Blackstone Minerals (ASX: BSX) – If we both pull together, tomorrow’s sure to come (Transcript)

Blackstone Minerals Ltd
  • ASX: BSX
  • Shares Outstanding: 192M
  • Share price A$0.14 (17.04.2020)
  • Market Cap: A$27M

Interview with Scott Williamson, Managing Director of Blackstone Minerals (ASX:BSX).

Blackstone Minerals: a nickel-cobalt-gold (battery/precious metals) company looking to get into production within the next 3 years. Ambitious.

Blackstone Minerals is an ASX-listed junior, exploring the Ta Khoa Nickel Project in Vietnam, the BC Cobalt Project and gold and nickel projects in Western Australia. The primary focus is on Ta Khoa, which previously operated between 2013 and 2016. Williamson claims the previous owners sunk over A$130M into the project; this creates an obvious disparity with Blackstone Minerals’ market cap, A$27M, which had been steadily falling away but has made a comeback in the last few weeks. The share price stands at A$0.14 today. Blackstone Minerals is looking to bring the project back into production and take advantage of the inbound EV revolution, by feeding the nickel concentrate into nickel sulfate for the Li-ion battery industry.

What’s the big news recently? A deal between EcoPro, the largest cathode manufacturer in Korea and second-largest globally, and Blackstone Mineral was announced. The binding share purchase agreement outlines a commitment for A$6.8 million at a 62% premium to Blackstone Minerals’ 30 day VWAP. EcoPro will end up with 17% of Blackstone Minerals shares. Looks like a smart piece of negotiation.

Williamson thinks the market will take a while to process the significance of this transaction and is perhaps a little unaware of how large a player EcoPro is. Williamson sees EcoPro as the “perfect partner,” and hopes it will reveal its value over time.

Blackstone Minerals is on track for its maiden resource in June/July. This will be followed by a PEA in August/September. Williamson sees this as a catalyst moment where the market will realise just how much nickel has been left behind, and how economic the first ore body will be. The money will also be used to explore other ore bodies, but the main focus is to move all the studies through to a bankable Feasibility Study. Blackstone Minerals is fully funded to this point. The cost structure at the Ta Khoa Nickel Project is impressive; to put this into context, drilling costs A$60 per metre, as opposed to A$300 in Australia and A$500 in Canada. The nickel orebody itself is twice the grade that Blackstone Minerals was expecting at 1% nickel. Williamson describes this nickel as a “significant tonnage…” that will “deliver a 20-year mine.”

Williamson is currently conducting metallurgical test work in order to assess the potential monetisation of the byproducts (platinum, palladium, gold, rhodium, copper, cobalt) at Ta Khoa, but he is confident all the metals will be economic and add an extra 20% revenue on top of the nickel.

What is the CAPEX looking like at Ta Khoa? c. US$100M for a downstream processing facility, plus additional capital to upgrade the concentrator. Williamson is confident Blackstone Minerals will “land below” A$200M total. Williamson claims this is very competitive. He also insists that EcoPro will not accept anything less than achieving production within 3 years. Will this additional pressure help or hinder Blackstone Minerals?

We Discussed:

  1. Company Overview
  2. News Announcement: Negotiations and Terms. What did EcoPro Buy into?
  3. Market’s Reaction: What has the Share Price Done and What’s Stopping Investors
  4. Vietnamese Assets: Why Did They Shut Down and What are the Plans Going Forward? Monetising the Bi-Products
  5. Low CapEx Compared to Peers: Getting into Production
  6. 2020 & What Investors are to Look Forward to
  7. Financed ’til Production (?)
  8. BFS Timings: Who’s Financing the Studies?

CLICK HERE to watch the full interview.

Matthew Gordon: Hello Scott. How are you, sir?

Scott: Williamson: Good thanks, Matt.

Matthew Gordon: Where are you in the world at the moment?

Scott: Williamson: Yes. So in the self-isolation mode in Perth with my family and yes, trying to stay away from the streets and stay safe.

Matthew Gordon: Yes, we spoke to couple of guys in Perth yesterday and they said they have glorious weather so it’s not too bad a place to be holed up, right?

Scott: Williamson: Yes, it’s great.

Matthew Gordon: Why don’t we kick off with the one-minute overview and then we will get into some of the more recent news.

