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#ASX Announcements
Last edited 5 months ago

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.
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#Financials
stale
Last edited 8 months ago

Adding to straw by @Hackofalltrades

That HC post is using the Nd spot price.

Need the NdFeBr spot price but it is hidden in secret away from prying eyes.

702ec78ab38404fd68eec7566d143e61829757.png

Maybe I will consider the free trial. There is pricing info for Nd at Tradingeconomics. at 555000 yuan/T

c65886663570db8c8a705e050e2b5294fe169b.png

Back tot he subject, I get around 118987.01*600*0.6=42,835,323.6 AUD according to the article from USA Rare Earths about their production plans

https://www.evpulse.com/features/u-s-production-of-critical-rare-earth-elements-to-start-in-2024

49192b6a333f1a672b71457818243455d77743.png

The HC price is using the 1200 figure which is the upside case.

On that note, I wonder if ASM can source that much feedstock from Vietnam Rare Earths even with that MOU.

The other thing is I see some institutions coming in big around June while the selling from the Blackrock and State Street was reducing which is what prompted me to follow after some positive price action (see the bottom pic versus the top)

3583e5dfd45363aa32ec781efb036701bd5101.png

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The last few days felt like there was a leaking ship somewhere with the positive price action.

[held]

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#Media
stale
Added 10 months ago

Article in the AFR about ASM and customers/countries wanting the metal refining plant in their country instead of NSW/Dubbo

https://www.afr.com/companies/manufacturing/dubbo-digger-says-foreign-buyers-want-rare-earths-processed-offshore-20230515-p5d8i6

Rowena also made a reference to Dubbo's "unique" geology and thus would need special refining requirements that can't be fulfilled by other companies such as Illuka

Still on my watchlist but it is a pity that Rowena (MD/CEO) doesn't hold which makes me hesitant


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#Management
stale
Added one year ago

Appears competitor companies have already signed agreements to secure supply to produce rare earth materials. This looks like a binding agreement with Setopia and a company in Vietnam. ASM only has some sort of non binding agreement

https://news.mt.co.kr/mtview.php?no=2023030814071835896&type=1 (put in google translate)

f4611424955888232dde9130eb34d6ab740195.png

With ASM share price at 52 week lows and performance rights cancelled from not meeting milestones, I wonder if the CEO/MD will do an on-market buy.


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#Hafnium Price
stale
Added one year 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.


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#Cap raising/media
stale
Last edited one year ago

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.


6b32eb579c489b10ff83345b5b244d7538b322.png

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#History
stale
Added one year ago

A link on Dubbo Rare Earths geology for anyone interested

http://portergeo.com.au/database/mineinfo.asp?mineid=mn1396

Long read, but it may explain some of the challenges faced in getting the mine up and running and the share price decline. Highlighting parts of interest.

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Think if this deposit was monazite, then the situation at ASM would be totally different.

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Valuation of $6.24
stale
Added 2 years ago

What has changed since the price drop? 

ASM essentially has two parts to its business, the Korean Metal Plant (KMP) and the Dubbo potential mine. The share price is down from a peak of ~$13-14ish. 

There are a few things that have changed since the share prices were at all time highs. Essentially, the Korean Metal Plant is 1 year behind schedule. Given there has been a 1 year delay, further delays are possible. Looking at the expenditure in the quarterlies, I don’t believe the capital expenditure is running over budget.

The second is that the Korean Consortium (Cerritos Holding co., Ltd, Kamur Partners LLC and ACE Equity Partners LLC) framework agreement to buy 20% of Dubbo for 250m USD has been substantially changed. The details are below. It feels like a bit of an odd agreement and seems to favour the investors more than the previous agreement, but is probably acceptable/good all up if it were to proceed. I think the market has concluded that funding for Dubbo won’t proceed. I’m not convinced either way and think there is still a reasonable chance of it proceeding. 

The revised framework agreement and was on a non-exclusive basis. The agreement is for a :

  • An immediate equity investment of 15mil USD @ $8.9 (This was well above the price). 
  • 10% stake in Dubbo for 125mil USD
  • 105 mil USD investment in ASM (currently 164 AUD). 
  • 50 million USD convertible bond for a 30% stake in the KMP. (This gives an indicative value of 167 mil, or 262 mil. 


My reading of this at the time was that there was some trading within this deal - probably taking a bad deal on Dubbo for a good deal elsewhere. This deal, apart from the equity investment, however, has not occurred yet. They are targeting this for mid 2023 when Hyundai finishes the Engineering Procurement and Construction (EPC) plan.  

