Disclosure: Chatham Rock Phosphate Limited has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
The analyst’s rating and fair value are one click away. Free FRC account, no credit card.
Already have an account?
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. 
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
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, covering 6 km2, hosts a near-surface phosphate deposit, measuring 1.3 km along strike, and 0.50 km deep.
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
A small- tonnage/low-grade resource
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.
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)
Subsequent to Q1- FY2024, NZP closed a $0.70M equity financing
Source: FRC/Company
We are maintaining our fair value estimates on Chatham Rise, and Makatea
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
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
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.
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)