Scott: Williamson: Yes. So yes, we’re Blackstone minerals. We have a portfolio of battery and precious metals assets across the globe. A flagship asset is the Ta Khoa Nickel project in Northern Vietnam. That’s a previously operating mine, so it had operated between 2013 and 2016. And the previous owners sunk over USD$130M into the capital infrastructure. So our focus is to bring this mine back into production. A little bit of a different strategy to the previous owners of that asset. And we’re looking to, I suppose feed this Nickel into the Lithium ion battery industry. And we’re looking at to, I suppose, work with strategic partners to develop the industry processing which will move this Nickel concentrate into a premium product, which is Nickel sulphide for the Lithium ion battery industry. So yes, looking forward to the next stage of that process.

Matthew Gordon: Fantastic. Fantastic. Let’s see. We talked back in November when you were in London for a conference there, and we sort of went through the history and so forth and people can refer back to that interview, because you had a few other assets around the world; obviously the cobalt which obviously, market conditions meant that it makes sense to park that up and focus on your Nickel assets. So let’s do that today. You have just announced some rather good news, haven’t you?

Scott: Williamson: Yes. So we’re placing a strategic shareholder in EcoPro. EcoPro is the largest cathode manufacturer in Korea and the second largest in the world. EcoPro’s main customers are Samsung SDI and another group called SK Innovations. So these are two of the biggest battery manufacturing companies in the world. And so they really are very well-positioned now, with a USD$6.8M investment at a 62% premium to market. And I think that premium just shows that these, I suppose, larger battery players, are focussed on a longer term future, and this EV revolution isn’t slowing. And if anything it could actually be heating up a more so as the economy moves back into sort of stimulus mode.

Matthew Gordon: Okay. So, obviously, USD$6.8M is a nice my sum of money to get and I want to talk about what you’re going to do with that in a second, but a premium like that; what was that conversation like? What are they buying into? What have you said? Because I think a lot of people want to know how you go about negotiating. So tell us about it.

Scott: Williamson: Yes, so I suppose the premium is there because we believe that’s a suitable premium to bring in a strategic partnership. So the partnership is, I suppose, around them potentially over time getting access to the Nickel. So at this stage it’s a fairly early investment for them. It’s a small investment. They do end up with a 17% shareholding in Blackstone, but we believe that the premium is fair and reasonable because it’s a strategic position that allows them over time, they will have access to the metal that they need for the Lithium ion battery industry.

Matthew Gordon: Can we talk about the terms around that one? Because that’s what I was really getting in it to because what have you had to give away to get a premium like that? Because for them it’s not a lot of money, okay? It really, really isn’t a lot of money. For you, it’s meaningful and it’s a step change potentially in terms of what you can do to release the potential in Vietnam, right? So what have you had to give away?

Scott: Williamson: So, they will have a board position; so the EcoPro will have a position on the Blackstone board. So that’s one thing we’ve had to give away. The other condition prescient is that we have to exercise the option to own the Ta Khoa Nickel project, so we will exercise that option which is USD$1M worth of Blackstone shares we will need to give to the vendor. The other thing I suppose is that there’s a ‘best endeavours’ sort of a relationship here where we now move to this next stage, which is the joint venture on the downstream processing facility. So it’s not a formal sort of, I suppose, partnership at this time, but the next stage would be to now move towards this partnership where we partner on the downstream processing facility and we both then move to that next stage over the coming 6 to 12-months.

Matthew Gordon: But that’s all upside for you, right? I mean obviously you’re able to pay the previous, or the current owner of the asset. Giving a board seat away – so what? But then are you saying, well, we could potentially do something further downstream? That’s great for you; you’ve got a big partner with big pockets who are strategic as well rather than just being ‘dumb money’, as I think they usually call it, and that’s great for you. But why have they paid you so much? Do they feel that they’ve taken up some kind of option there? Was there some kind of race going on?

Scott: Williamson: Yes, well that’s a good point. So what they do realise is that they’re not the only ones that were talking to. So we’re talking to other Korean buyers; major battery manufacturers, so they have realised that they’re not the only one in the room here. And we’re also talking to other, I suppose, mining companies as well. So we made it fairly clear to them that we are open to talking to all parties, and so they’ve jumped first, which is great because they’re entrepreneurial and they saw the opportunity, but they also realised that they couldn’t put any real, I suppose, difficult terms around this deal because we would have potentially moved onto the next party that we’re talking to. So they understand that they’re not the only ones. And they need to tread carefully because we’ve got the metal and the Nickel that the suppliers need to produce these batteries. So they have played it very smartly, and so they now have the jump on the rest of the pack but they are by no means the only one that we’re going to deal with over time.