There are probably good and bad things to this. The bad is that there is less of a direct investment in Dubbo and a larger investment in ASM itself (more dilution). In addition to this, a 50 mil convertible bond isn’t a vote of confidence in the KMP and the value of that is considerably lower than I think it’s worth and as suggested in the scoping study. The positive of this is that putting in 15m USD at well above share price is a real vote of confidence. Some Korean investors now have a stake in ASM and that the further investment would give them a direct interest in all parts of the company. I assume that ASM would retain the rights to build further metal plants overseas. This would presumably help with securing funding for Dubbo. I do wonder how ASM’s declining share price affects this as a 105 mil USD investment in ASM would now be ~165 mil.  

- Further details of the revised framework agreement are here - https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02521866-6A1091784?access_token=83ff96335c2d45a094df02a206a39ff4

Current Capital 

As the last quarterly 3 months ago the cash position was $60.2 mil.

The estimated capital cost for the KMP was ~$40 mil for the initial capacity and ~$80 mil for the expanded capacity, though profits may help finance the expanded capacity. Approximately 24.3 mil has been put into the capital of the KMP already, leaving very approximately 17-57 mil more. 

The deal with Hyundai was for 46.7 mil. There was, however, a “notice to proceed” requirement in the announcement, which I haven’t heard further on yet. I haven’t seen a notice to proceed announcement and ASM I think has the option of backing out of the contract. $46.7 mil is a pretty substantial investment for ASM given it’s current market cap, so you would think that they would only do this if there was a pretty decent chance that Dubbo would proceed (unless they felt backed into a corner regarding a lack of confidence if they don’t proceed). 

There are some debt facilities available to ASM. There is some additional cashburn for the cost of directors, etc. So in terms of capital, they might choose to do a capital raise, but I don’t think that it’s forced at this point (they could choose to delay the KMP expansion or Hyundai deal). 

Valuation - Key things to watch 

The valuation for ASM this is a probability estimation game and I’m fairly unsure of this valuation - it’s my best guess, but so much is contingent on what happens in the next 2 years. This is a highly speculative and the key things I am watching are these:


  • Will the KMP be fully operational within 1 year and will its economics reflect the scoping study? 
  • Will ASM proceed with the EPC plan with Hyundai? 
  • Will Dubbo get funding?
  • What sort of dilution and sale of assets will be required to get everything done? 


Dubbo - Valuation (AUD)

The NPV is approximately 1.581 bil @ 8%. (IRR was around 23%?) The main question is whether this will be funded, though this is a complex operation, so there are also likely considerable operational costs. 

Points in Favour of Funding

  • Highly strategic resource, critical to national security - Korea does not want to be dependent on China. This is a significant argument in favour of it proceeding. 
  • Some backing from Korean and Australian Government groups.
  • The Hyundai contract if it goes ahead is a large commitment of resources. 
  • The revised framework agreement seems to be trading some of the benefits of the KMP to help fund this. Essentially, trading the benefits of the KMP for an increased likelihood of getting this funded. 


Points against funding 

  • FEED optimisation study wasn’t as good as could be hoped. 
  • The market cap is now very much down, which hugely increases the cost of equity funding. 
  • We are probably entering a recession, which will make capital tight.  
  • The revised framework agreement did indicate some weakness on 
  • We have not received news of the notice to proceed regarding the Hyundai contract. 
  • It’s a huge capex.
  • Cost of capital is higher with higher interest rates.


So how to value this? The stated NPV is 1.581% at 8%, but I like 10%, so let’s say 1.2 bil. I’m going to apply a 20% risk adjustment to 960 mil. 

Given the immense cost of funding, it seems that ASM won’t be able to extract the full value out of this (or will need to trade the value in the KMP for it). I’m going to estimate that ASM can extract 40% of the value after debt funding (which may include the value traded in the KMP under the revised framework agreement). 

This gives a value of $384 mil. 

I’m going to estimate the chance funding in 2 years at 33%. This gives a value of 384*.9*.9*.33 (discount for time applied) = 102 mil. 

I’m going to estimate another chance of funding after 7 years at 33%. This gives a value of 60 mil. 

I’m going to give the project a residual value of 38 mil (at the very least it’s an option play on rare earth metals) to even things up to $200 mil AUD


KMP - Valuation (US Dollars)

With ASM at this price, the numbers on the scoping study (which were based on the pilot plant) are very good. The question is really whether they are accurate. 

Running a few DCFs at the current timeline I come up with a value of around $400 USD mil over 10 years, or $600 mil over 20 years, but further capital investment would likely be required that far out. 

Assuming a 20% discount for risk and that the plant is running for 10 years, this will end up with a value of $320 mil. 

