frc-logo

Chatham Rock Phosphate Limited

Aiming to Commence Production Next Year

Published: 11/9/2023

Author: Sid Rajeev, B.Tech, CFA, MBA

Aiming to Commence Production Next Year  - Main Image
*See important disclosures at the bottom of this report

Sector: Basic Materials | Industry: Other Industrial Metals & Mining

Rating and Key Data
MetricsValue
Current PriceUS $0.12
Fair ValueUS $0.39
RiskN/A
Week RangeUS $
Shares O/S (M)91
Market Cap. (M)US $11
Current Yield (%)n/a
P/E (forward)n/a
P/B1.0

Highlights

NZP has completed a maiden resource estimate for its Korella North phosphate project, located adjacent to Incitec Pivot’s (ASX: IPL/MCAP: $4.8B) Phosphate Hill mine in Australia. 

NZP has delineated a small-tonnage/low-grade resource totaling 355 Kt P2O5 at an average grade of 13%. This estimate covers 25% of the project’s area, implying that the project has potential to host up to 1.4 Mt vs management’s previous guidance of 2.5 Mt. 

 While we were disappointed with the maiden resource estimate, it is encouraging that management is aiming to advance the project to production within the next 12 months.

We note that a significant advantage of Korella is that its deposit does not require processing for removing heavy metals/impurities that are typically contained within 95% of the world’s phosphate deposits. Its chemical composition allows it to be applied directly to the soil without additives. As only simple crushing is required, the project can be advanced to production quickly, with relatively low OPEX/CAPEX.

The project’s resources are shallow, indicating potential for relatively low OPEX/CAPEX. Management is planning a $4M equity financing to fund working capital, and advance Korella, and Makatea. Australia and New Zealand (Chatham’s target markets) are dependent on phosphate imports from Morocco, and China. This underscores a significant demand for domestic production. Phosphate prices are up 6% YoY. We anticipate downward pressure on prices amid slowing global GDP growth, higher interest rates, and relatively flat production. Upcoming catalysts include equity financing, and progress updates from its three projects. 


Portfolio summary

Source: FRC/Company

Three direct application phosphate fertilizer projects

Chatham Rise hosts an offshore, medium-sized resource with attractive grades (23 Mt at 22% P2O5)

Makatea hosts an onshore phosphate deposit with high- grades (6.5 Mt at 30% P2O5)



Korella Project Map

Korella Project

Source: Company 

Korella is located in NW Queensland, Australia

In addition to hosting a near-surface phosphate deposit, Korella is prospective for rare earth elements (REEs)



The Korella project is subdivided into Korella North, Central (ML90209), and South (EPM 28187). Korella South has an exploration permit. The company has applied for a mining permit for Korella North.

Korella North Phosphate Project, Australia

Korella North, covering 6 km2, hosts a near-surface phosphate deposit, measuring 1.3 km along strike, and 0.50 km deep.


Korella North Location Map image

Source: Derisk Geomining Consultants

125 km southeast of Mt. Isa, and next to Incitec Pivot’s Phosphate Hill mine.

500 m from a road, and rail line



Korella North Maiden Resource Estimate

Korella Northen Maiden Resource Estimate

A small- tonnage/low-grade resource


Korella North Deposit

Korella North Deposit

Source: Company

The current resource estimate covers 25% of the project’s application area, implying that the project has potential to host up to 1.4 Mt P2O5 vs management’s previous guidance of 2.5 Mt


The company has applied for exploration and mining permits, and aims to commence production in H2-2024. Upon receipt of an exploration permit, management intends to pursue a resource expansion drill program.

Upcoming Catalysts


Receipt of a mining lease (expected in mid-2024), and commence commercial production at Korella North (expected in H2-2024)

Mining concession approval of Makatea (expected in H2-2024)

Re-submission of an environmental permit application for Chatham Rise (expected in 2025)


Financials

Subsequent to Q1- FY2024, NZP closed a $0.70M equity financing



chatman key financial data table image

Source: FRC/Company




FRC Valuation and Rating


DCF valuation Chatham rise

 

We are maintaining our fair value estimates on Chatham Rise, and Makatea

 


DCF valuation Makatea

 


DCF valuation Korella

 

Although phosphate rock is currently trading at US$330/t, up 6% YoY, we are continuing to use its 10-year average price of US$126/t for our valuation

 


valuation summary

Based on a sum-of- parts valuation model, we arrived a revised fair value estimate of $0.39/share (previously $0.49/share)

Our valuation is highly sensitive to phosphate prices



Weighted average product price
Source: FRC



We are reiterating our BUY rating, and lowering our fair value estimate from $0.49 to $0.39/share. We believe NZP’s near-term production potential, in an area highly dependent on imports, is Chatham’s strongest value proposition. Upcoming catalysts include equity financing, and progress updates from its three projects.

 

Risks

We believe the company is exposed to the following key risks (not exhaustive):

➢ The value of the company is dependent on phosphate prices ➢ Development

➢ Permitting

➢ FOREX

➢ Access to capital and potential for share dilution

➢ No assurance that the company can advance all of its projects simultaneously

We are maintaining a risk rating of 5 (Highly Speculative)

 

Rating and Key Data
MetricsValue
Current PriceUS $0.12
Fair ValueUS $0.39
RiskN/A
Week RangeUS $
Shares O/S (M)91
Market Cap. (M)US $11
Current Yield (%)n/a
P/E (forward)n/a
P/B1.0