Matthew Gordon: Okay, that’s interesting. So you’re saying that there’s no kind of right of first refusal in there? There’s no options on this, whatever this downstream deal looks like. They are not secure in that sense. All they’ve done is paid you a premium so that you think that they’re a fair partner. But in a commercial world you’ve still got choices because there’s nothing in your, what you’re telling me is, there’s nothing in paper which ties you down to EcoPro moving forward other than they have got 17% of the company? That’s quite good. That’s quite good for your shareholders.

Scott: Williamson:  They are very happy. So that, and I think the reason we were able to get a deal like this is because of the fact that there’s not many assets like this left around the globe. And particularly because our capex potential is much lower than our peers, and we talked about this last time. So they see this as an opportunity whereby they have to, yes, they do have to tread carefully because we do have options here and we have an asset that will deliver before a lot of our peers. So it’s got that ability to produce that Nickel that’s required in the next two to three years. A lot of our peers will struggle to deliver in that time line because of the capex hurdles, and obviously even more so now with the difficulties in the capital market.

Matthew Gordon: Yes. Okay, well, we’ll talk about the asset in a second if you don’t mind. Okay. So what’s the reaction been like in the market to this announcement and what’s the share price done?

Scott: Williamson: Yes, so we went up, we’re not trading anywhere near the issue price of the shares to EcoPro, so we, I think we’ve got intra-day about USD$0.06c. The shares will be placed at USD$0.17 cents. So I think it’s a fair reaction. I think the market will take some time to digest this. And I’m not sure that the market understands who EcoPro is, and over time, it’s not a big name like Samsung or LG, but over time people will do the research and realise that this is one of the major prize in the cathode industry globally. So this is the perfect partner for Blackstone. So yes, I think we’re in a market where you’re going to get profit-taking and unfortunately we saw a bit of that today, but we’ll say what tomorrow brings.

Matthew Gordon: Okay, well I guess it’s down to you to tell the story, right? Because I was the same: I was like, who is EcoPro? I just didn’t know, but I think once you know, you get some sort of comfort that they will probably, if you deliver, want to follow their money, as you say to secure some kind of offtake agreement or other agreements.

Okay, let’s talk about those assets then. You’ve talked, you told us that it has already got USD$130M sunk into from previous mining operations, can you just remind why it’s shut down and what you’re going to be doing going forward?

Scott: Williamson: So, it shut down at the bottom of the Nickel price. So USD$8,000 p/ton Nickel price when the mine was put into care & maintenance. The reason it was put into care & maintenance was also the fact that they actually mined the first ore body and depleted it and they didn’t do any exploration outside of that first ore body. So there was no exploration conducted by the previous owners. They left behind 25 exploration targets, which we’re now moving through and we’ve just drilled out the first of those 25 targets. The first target is called the Ban Phuc deseminated ore body. We believe that will be mined for the next 10 to 20 years. And so that’s the other reason why we’re able to, I suppose, entice or attract these end-users is we’ve got a mine that justifies a significant investment from the end-user because we can deliver the Nickel over the long-term. So, a lot of our peers who have smaller mine lives and won’t be able to justify building that downstream processing facility, which we’ll now look at.

Matthew Gordon: Okay. So what I want to talk about is, obviously, what you’re going to be able to do with, well, whatever amount of that USD$6.8M is going to go in the ground because you have got quite good grades. I mean, over 1% on average, across the board looking at some of the drill results. So that’s pretty good. What you don’t have currently is a sense of this scale of this; how big this could be. So what are you going to do with whatever money that you’re going to spend from the USD$6.8M?

Scott: Williamson: Yes, so we’re still on track for our main resource in June, July this year, and then we’ll follow that very quickly with a scoping study, or a PEA, as they call it in Canada. And that will be the moment where the market realises how much Nickel has been left behind, and how much, or how economic that first ore body could be. So they’re two key milestones. The USD$6.8M will also be used for exploring other ole bodies, but at the same time, we’ll also move these studies all the way through to a bankable Feasibility Study. So with USD$6.8M, we’re actually funded all the way through to complete a bankable study.

