Transcription
Good morning everybody, and welcome to this webinar event today. I am pleased to introduce to you, and you probably already know him, the CEO of Zotech, Mr. James Marsh. We're going to go into a bit of a deeper dive Q&A today, and we have a lot of questions here ready to go. But James is going to kick us off with a bit of an overview on the ASX announcement regarding the DSO agreement with MSI that we saw yesterday. I'll hand it over to you to start that, James.
Yeah, thanks Peter, and thanks everybody for joining us this morning. Um, so, uh, yeah, it's a, a great opportunity to explain, uh, what this means, our announcement this week for the, uh, yeah, fact yesterday, the DSO offtake. Uh, this is a very significant step forward in the company's progress, and it's a very significant offtake. You know, I've been, I've been in this industry for 38 years, and this is probably the biggest offtake ever that I've signed up, and it represents, um, getting close to $200 million of revenue in the first five years alone. Um, so very significant revenue for the company. Um, this is based on DSO as well. So, very simple, straightforward business. Uh, we're talking, they're looking a margin probably around about 30, 35% um, based on our prefeasibility numbers that we've, uh, that we have published, and that will give us in the region an EBITDA in the region of 10 to 12 million per year starting from early next year. So, just around the corner, this will start. And this is probably the biggest, I know, in fact, it is the biggest deal that's ever been made in, uh, in the kaolin industry in Australia. So that is really a, a demonstration of the quality of the product we have, and also what value it offers in the market, um, and how simple the business is. So, yeah, a very, very significant offtake this one, um, and, um, we're looking forward to now progressing this. It is a binding offtake, so I should emphasize the fact it's a binding term sheet, so it's legally enforceable. Uh, it will progress to the next stage, which is a long-form agreement, uh, but that is just really getting details in place. Now, the core principles are accepted and legally binding. That is price, terms, um, and the conditions, and the volumes, that's all fixed. So now we just have to work on a few things like, um, ordering, um, supply QA QCs, just details to follow on this one, and that should happen, uh, should happen in the very near future.
So James, it was a great announcement for shareholders, and we saw a 20% increase on the price. Um, and I think the value of that will continue to, uh, become aware to the market. The DSO offtake agreement, what does it, what does this offtake agreement mean for Zeotech? Um, can you walk through the metrics a little bit more, and, um, what it means in terms of the PFS numbers?
Yeah, so it's actually better than our PFS numbers. So, uh, that, so that is also very positive. Uh, and the early cash flow is very significant to us. Now, that, that income, uh, from early next year, that really sets us up for a very, in a very strong position. We have actually quite small capital investment required to get this business going. I mentioned before that number, $200 million almost in the first five years. Well, the actual investment that we tabled in our prefeasibility study was, uh, around about $7 million, uh, capital expenditure. Uh, and we believe that we can probably do a lot better than that. So, we're talking about very small expenditure, uh, to get the mine up and running. That'll, uh, get us into that early cash flow very quickly. Uh, and importantly, there's, uh, some very significant synergies with our core business. Um, so, just make that clear, this, this, um, this, uh, business with the DSO, it's very significant, um, but it's actually not our core business. We still have a much bigger deal that we're working on in the background, uh, and that's going to be greatly assisted by having this, uh, DSO in, in progress, because the capital expenditure for the mine, uh, and the road improvements that we need to do, uh, that's all going to happen, uh, with the DSO funding up front. So, everything will be in place for the OSPOS, which is our main, our core business, coming through. That's all going to be funded from this DSO.
So, it's almost a phase one, isn't it? So, how does this offtake, uh, agreement impact the OSPOS business? Um, as you said, it gives you a bit of a, a start path, but overall, will it get in the way? Will it, will it, is it part of the overburden? Is it, is it something that you can run concurrently?
Yeah. So, it can run concurrently very easily. So, the, uh, mining, uh, plans are very simple. I mean, like the whole, whole company strategy and flowsheets are kept simple on purpose. So, very simple, uh, open-cut mining. Uh, we have about, uh, 2 meters of overburden, uh, to push to one side, which is actually bauxite. Um, and the, the trader who we're dealing with, uh, they actually want to buy that bauxite. Um, we haven't included that in the first stage of this because we want to stockpile that, uh, and maybe incorporate that in the future. Um, but once you've pushed that to one side, then it's just free dig. So, just quarrying. Uh, so what that'll do is that'll open the mine up. Um, we'll get the haul road. Um, then we'll get the council roads upgraded. That's all included in that about $7 million capex. Um, then that'll be everything that's required for the main business to start. So, when we start to produce OSPOS in the future, it'll just, uh, be following exactly the same process. Uh, and then the mine scheduling just incorporates the feed for OSPOS into the process. So, it's actually a lot of synergies there. It's going to help the whole business.
