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.
Price Performance (1-year)
Portfolio Summary
Three direct application phosphate fertilizer projects. Chatham Rise hosts an offshore, medium-sized resource with attractive grades (23 Mt at 22% P2O5)
NZP has entered into an agreement to sell its Korella properties for $3.7M in cash, and future royalty payments of $9/t for the first 0.19Mt of saleable phosphate, and $0.9/t thereafter.
Makatea hosts a high-grade onshore phosphate deposit (6.5 Mt at 30% P2O5)
Korella is located in NW Queensland, Australia. Korella North has a mining permit, while Korella South has an exploration permit. 500 m from a road, and rail line
Korella North, covering 6 km2, hosts a near-surface phosphate deposit, measuring 1.3 km along strike, and 0.50 km deep.
A small-tonnage/low-grade resource. Phosphate mineralization has been identified over a 1.3 km long x 0.50 km deep zone
The current resource estimate covers 25% of the project area, implying that the project has potential to host up to 11Mt @ 13% P2O5
Our discussions with management indicate that the buyer aims to bring Korella North into production within six months, starting with an initial production rate of 50 Ktpa.
Upcoming Catalysts
Multiple catalysts
Financials
Subsequent to Q2-FY2025, NZP closed a $0.25M equity financing. Currently pursuing a $0.35M financing
FRC Valuation and Rating
Although phosphate rock is currently trading at US$150/t, we are continuing to use a 10-year average price of US$126/t in our valuation models
We are maintaining our fair value estimates on Chatham Rise, and Makatea
Our revised valuation on Korella is $12M (previously $10M), which aligns with the midpoint of our estimated sale price range of $8-$15M, not factoring in any royalties from Korella South
Based on a sum-of-parts valuation, we arrived at a revised fair value estimate of $0.34/share (previously $0.39/share). Valuation declined primarily due to share dilution since our previous report
Valuation declined primarily due to share dilution since our previous report
Our valuation remains highly sensitive to phosphate prices
We are reiterating our BUY rating, while adjusting our fair value estimate from $0.39 to $0.34/share. We are pleased with the potential sale of the Korella properties for a valuation exceeding our estimate. The substantial cash infusion, and potential future royalties, enable NZP to advance its other key projects without near-term dilution, making the current MCAP of $6M appear significantly undervalued.
Risks
We are maintaining our risk rating of 5 (Highly Speculative
We believe the company is exposed to the following key risks (not exhaustive):