Our cost profile, or cost structure in Vietnam means we can get a lot more done. We’re drilling at USD$60 p/m versus in Australia that would be USD$300 p/m or yes, in Canada that was USD$500 p/m. So we can do a lot more with the USD$6.8M in Vietnam than people with the similar amount would need to invest in Australia.

And we we’re confident we can get all the way through to a bankable study, and  that’s the idea of this capital injection from EcoPro is them saying, how much do you need to finish a bankable study? Here it is. Bang.

Matthew Gordon: So, you probably won’t answer this, but the results will come out in May, June, July sometime, right? That the scoping study. What do you know today? Are you encouraged by what you see in terms of where this ore body sits in terms of what do you know about it? What can you tell us?

Scott: Williamson: Well, what we can say is that yes, I think we’ll go back to your first question, the 1%, Nickel: we’ve got a significant amount of this 1% Nickel, which is incorporated into our discovery zone. That is twice the grade that we were expecting, so we are happy with anything around 0.5% Nickel. As you know, there’s some of our peers that are looking to mine even less than that or lower grades. So we’ve got a significant tonnage. These higher grades will deliver a 10 or 20 year mine. So it’ll be an economic mine also because we’ve got the Platinum, Palladium, Gold, Rhodium, Copper and Cobalt. By-products will deliver up to 20% extra revenue on top of the Nickel. So there’s 80% of the revenue that comes from Nickel, we’ve also got all these other metals in it.

Matthew Gordon: How do you know you’re going to be able to economically create by-products with all of those different commodities?

Scott: Williamson: Yes. So we are doing that metallurgical test work now, the previous owners didn’t assay for PGE, so this is a new part of the mine that wasn’t previously understood. So we’re doing that initial work now and we are confident that those metals will all float into the concentrate, and so you will be able to monetise that.

Matthew Gordon: Where does that confidence come from, Scott? Because obviously many, many companies think that until the metallurgic work is done. So what do you know?

Scott: Williamson: Yes, we’re done early bench scale test work, yes. So we need to do the numbers around that. At the moment we don’t know who the customer might be for Palladium or Rhodium. There is a bit of work to do but we do know that we can recover them.

Matthew Gordon: Right. Okay. So back to the scale question: what do you know  today about how far this goes out? I mean how much historical drilling data have you got, for instance?

Scott: Williamson: So we’ve got, I suppose the things we can talk about, we’ve got a 1km ore body. It’s 500 meters wide. There’s multiple millions of tons, so multiple tens of millions of tons of economic Nickel sulphide in the first ore body. So if we were to build a 2 million ton per annum concentrator, we might be looking at a 10 to 20 year mine life. So yes, those are the sort of numbers we’re looking at.

Matthew Gordon: Okay, and I know you haven’t done the scope of study, your PEA at the moment, but you talked about being funded through to BFS. What type of capex numbers would we be talking about? Because again, you’ve references low capex compared to peers who may be talking about USD$1BN to kind of get sulphide projects a little bit cheaper. So what do you know?

Scott: Williamson: Yes, so what we can say is that the numbers are still looking very competitive: circa USD$$100M for a downstream processing facility. We would still need to upgrade the concentrator so there’s another capital spend there, which we’re still doing the work on, but I’m confident we’ll land below say, USD$200M total. So yes, we’re still 20% off a HPAL scenario. So yes, we’re aiming for that 10% to 20% compared to that billion dollar HPAL plant, which is our main competitor.

Matthew Gordon: Right. Okay. Yes, I mean it’s very, very different. I think we’ve done enough interviews with people talking about the difference in laterites and sulphide ore bodies. So, USD$200M market cap again, where would you, I mean, because you’re going to tell me you are getting into production in the next two, three years. Right? That’s pretty quick. In the scheme of things.

Scott Williamson: Fortunately, I’ve now signed up EcoPro, and they are not going to accept anything less, and they’re going to keep me accountable to that. And that’s fine because with my background being mining engineer, I’m happy to go forward with this. And the good thing is now we’ve got the funding partner, so that won’t be a bottleneck. So going forward, finding one big bottle neck, we obviously need to push very quickly through these studies and then obviously we don’t want to be cutting corners on any of that drilling and metallurgy, and so there’s a lot of study work. There’s still 12 to 18-months of studies here and then we can build in 2022, and mining in 2023. So EcoPro will probably will make me accountable to that, and I’m happy because as long as they keep funding it, I can deliver that.