And James, I imagine with the, um, with the capital required for the OSPOS project, that this will set you in a stronger position from which to, um, work on on that funding.
Yeah, that's very true. So, we're looking at maybe $100 million capex for the OSPOS plant, uh, that we're paying to build at Bundaberg. So, having that early cash flow, um, with the, say, 10 to 12 million EBITDA, then that's really going to help us dramatically, you know, in the, so the funding for that, um, should be made relatively simple, thanks to this DSO business. And should mention that DSO business, um, you know, it's split into two types. We've got the, uh, the DSO kaolin, which is a low-iron material, that's the core amount, which is about 150,000 tons a year. Then we have the cosmetic grade that starts at 10,000 tons a year and it grows. That's much higher value, uh, material. And if that one penetrates the Chinese cosmetic market, then that 10,000 tons is just a drop in the ocean. Um, and that could grow dramatically, and that, that product is a lot higher value than the actual DSO, the normal DSO. Um, but for us, it's exactly the same mining cost. So, some very useful business to have there.
And James, without holding a gun to your head and, and, uh, quoting this into the future, what's, is your anticipated timeline for the commencement of the work under DSO offtake?
Yep. So, we, uh, now we've got the agreement signed, it's a legally binding agreement signed, then, uh, it's all systems go. So, uh, we've now engaged, um, FCT, GHD, who are, you know, a tier one engineering design company. They are already working on on the road upgrades designs. Um, they've identified some very interesting opportunities to save money as well and do the work much more quickly. So, they're engaged fully. Um, we've met the council, presented to the council, they're really positive and behind us, ready to back the whole, um, project. Um, so that's now moving forward as quickly as possible. Um, we've got some, we just started our, uh, heritage clearance process. That's all happening. So, we're looking at getting this done, uh, according to this offtake we signed. Then we need to get all of our, uh, permits, permissions in place by end of Q1 next year. So, our target is to get this done in advance of Q1 next year, and then we can move into supply, uh, shortly afterwards.
That's great. Pretty quick. This is not years and years of permitting, but this is pretty, pretty fast movement that would be very well received by shareholders. James, um, MSI, what is their final use for the kaolin? Where are they, where is this kaolin going to be used in their business?
Good question. Yeah, MSI is probably, I think, the world's biggest, uh, trader in kaolin. So, they, they know this business well. They've done it for many years and very successfully. So, they're a great partner to have. Uh, and we've kept that, kept this, uh, business to one customer only to make the whole thing a lot more simple. Um, dealing with one customer, um, is with such a large amount is very unusual in the kaolin industry. Normally, you have to have dozens or even hundreds of customers with individual contracts. So, complicated, difficult. This is very simple. One customer, DSO, and also FOB business. So, free on board business. So, that means that all we do is get the material to the port, and then they deal with the rest. Now, it's, uh, so we haven't got any risks. It's, so it's very significantly derisked right through the whole process here. Now, our kaolin is unique in, in the world. It's, uh, such high purity from the ground. Our DSO, uh, doesn't need to be refined to be used. So, it can be used as is, straight from the ground, and, and it will compete directly with highly refined products. So, other kaolin products that you may have heard of produced around the world have to be refined, usually wet. Um, if the wet's the best way to do it, and then that costs a lot of money. It's, uh, also high labor. Uh, they also have logistics issues. They're normally a long way from ports. Um, so the fact that our material doesn't need to be refined, um, it can be used directly as received is great. Um, cosmetic grade, uh, exactly, can be used just milled and sent to customers with nothing, nothing further required. Um, but MSI is specialized in some areas of the industry where they sell into, uh, areas like coatings. This is paints and inks, for example. Uh, there's, there's some, some very high-value, uh, business to be had in China. They know those customers. They've dealt with those customers for years. Um, so they could refine our material, which doesn't take much effort at all. Now, we're talking about, uh, 90% plus recovery. So, that compares with a typical Australian kaolin, who's about 35, 40% recovery. So, they can refine a material, it's a 90% recovery, uh, it takes a minimal refining, and they'll get something that's worth a lot more money. So, we both stand to make a lot of money from this, which means it's going to be a great partnership together.
And just describe, if you can, the operation of pit to port, getting the product from, um, the, the well, the pit and the project, and where it's going to go, the pathways, the, um, port facilities. How easy is that going to be? Do we have access to loading and, and all of that?
