WA Kaolin charges towards stage 1 construction completion at Wickepin Project with kaolin market forecast to grow

WA Kaolin Ltd (ASX:WAK) is storming ahead with its two-stage plan for its wholly-owned Wickepin Kaolin Project in Western Australia as it moves towards completion of the first stage of a 200,000 tonnes per annum processing facility. The company is on target and within budget with the ongoing stage-1 work program, designed to develop a kaolin processing plant with annual production capacity of more than 200,000 tonnes of kaolin by the end of 2021. It expects to commission the fixed plant in the current quarter and believes it is on target to proceed to the start of production from the Wickepin plant by the end of the year. WA Kaolin CEO Andrew Sorensen said: “As the build continues, we can see the company’s future taking shape in front of us as the work program proceeds and the plant nears completion later this year." With the global market dynamics changing as demand exceeds supply and product quality gaps emerging, WA Kaolin is set to emerge into a significant global supplier, with its resource base sufficient to support the production of over 1 million tonnes per annum. Global revenue demand from 2020-2027 is forecast to grow at a CAGR of 3.5%. WA Kaolin has engineered and built a small-scale commercial plant in Kwinana, WA, validating its proprietary K99 process, which produces high-quality kaolin. Combined with the high quality of the ore reserve, the K99 process delivers high-quality ultra-bright kaolin at a lower cost than conventional chemical bleaching and magnetic separation processing. Existing customers Demand for WAK’s kaolin products from existing customers is driving the expansion timing and strategy. A Taiwanese distributor has executed a 10-year distribution agreement with a target offtake of 432,000 tonnes of kaolin in the six years. In years 1 to 3 of production at Wickepin, the sum of the Stanco offtake of 271,000 tonnes, which when coupled with non-binding letters of intent of 280,000 tonnes from other customers, amounts to a total target offtake for the first three years of 551,000 tonnes. This represents 83% of the targeted production of 664,000 tonnes for those years. WA Kaolin is also continuing its marketing efforts to build on its list of existing customers in Australia, Japan, Vietnam and China who have signed contracts, letters of intent and an offtake agreement. 15-year LNG supply agreement WA Kaolin signed a 15-year contract for the supply of Liquefied Natural Gas (LNG) for its Wickepin Project with Mid-West LNG Pty Ltd, (MWLNG) a group company of Clean Energy Fuels Australia (CEFA). The supply of LNG will be used to fire the rotary kiln at Wickepin that dries the kaolin ore, which is the first step in the company’s proprietary K99 dry processing method. This contract, which includes the supply of commissioning gas from September 1, 2021, to the end of 2021, will commence on January 1, 2022, and will run for 15 years with reviews at year 5 and year 10, and provides for two options to extend for a further five years respectively. It is valued at around $22 million over the 15-year period and provides for the storage and re-vapourisation infrastructure, including delivery of LNG by a virtual pipeline. WA Kaolin's Sorensen said: “As we continue to progress our Stage 1 work program towards our target to be producing by year-end 2021, it is vital for our development program that we lock in such important long term supplier agreements like this. “The Stage 1 work program at Wickepin continues on track and within budget and I look forward to providing the market with a further update of progression from onsite shortly.” Through Mid-West LNG Pty Ltd, CEFA is building a new LNG plant in Mount Magnet, around 600 kilometres north of Wickepin, and WA Kaolin will be the second customer supplied from this new facility. Stage-1 The company has completed the process engineering part of the electrical components of the stage-1 plant work and has selected the electrical motor control centre (MCC) supplier. As WA Kaolin is about to complete the small power design, it is reviewing tenders to select the contractor to build the plant. It has ordered a thermal power generation plant and plans to implement a renewable energy package around mid-2022. The company plans to study operating data from the upcoming thermal plant for designing the optimum solar and battery storage system with the intention to prepare a complete hybrid energy package for the project. Global demand Global market dynamics are changing such that demand exceeds supply and product quality gaps are emerging. The Western Australian location strongly aligns WA Kaolin with the fast-growing Asian-Pacific market. Strong cash flow potential A Definitive Feasibility Study (DFS) completed has delivered robust economics based on the ramp-up of kaolin production to 400,000 tonnes per annum in two stages only, with a net present value of $257 million, internal rate of return of 47% and average EBITDA of $29.2 million over a 31-year life-of-mine. There is significant scope to further increase the production. WA Kaolin intends to implement a further 200,000 tonnes per annum modular increases to capacity, subject to adequate demand and funding Staged ramp-up Stage 1 will deliver WA Kaolin’s plant, providing a production capacity of more than 200,000 tonnes per annum of kaolin by 2021 year-end. Stage 2 will utilise free cash flow to expand production capacity further to more than 400,000 tonnes per annum kaolin. Kaolin applications Its in-situ primary kaolin resource with high brightness and low impurities is suitable for all kaolin market applications. It has an ore reserve estimate (JORC 2012) of 30.5 million tonnes of kaolinised granite within its mining lease – delivering a 31-year mine life. WA Kaolin also has access to 644.5 million tonnes of mineral resources, which provides the potential to significantly increase mine life. Kaolin is current used in paper and packaging, ceramics, paints and coatings, fibreglass, plastics, rubber, pharmaceuticals, cosmetics, concrete and the agriculture industries. Future applications could include feedstock for High Purity Alumina (HPA) production. WA Kaolin’s deposits are the purest known in Australia and being a primary deposit, is free of any organic matter. This purity, particularly with respect to iron oxide, titanium dioxide and sodium content, renders WA Kaolin’s deposits an optimal feedstock for the direct synthesis of HPA 4N and 5N from kaolin ore Corporate development The company listed on the ASX on November 26, 2020, raising $22 million which capitalised the company at $56 million with 286 million shares. WA Kaolin holds the Wickepin Kaolin Project, 220 kilometres southeast of Perth, which produces kaolin products for tier-one customers. The company aims to expand its production to 400,000 tonnes per annum in a two-stage strategy. There is scope to further increase production capacity beyond the 400,000 tonnes per annum due to the extensive mineral resource inventory within the granted mining lease. Project background The company acquired the Wickepin Project in 1999 from Rio Tinto which, through exploration, had discovered and drilled out a mineral resource and commissioned engineering and feasibility studies. The acquisition included the tenements covered by the Wickepin Project and all associated engineering and feasibility studies. Since then, WA Kaolin co-founders and owners have invested over $42 million to develop and progress the Wickepin Project. The company has optimised its proprietary dry processing method for kaolin (K99 Process) to build and extend on its success as a kaolin producer and exporter to global markets. The project comprises a mining lease, a general-purpose lease, a miscellaneous licence and retention licences. It is one of the largest known remaining kaolin resources in the world and contains: A probable ore reserve of 30.5 million tonnes and a mineral resource of 109.1 million tonnes in the mining lease; and An inferred resource of 644.5 million tonnes of high-grade premium kaolinised granite across all tenements - 109.1 million tonnes of kaolinised granite within the mining lease and 535.4 million tonnes of kaolinised granite within the retention licences. The mineralised zone is free dig, open cut, a low strip ratio with overburden thickness varying from 2-9 metres and is between 15-35 metres in thickness. WA Kaolin developed the K99 Process, at its plant in Kwinana, which together with the high-grade Wickepin kaolin resource, produces an ultra-bright, high-quality kaolin product at a low cost, in comparison to other methods, which rely on chemical bleaching and multiple wet mechanical and magnetic separation methods.