Note that part of the framework agreement may sell off a significant part of the KMP fairly cheaply in my estimation. 

Additional Metal Plants 

In addition to this, however, I do think the possibility of opening additional plants seriously needs to be considered. If the economics are as the scoping study suggests, they will very likely be built and the capital cost is quite manageable. There is a problem of the total addressable market being fairly small (ie., the KMP is quite significant in worldwide supply).

Assuming there are new plants starting 4 and 6 years out, running a dcf on these plants for 10 years each (including capital costs), I’m getting a value of roughly 255 mil for the first and 200 mil for the second. I’m going to assign a high risk factor since this is so far out and the first plant hasn’t been brought to full production yet and just make an arbitrary estimate of a value of 150 million for these. Note that poor implementation of the KMP doesn’t necessarily follow through to these plants - there are usually teething problems the first time something is done. 

A substantial risk here is from competition and my knowledge here is a bit patchy - almost all metalisation happens in China, but the USA and I think Europe are looking to fix this strategic gap. I know Lynas is building something in the USA and need to look into that more, though I’m not sure it covers all the metals ASM does - one of the advantages of ASM is that it seems like they can switch between producing different metals (or at least they did with the pilot plant).  

Adding this all in together


Dubbo - 200 mil AUD

KMP - 320 mil USD = $425 mil AUD

Future Metal Plants - 150 mil USD = 267 mil AUD


Total = 892 mil


The ASX is listing 143m shares on issue, there may also be 1-3 mil in performance rights, will need to check that. Assuming 143m shares, this gives a target price of $6.24

Target Price - $6.24

What are the weaknesses in my valuation?

- I might be overestimating the funding chance of Dubbo.

- I might be placing too much value on the scoping study for the KMP and overestimating their chance of success. 

- ASM seems to be valuing the Dubbo project significantly higher than I am and the KMP significantly lower than I am (see the revised framework agreement). I am wondering if this is trading the potentially profitable part (KMP) for the riskier (Dubbo). 

- There is a bear case from someone who has worked in Korea. I'll post this up and am not fully sure what to make of it.

I don’t have a high level of confidence and so much is determined by what happens in the next two years, but $6.24 is the rough value I come up with, which is well above the current share price.

I also think that in terms of a probability distribution, there is a decent chance of a left tail result (total disaster) or a right tail result (massive success - ie., Dubbo funded). It’s a stock that you could be wiped out or make several times your money. I think Van Eck is mostly out now, so there is also the potential of them re-entering and shooting the share price back up like they did before.

Events could vary this valuation substantially and very quickly in either direction.

Obviously DYOR.

- Disclosure - I own a small amount of ASM shares and bought more yesterday.


Bear Case From Hot Copper

  • See forum.









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#Bear Case
stale
Added 2 years ago

VanEck appears to be reducing its holdings in ASM. This is the snapshot from factset dated 31/8/22 (from my University Student account)

aafb545d1ebb05d4acb834d0e85c3a688f63be.png

There was another thread on hotcopper saying that VanEck has completely exited its position.

Maybe a good idea to wait before buying

[h]

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#Cap raising/media
stale
Added 2 years ago

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.

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#Industry/competitors
stale
Last edited 2 years ago

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

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#Updated Thoughts
stale
Last edited 2 years ago

- 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.

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#Industry/competitors
stale
Added 2 years ago

ASM get a media op with NSW Dep Premier. The article has a handy map of rare mineral deposits in western NSW and some commentary on the strategy the state has for these deposits.

It is noteworthy in my view because a strategy unrelated to coal and gas is a welcome development in the ICAC state

https://www.abc.net.au/news/2021-11-29/critical-minerals-hub-slated-for-the-nsw-central-west/100657948

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Valuation of $15.00
stale
Added 3 years ago
A couple quick maths I did this afternoon in regards to ASM - just sharing mainly so I have a record. Plus I’m keen on this one and think it has a long road ahead. Korean investors buying 20% stake and paying USD$250mil (so MC $125Billion) With 123mil shares on offer that’s USD$10.16 per share which on today’s exchange rate is AUD $13.93 per share. That’s all correct if the share count remains where it is… I’m assuming it is correct but I haven’t found anything to counter this… And the Korean investors are expecting a return on that investment at that price! Probably some sort of multiple maybe 5x would be conservative.
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#Business Model/Strategy
stale
Added 3 years ago

Article from ABC news about the Dubbo Rare earths project

https://www.abc.net.au/news/rural/2021-05-25/critical-minerals-create-massive-potential-for-western-nsw/100150022

ASM is in a trading halt pending news on a material investment.

 

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