Yeah. Well, that's, that's another problem with a lot of kaolin projects around Australia, especially, is that is a situation close to a deep water port. Now, we're very fortunate, the, uh, that the Tun deposit, uh, which we have, is only about 200ks, a bit over 200ks from Bundaberg port, um, which costs us about $40 a ton to get to the port. So, digging is, uh, is absolutely minimal cost because it's just quarrying. Then it's about, uh, a 40-ton truck, uh, cost to get to port. And then at Bundaberg Port, where you have, uh, a very underutilized port there that's invested, uh, over $20 million fairly recently in a, a bulk minerals loading system that's not being used at the moment. So, we have access to lots of storage ground. We have a multi-use conveyor that's already sitting there, not being used, that can load directly into ships in bulk. Um, so extremely well-positioned there, um, to make this, um, as I said, built for a very simple business. It's just free dig, truck down to port in bulk. It's on a fully approved, uh, logistics route by the, uh, by the transport main road. So, no issues with trucking straight to the port. Plenty of ground there to store it. There's actually three or four options at the port to store it. Um, and then it's onto the conveyor belt, onto ships, and then, you know, free on board business, I mentioned before, that means that that all that risk then is carried by the customer.
So, it sounds like it's perfectly situated, which is great. And this, the, uh, agreement with MSI is the potentially the beginning. Let's just summarize the discussion of the, of the, uh, offtake agreement, James, that this is a five-year deal, um, with a DSO easy dig, easy ship, but could be the beginning of a much longer agreement with MSI.
Correct. Yeah. As I said there before, we got, we got 20 years at least of supply of this mineral that they, the two types they want, the cosmetic type and the DSO type, which is low iron. Um, five years initial term, uh, getting close to $200 million of revenue. Um, there'll be a price increase every year on that. So, it's, um, going to be something very interesting to negotiate every year, um, because once customers start using this material and they get it into the market in China, and especially the cosmetics one, and if that gets a foothold in the market there, then this could even grow and grow. So, um, it's, it's capped at the amount we have at the moment, but we could well find more of this, and then in that case, then it could be expanded to much bigger volumes.
All right, I'm going to move on to, uh, the OSPOS part of our Q&A now. Um, that is the, the longer-term plan and the major priority. Um, what's next for the OSPOS? The DFS testing, approvals, commercial scale demos. Can you talk us through that? And I think some of the trials that you've been running, um, in the background?
Yeah, so OSPOS, which is our core business. So, the DSO is a great starter, and it will make us a lot of money and make us very successful. Um, but we have something even bigger coming along, and it's not that far away, to be honest. Um, the OSPOS opportunity is, um, is progressing very rapidly. Um, we issued our prefeasibility study fairly recently. Um, but that was, uh, a milestone which has triggered some other things which we'll talk about in a minute. Um, but now we've done that, we are moving rapidly into our definitive feasibility study phase. So, we are engaging, in fact, we have engaged, in fact, a whole load of consultants already, uh, very specialized, uh, consultants in the right space that'll get us through, uh, final, um, permits, improvements around the road, I mentioned DHD doing the road, uh, Grace, and so on, um, so that's happening. Um, from a company perspective, out in the market, we have been testing OSPOS in a whole host of applications, various types of concrete, but it's also gone out to other building products. Um, I can say without, except, without, without exception, we're having positive feedback everywhere. We've had no negative feedback anywhere. Um, so that, that's progressing very well. Um, we've got, uh, all of the major concrete companies in Australia testing. Um, and we've got a whole of the tier two below the independent cement and concrete people testing. Plus, we also have, um, engineers, consultants, um, who are very, uh, clued up to what we're doing and very interested in what we're doing and planning to incorporate OSPOS into their future designs and projects. Um, so, on, in, in that vein, we have our biggest concrete pour planned for later this month. We're aiming for about eight truckloads. So, that'll be about 90 cubic meters of concrete. And that's a full-scale commercial trial demonstration that's going into a weighbridge. So, a high usage, a high demand concrete area. So, excellent for, uh, to demonstrate the performance of OSPOS and how good it is. Um, and at that demonstration, we'll be having, at the moment, there's about 20, maybe 30 senior engineers, uh, from various companies coming along, including Main Roads, and concrete cement companies, coming to watch what's happening there. U, and that, that's the third, fourth in the line of, uh, commercial scale runs that we've done. So, this isn't, this isn't the first one. We, we know it's going to work beautifully. We've already put down a slab there that we haven't talked about much. Um, but this is going to be a next step up. This will resign off, um, all of the outstanding, um, uh, questions around OSPOS and, um, it'll also show how well it can be used and how, what quality concrete it does produce.