Matthew Gordon: Well, fantastic. If they keep funding it, great – happy days, you can focus on running the business, not running around the world, chasing money. Right? Not that we can at the moment, but yes, you know what I mean. So if I look at this project, I need to understand it from an investment perspective, okay? That’s what people watching here are trying to work out. It’s like what am I buying into? So you’re saying it’s a quick to production, low capex, high-grade Nickel project. Obviously you’ve seen a bump in the shares today, it hasn’t really done much prior to that because you’ve been working out what you’re trying to be and what you’re trying to focus on, what you are trying to do. What can shareholders look forward to this year, or even next year in terms of proper catalyst moments?  Because I think that drill results come and go and no one cares. Right? But what are you going to be able to tell people which is going to significantly move this company along? What are those big moments?

Scott Williamson: Yes, I think the first one would be that main resource; so we can really wrap some numbers around the resource: tons and grades. And you will see the grade of these by-products as well. So that’ll be June/July. And then the scoping study is probably the biggest milestone because that’s when we start to put NPVs around this. So I’ve already told you about capex, but where we’re obviously aiming for NPVs that are multiples of our capex number. And so there will be a moment here where we are reminded here, when people realise that the market cap, whether it is 20 or 30, we are talking multiples of USD$100Ms of NPV here. So that’s the moment where the market goes, okay, so there’s an NPV of that, they’ve got the funding partner. There’s already been a mine built there before, so there will be a mine there again. It has to sink in eventually. So yes, the key milestones will be the scoping study, the mined resource – that’s when the institutional investors have to come in and say, well hang on, this is going to be a mine again. So, yes, I think it’s when we wrap the numbers around it. And obviously it’s very difficult to do that until we do the formal draw process and all  of that. That will come.

Matthew Gordon: No. Okay. You covered a lot of the right parts there, I mean, I guess the big one that people are looking at is obviously the fact that you’ve got a partner. Are you going to be brave enough to say you’re fully funded through to production?

Scott Williamson: The conversations we’re having are that they still want us to bring our own capital. And the reason why is that they don’t want to be left holding the baby. And there’s a great story; it’s the Ambatovy mine in Madagascar, Korea blew themselves up putting themselves up. Korea learned the hard way. I don’t want to be left holding the baby here. And so they do want us to bring our own capital to the table. But you could almost say that it is fully-funded because within Korea I think we can bring all that capital to the table. And so we’ll start working with other players as well here. So yes, we’ve closed, but we’ll still need conventional capital markets at some stage.

Matthew Gordon: Okay. Which you expect to get from Korea or elsewhere in the world?

Scott Williamson: Well, there are pockets of money out there and they are harder to find, those that can invest in this type of opportunity. And so we’re hunting those down at the moment. There’s a chance that we could fund this almost entirely through Korean money but that’s not a good strategy either, we need to expand and look at all the options.

Matthew Gordon: Yes. I think you referred earlier to your optionality around the funding is important to you in terms of negotiation or else you’ll find your money all of a sudden it gets quite expensive if you’re reliant on one partner. So I think that makes a lot of sense to me. Okay. So lots and lots of good stuff there, Scott, appreciate you coming on and telling us all about it. Obviously you have moved things on significantly from even from November to today; it’s only four short months, we actually, it will feel like very long weeks at the moment with this confinement. But you know what I mean. I look forward to hearing about the scoping study and any of these other results as they come through. But you’ve identified quite a good asset there. I hope you hope you can get all the way through to this BFS quickly. What’s your timing on that actually, the BFS?

Scott Williamson: 12 to 18-months from now, I think we can deliver that. So the scoping study – as soon as we can, so sort of August, September. PFS soon after. The conversion from scoping to PFS will be fairly quick because most of our, we are hoping that most of our resource will be in that indicated category so we can convert to PFS quickly. There is a lot of work to get into that bankable stage, which is part of the plants and yes. And so that’s a 12 to 18-month process.

Matthew Gordon: Actually, you raised an interesting point, before we go is,  would EcoPro fund any pilot or demonstration plants, or is that going to be part of the larger funding?

Scott Williamson: Yes. So by that stage, we probably would’ve, I suppose, built our partnership to a formal like a SPV type scenario where we would actually fund that together.

Matthew Gordon: Okay. Enough said, Scott. I appreciate your time. I know it’s getting late there, time for a beer I suspect, so I’ll let you go and do that. Stay in touch and give us a call.

Scott Williamson: No worries.

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