Make an additional 105 USD mil equity in ASM (which would be subject to share holder approval). I'm guessing this would be where the other 125m was promised is coming from.
• Invest USD 50 mil via a convertible bond for a 30% stake in KSSM (Korean Metals Plan subsidiary).
• It looks like they are negotiating with Hyundi I think potentially for the mine??? Not sure about this.

My Analysis

It looks to me like the Korean partners have negotiated a better deal. They here are getting 10% of the mine for 125m USD, and are going to make an additional investment of 105m USD in ASM. So kinda sharing in the profits of the overall business. More than this, they are investing 50m USD into the metals plant to acquire 30%, giving the metals plant an implicit value of $165m USD. I think the plant is worth more than this, though Hot Copper seems to think that this ownership would ONLY be of the Korean Metal Plant and not future ones overseas in Aust. Uk, USA, etc.

I am wondering if there was a bit of a trade for a cheap purchase of the metals plant, for maintaining the initial commitment to fund the mine and putting in a confidence boosting cap raise at $8.9.

The Korean Consortium is Cerritos Holdings, Polo Equity Partners (f.k.a. Kamur Partners LLC), Ace Equity Partners LLC.

My hack estimate of a value here might be somewhere around $12-14.

Interview on proactive https://www.youtube.com/watch?v=vR6OPoOEBmE

Broadly it contains an update on the metallisation plant, which they are saying will be fully commissioned at 5200 per annum.

Also talks about the potential mine. Seems like there's another 12 months of negotiations, plus some other work, then a 27 month construction phase, assuming everything goes well.

In my view this is a good update for the metallisation and a bit meh on the mine.

There's been a new presentation announcement - https://hotcopper.com.au/threads/ann-investor-presentation.6707287/?source=email

The potential Dubbo mine has a different revenue mix to my previous estimates. It's showing Zirconium as being back to 33% (my last estimate had it at 3%! and hafnium down to 4% from my estimate of 10-15%). The Zirconium price has been volatile in previous years. It's showing an IRR of 20%, but a NPV of only 1.2b post tax. This looks marginal to me, but given the strategic situation, which is improved in the last few months from the company's perspective, I think it will get built. From memory the project has a potentially much larger mine life than the forecasted 20 years. It's no Mt Weld, but economic deposits are limited.

In terms of the metals plant, the initial scoping study was here - https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02457226-6A1064739?access_token=83ff96335c2d45a094df02a206a39ff4

They have stated that Phase 1 commissioning is continuing - installed capacity 2 200 tpa, and from there will be looking to commence Phase 2 to 5200. This looks like it might be slightly behind schedule, but not disastrously so.

Conclusion - I need to go back and compare the scoping study to this presentation carefully & do a bit more work. Things seem to be progressive acceptably, but I want to check the timetables more carefully. I also need to compare with other groups that are developing metallisation (Lynas/MP Materials JV I think?) to see how this is progressing.

MP Materials and GM motors (along with a german group) seem to be teaming up to create a fully integrated supply network in the USA, including magnets and I'd assume metallisation. It's unclear how their process (or proposed process) compares to ASM at this point. ASM does have a lead in metallisation, but this kind of competition could see this lead eaten away.

@B5350H I do think it's worth keeping mind that the Korean investors are probably seeing their investment into the Toongi mine more in terms of security and protecting their supply chains than just purely profit.

https://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2021/dec/1209-mpmaterials.html

https://www.mining.com/mp-materials-enters-magnet-supply-deal-with-general-motors-build-factory-in-texas/

https://investorintel.com/markets/technology-metals/technology-metals-intel/general-motors-engages-with-mp-and-germanys-vakuumschmelze-for-rare-earth-permanent-magnets/

https://www.theverge.com/2021/12/9/22825948/gm-ev-motor-rare-earth-metal-magnet-mp-materials

Korean Consortium has completed due diligence. This had taken a bit longer than expected, which caused some rumours to fly around.

The stock is down at $8.59 from a high of ~$14. I think there is a reasonable amount of value here, but note that the value of ASM is (in my view) probably as much if not more from the metallisation business than the mining. (Note that Lynas is currently working on this, but are behind).

https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvTDYL4wm%2FyhL2v%2FZq8rFiGug%3D

- held IRL and on SM -

Quarterly released. Looks solid to me.

They have hot commissioned the KMP, which can metallise rare earth oxides and titanium, this seems like it could be 0-6 months behind schedule, which is reasonable in these times I think.

Plenty of goingons suggesting strong government support from both Australia and South Korea.

Their pastoral company also won a wheat growing competition, lol.

Rare Earth prices have spiked recently, though I don't know if this is sustainable short term or long term.

- Edit - Main straw is about optimisation study, but just a further note to say that there seem to be rumblings of a deal around rare metals between Australia and SK with the ministerial visit. If this is the case, it's very positive for the funding prospect of the mine - https://hotcopper.com.au/threads/relevant-media.5947911/page-9 -

Optimisation Study for Dubbo Project has been released. The project has been over a 20 year mine life @1mtpa (resource will likely last a lot longer) post tax NPV of 1581 AUD, with an IRR of 23%. Concerning though is that the discount rate used for that figure is only 8%.

The project has a capex 1681, which is increased from the previous figure. Given it's near Dubbo/Orange, I think they will be able to find workers, but unsure how inflation will impact this.

The sensitivity analysis is something to take careful note of.

Capex 15% change - ~180 mil

Opex 15% change - ~240 mil

Discount rate +-2% change - ~ +550m, -400m

Revenue (price) 15% - 600m

Revenue Mix according to report

44% rare earth (my judgement is mainly neodymium, dysprosium, terbium and praseodymium)

33% Zirconium

19% Ferroniobium

Spot prices

Neodymium price seems up 27% from report.

Dysprosium down 21%

Praseodymium - up 40%

Terbium - up 21%

Ferroniobium - Down 30% (Suspect this is related to smashed Iron Ore price and particularly demand in China)

I don't know how to work out Zirconium.

AUD to USD was assumed at 0.75, spot price is 0.72.

All considered, I think spot prices are roughly equal to when the report was released.

Funding

Capex required is 1681m.

250m USD from Korean investors for 20% of the underlying mine

200m (AUD?) from export finance australia

leaving maybe ~1100m AUD to fund.

ASM market cap @ current price of $10.59 is 1480m AUD.

They may be able to leverage the revenue from the metals plant, which seems to be proceeding well.

General Thoughts

I still fully don't understand what Zirconia/Zirconia/Zirconium/Zirconium metal is and where to find prices for these, but the study is showing that it is making up 33% of the price. Significant for not understanding!

This project to me is looking borderline, but I I don't have much experience in judging this. Given the geopolitical climate and that ASM seems to be becoming to South Korea what Lynas is to Japan (Essentially a security against China choking rare earth demand), I think this project will get funded one way or another though. There's been a few ministerial visits between Australia/SK recently, which may be related to this.

The metals project seems to be starting up nicely.

I'd really value someone with a bit more experience running their eyes over this.