And James, what's the, what are the driving points from perhaps some government and industry bodies on OSPOS, uh, from an environmental, um, and, and construction point of view? Um, is there engagement with those authorities?
Well, there is, because, um, this is a very hot topic now. The decarbonization of the construction industry, um, is becoming a major focus of the Australian government, and, uh, this is putting a lot of pressure on the high emitters, which is the, the tier one concrete cement people. They, uh, they have to reduce their carbon footprint. Uh, the safeguard mechanisms coming in. It's already set at 100,000 tons of carbon, or, or above, um, which captures all of those majors. Um, but it's the word is, it's going to be reduced to lower than that. So, it means that they're under big pressure to decarbonize, and OSPOS is just a fantastic opportunity to do that. Now, we've demonstrated that it's such a reactive material with such a low carbon footprint, uh, that it can probably allow them to hit their targets, now, in short-term targets, very quickly, uh, and that will allow the government also to get close to towards their targets that they're now struggling to get to. So, uh, there's a lot of government interest in this. Um, so, now we're talking about a product that can, our train one that we published, um, for our PFS, um, that's only one. We could do multiples of that, probably will reduce about 230 or 240,000 tons of carbon, uh, emissions per year. They'll eliminate those emissions. That's a very significant amount, because there's, there are companies out there in the cement concrete space that have got, have received in excess of $50 million from the government to reduce their carbon by 100,000 tons, less than a half of what we can do, and we can create jobs in a, in a rural area, you know, and, uh, so that means that we've got all of the, we tick all the boxes for the government. Uh, and the results we're getting, uh, in the concrete now are so outstanding that we're getting, every, every week we're getting more and more interest, more and more requests for samples. And the key thing here is, it's not just a technical solution for concrete people. This is, uh, it's very easy to get technical solutions that never become economic. And they fall over all the time. You see them everywhere falling over. This one is, uh, this has got everything it needs. It is extremely economic. We're looking at matching cement price, uh, cement prices, but also exceeding the performance of cement dramatically, as well as being low carbon. Uh, so we've got all the makings of something here that's going to be a huge success.
And James, in, in terms of, as you say, ticks all, seems to tick all the boxes in terms of the pathway now for Tun's project and the OSPOS production ahead. Do you see any impediments, hurdles, or, or with the trials and the interest from industry and the modus that we're seeing, that this is now a project which is, the runway is clear? It's just a matter of time and funding.
I would say that, yeah, certainly what we're seeing now, the runway is clear, and we, we've got a few things to do to, to get there, but they are, um, we have got none of the barriers to entry that normally you'd get in this industry. You know, we've got, what we got is a, uh, project that has, uh, what's going to be a world-class product, that we can sell 100% of that in Australia. Now, this OSPOS, we don't need to go outside of Australia. We can sell the whole lot here. So, we are completely waterproof. This is a, a great business. So, it's very, very low risk. Um, probably one of our major, uh, milestones we need to now get through is, uh, to get more of our material, because the, the ore that we use to make OSPOS, um, we've put about 10 million tons into our prefeasibility study. That gives us some great metrics now. That gives us over $1 billion life of mine EBITDA. Um, we know we've got 20 million tons though within only 60% of our mining lease. We haven't drilled the other 40% of our mining lease, and we haven't drilled outside that. We own 10 times that area freehold land outside of the mining lease. So, we want to do some more drilling now. And that's one of the questions is, okay, this, this is a great product. It works really well. Um, we want it, but how much have you got? And how many, not years, how many decades can we supply for? So, now we're going to expand that. We've got a drilling program worked out to find out how many multiples we may have that 10 million tons or 20 million tons. And then the other question for the industry is, well, we've got orders now for it. People want to buy it right now. So, how quickly can we get into production? So, now we're working very hard on looking at opportunities to get into production early. Now, we know we got the perfect feed here. We got a great product. Um, we just got to find a way to get it into market earlier. So, we're working those options now. The prefeasibility study, um, went to our partner Holcim. That was part of the MOU we have with them. So, that was, uh, a major milestone with them, because now they've got the, the full, the full prefeasibility study. Then they are now looking at that closely. And now we're talking to them is the next step with them as well. Okay, what's the next step? Is it an offtake agreement? Is it a joint venture? Uh, what do we do next? So, um, some very exciting times ahead, and, uh, now these aren't long-term objectives. These are happening short-term.
James, the, the Holcim partnership is, is very significant, and as you say, there's, there's opportunities, um, not just at offtake, but perhaps more strategic, um, engagement. Does, has there been any discussion or is there potential for, um, Tunation not just in Australia?
