Financing talks place Andromeda on track for investment decision, says MST Access

MST Access says securing a $75m debt financing facility with Merricks Capital will enable Andromeda to make a Great White investment decision.

MST Access says Andromeda Metals’ financing talks place it on track for a Great White Project final investment decision. Pic: Getty Images

• MST Access believes Andromeda Metals is on track to secure funding to develop its Great White kaolin project

• Securing the $75m debt financing facility with Merricks Capital will enable a final investment decision in the near-term

• Project funding is seen by MST Access as a key near-term catalyst for a material share price re-rating

Special Report: MST Access believes that Andromeda Metals’ exclusive negotiations with Merricks Capital for a $75m debt financing facility place the company on track to secure funding to develop its Great White kaolin project in South Australia.

In a research note, MST said the $75m being contemplated with Merricks compared favourably to the estimated Great White Stage 1A+ funding requirements of ~$90m.

“As such we highlight the achievable balance of equity funding required that will be significantly de-risked with a confirmed project finance solution in place,” MST senior analyst Michael Bentley said.

He added that Andromeda Metals (ASX:ADN) was on track to secure the required funding and proceed to a final investment decision in the near term.

Great White has practically all the pieces in place for a development decision.

It has an ore reserve of 15.1Mt that is sufficient to support a 28-year mine life and a bankable feasibility study estimating it could generate a net present value and internal rate of return of $763m and 43% respectively.

Capex is estimated at $194m for a three-stage development that can supply up to 330,000 wet metric tonnes of product per annum.

Stage 1A+ represents the Great White’s initial development stage, producing 100,000 tonnes of high-quality kaolin products per annum.

Most importantly, it already has customers lined up with 100% of the planned capacity of Stage 1A+ committed under four binding offtake agreements from the third year of production.

Great White’s location in South Australia. Pic: ADN

Investment thesis

MST added that with all key permits in place, an experienced project team and an execution plan in place for implementation, it saw project funding as the key near-term catalyst for a material share price re-rating.

Bentley noted that in MST’s opinion, the Great White Project was an overlooked quality project with exceptional mineral characteristics and low-risk mining and processing.

Its potential is recognised within the global kaolin industry and M&A activity could be a potential catalyst as larger companies seek quality Australian-based industrial minerals.

“Once funded, key catalysts to value creation include starting construction, signing additional offtake agreements for project expansion, commencing production and ramping up to full capacity of 300dmktpa (300,000 dry metric tonnes per annum) of kaolin,” Bentley said.

“At full capacity, and using ADN's DFS pricing scenarios, we expect GWP to generate ~A$160m in EBITDA with margins of over 50%.”

MST’s valuation remains unchanged at 14c in its base case while its alternative valuation for a Stage 1 only development is 6c and, with a strategic investor taking 20% in Great White would increase the valuation increases to 15c per share.

Shares in ADN are currently priced at 0.9c per share.

Debt financing

The company’s exclusive negotiations with Merricks Capital are for a debt project financing facility with a limit of up to A$75 million, including principal, capitalised interest and fees, cash reserving requirements and a cost overrun tranche, to support a final investment decision for Stage 1A+.

Merricks is a leading Australian alternatives investment manager and hard-asset investment specialist that has managed over $8 billion in global investments since its inception in 2007.

ADN was previously awarded an Advance Finding by AusIndustry which enables it to claim refundable tax offsets or cash rebates for 43.5% of eligible Stage 1A+ expenditure of up to ~$26m.

An initial tax rebate of $2.34m was received by ADN in January this year.

This article was developed in collaboration with Andromeda Metals, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.