There is. Yeah, I mean, your, I mentioned before, we've got 10 million tons which gave us our 20-year mine life for a train one, um, but we've got another 10 million tons there we can convert into an ore reserve fairly easily. Um, so we could potentially supply 20, 20 years, uh, to another operation. Now, that could be supplying the ore to a site somewhere offshore where it's processed, and we have some, maybe some profit-sharing agreement. Those things are being discussed. Um, but we do already have some major companies, uh, overseas that have tested OSPOS. They like it, and they want to know when they can buy it. Now, not just Holcim, this is other major construction companies. Um, so, there's probably six countries now where we've got approvals, um, and they want to buy OSPOS. So, there's definitely some offshore opportunities there, and, um, but we don't, as I said before, we don't need to take those opportunities. We can keep it all in Australia, keep it simple. But what we can do is we can cherry-pick those opportunities where there's some high, high-value business, high-margin business, or just some maybe some very easy business. Then we can start that as well. The Bundaberg can handle as much as we can ship out, as much as we can produce. So, no issues there.
Um, so it's just going to be a case of, um, getting our core, uh, relationships into converted into offtakes here in Australia. Um, now we've got the DSO, now we'll work on the OSPOS. Once we've got those core offtakes in place, um, you know, we're going to have a fantastically successful business. And then we can just grow on the, you know, cherry-pick the real cream on top for these, maybe some offshore opportunities. But even in Australia, there's a whole host of, um, people who want OSPOS in smaller operations. Now, everything from grouts, renders, mortars, plasters, even adhesives. Now, it's been tested and approved. That's some very high business there. They're using, they are using medically right now. But they're buying it
for up to $2,000 a ton from overseas.
So, so it's a bit constrained by the price. Um, so if we can come in at the price, prices we're talking about now, we're talking about our high-value business, less than half of that, then we can make some very nice margins on that. So, then from that point on, then, uh, it'll just get more successful.
I'm just going to circle back to where we started with the DSO, uh, agreement. Um, Queensland seems to be supporting their mining industry quite strongly, and, uh, the, the regional area where you're at is obviously going to see the benefit of lots of jobs and industry, which will ripple into different areas. Um, are there any other permitting issues that you might have, um, environmental, uh, Aboriginal, any other sort of access, uh, issues, or, or do you think those have already been laid, laid down?
Well, for, we have a fully granted mining lease. So, that means that we, no, we could officially, we could actually mine tomorrow if we wanted to. The, we need heritage clearance. Um, but there's native title to distinguish there. So, it's a process to get, just make sure we, we, um, you know, follow the right process to get the full heritage clearance. Um, but so that's not an issue. That's not a blocker. Um, the only permits we do require ones I mentioned before is some council permits for, uh, the road upgrades. Um, but the council, they met the council, they are very supportive, and they're keen to support this business. You know, it'll create about 140 new regional jobs, so that's quite significant. Um, and we also, of course, we also have our Horizon 2 product, I had mentioned, which is our zeolites, that will come off the back of them, of the OSPOS. Horizon 2, um, is looking like it's going to be some very interesting, an interesting solution for landfill sites. And so, the, the council there, North Burnett Council, which is our, where the mine is, they are very keen to assist us and also get the benefits for their landfill operation. Um, so, so the answer, the quick answer, no more, there's no barriers to entry there, just some final permitting, and then, uh, this can start. So, so that's why we're, we're confident. Our conditions present in the offtake state that we have to get this done by end of Q1 next year, and we're very confident we'll achieve that, and then we'll start the shipping and the sales soon after.
Right, James. I think we've covered everything there. We're, we're looking forward to, as you said, movement towards end of first quarter next year to see some activity and, and getting the DSO operation underway. OSPOS hot on the heels of that, and, uh, we're looking forward to hearing, um, more news. Is there anything you'd like to leave your shareholders and potential investors with before we sign off?
No, just to let everyone know that, um, yeah, this is, uh, you know, we've done what we said we'd do here. We said we'd get the DSO offtake done as quick as possible, and we've got the biggest offtake deal for kaolin ever been achieved in Australia. So, that's, that's a big one ticked off. We've now said we're moving to the offtake for OSPOS, and we'll do that next. So, uh, just stand by for some more good news coming through.
Terrific. Thank you very much. We'll have a recording of this for everybody who's registered and the rest of the market today. Um, if there are any other questions you'd like for James to answer, please send them through to peter@nwrmunications.com.au. Thank you for attendance today. Thank you, James, and we look forward to hearing from you again soon.
Thank you. Goodbye.