Kerr Allan Financial Research KAF - kaliumlakes.com.au€¦ · Kerr Allan Financial Kerr Allan...

Kerr Allan Financial

Kerr Allan Financial Research 29 May 2019

KAF Kurt Worden +61 2 9241 2599 [email protected]

Kalium Lakes Limited

Kalium Lakes Ltd is an ASX listed sulphate of potash developer. Its assets include the 100% owned Beyondie Sulphate of Potash Project, currently progressing towards a Final Investment Decision, and a 70% interest in the Carnegie Potash Project, a joint venture with BCI Minerals (BCI.ASX). Both assets are located in the East Pilbara region of Western Australia.

Earnings Summary (June YE) 2019F 2020F 2021F 2022F

Reported Profit ($M) (10.0) (19.3) (0.1) 13.8

EPS (¢) (0.04) (0.05) (0.00) 0.04

P/E 1 (x) nm nm nm 17.0

Free CFPS (¢) (1.9) (5.5) (10.8) 4.3

P/CF 1 (x) nm nm nm 14.3

EV/EBITDA 1 (x) nm nm 19.8 9.9

(1) Based on fixed, current share price. Na = not applicable; nm = not meaningful.

Sum of Parts Valuation NPV Undiluted Diluted

(as at 30 June 2020) A$M A$/sh A$/sh

Beyondie SOP Project 525.8 1.49 1.39

Carnegie SOP Joint Venture (KLL 70%)

14.7 0.04 0.04

Corporate (51.8) (0.15) (0.14)

Tax Shield 41.8 0.12 0.11

Debt (180.7) (0.51) (0.48)

Cash 52.6 0.15 0.15

Total Value of Common Equity 402.4 1.14 1.07

Company Data

ASX Code KLL.ASX

Share Price (A$/sh) 0.62

Number of shares (m) 238.97

Market Capitalisation (A$m) 148.2

Float (Total Less Insiders) (m) 106.96,

12 month high / low (A$/sh) 0.260 / 0.635

30 day average turnover (M shares) 252.7

GICS Industry Group Materials

Source: Bloomberg, Thomson Reuters

Share Price Performance since IPO (22 December 2016)

On track to become Australia’s first Sulphate of Potash producer by 2020

Kalium Lakes Limited (KLL.ASX, mkt cap A$148m) is nearing a

Final Investment Decision (FID) on its Beyondie Sulphate of

Potash (SOP) Project. With a 10-year offtake agreement inked

with SOP producer K+S, and A$176 million in concessional debt

financing being arranged, all that remains is Ministerial sign off

on state environmental approvals and completion of project

financing. Our A$1.07/sh valuation (fully diluted basis) is

underpinned by the phased 90-180ktpa Beyondie operation, with

our price target set at A$1.00/sh on construction and

commissioning risk. Longer term, we anticipate KLL will become

recognised as a long-life, dividend-paying industrial company

and valued on a market multiple basis, which represents further

upside to our price target.

Bottom cost quartile for costs, strong leverage to SOP price and FX

Beyondie is one of the highest-grade brine deposits in Australia, and its

location 78km from a major highway and gas pipeline has helped to establish

a position near the bottom of the global cost curve, with an AISC cash cost of

US$178-208/t SOP vs a current SOP price of US$530/t. At spot SOP and FX

(0.69 AUDUSD), our valuation lifts from A$1.07/sh to A$1.49/sh.

+30 year initial life, with visibility on potential to extend

At the phased 90-180ktpa operation, the current mine plan supports a 30-year

mine life. Securing tenure over the western part of 10 Mile lake (10 Mile West)

may translate to additional Resources and Reserves close to the plant,

deferring development of the eastern lakes, which already contain significant

Resources and have potential for additional mine life.

K+S offtake agreement: strategic move, unlocks financing

The 10-year offtake agreement for 100% of Stage 1 production supports KLL’s

project financing and provides a path to market aligned with Australia’s major

SOP supplier, and provides K+S with access to Australian tonnes to meet its

customers’ needs in the region, helping it to reduce its overall costs, and

protect market share from new / expanding competitor suppliers.

Concessional debt financing being finalised

The Australian Government’s Northern Australia Infrastructure Facility (NAIF)

has approved $74 million in debt funding, and non-binding terms have been

agreed with German bank KfW-IPEX for A$102 million (~50% guaranteed by

Export Credit Agency Euler Hermes). These facilities have long tenors (10-15

years) and competitive pricing, lowering the cost of funding for KLL.

Greenstone Resources’ investment reduces construction equity task

The UK-based natural resources private equity fund took a 19.8% position

after the K+S offtake agreement was announced, reducing the construction

equity task by A$20.8 million, and allowing KLL to continue early works.

By-products, second SOP project offer upside

KLL could produce magnesium (and perhaps premium sodium chloride)

products, monetising waste from the evaporation ponds without interfering

with the SOP circuit. A PFS for its second SOP project, Carnegie, is due 2020.

This Research has been prepared and issued by Kerr Allan Financial ASFL No 319 830 (“Kerr Allan”) and remains the property of Kerr Allan. No material contained in this Research may be reproduced or distributed, except as allowed by the Copyright Act, without the prior written approval of Kerr Allan. For updates or further information regarding this research, please contact Kerr Allan. Kerr Allan does or seeks to undertake business with companies covered in its research and therefore, Investors should consider this report as only a single factor in making their investment decisions. For explanations regarding other important disclosures, please refer to the disclosure section at the end of this document

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Kalium Lakes Ltd. Kerr Allan Research

Kerr Allan Financial Limited 29 May 2019 2

Kalium Lakes Limited 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

General Assumptions

Inflation % 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%

AUDUSD AUDUSD 0.73 0.73 0.75 0.75 0.75 0.75 0.75 0.75 0.75

Standard SOP Price (CFR Fremantle) US$/t, Real - - 500 500 500 500 500 500 500

SOP Price with premia (CFR Fremantle) US$/t, Real - - 566 566 566 566 566 566 566

Beyondie Project Ownership % 100% 100% 100% 100% 100% 100% 100% 100% 100%

Beyondie Resources Mt SOP 19.63 19.63 19.56 19.46 19.36 19.26 19.11 18.91 18.71

Beyondie Reserves Mt SOP 5.14 5.14 5.07 4.97 4.87 4.77 4.62 4.42 4.22

Brine Piped to Ponds GL/year - - 6 8 8 8 12 16 16

K Grade mg/L - - 5,565 5,565 5,565 5,565 5,565 5,565 5,542

SOP Grade Kg/m3 - - 12 12 12 12 12 12 12

Contained SOP kt - - 69 100 100 100 153 200 199

Evaporation Pond Recovery % - - 94.0% 94.0% 94.0% 94.0% 94.0% 94.0% 94.0%

Purification Plant Recovery % - - 85.4% 95.8% 96.0% 96.0% 96.0% 96.0% 96.0%

SOP Produced kt - - 55 90 90 90 138 180 180

Income Statement

Revenue A$'000 99 - 38,701 63,662 65,102 66,405 104,232 138,126 140,838

Operating expenses A$'000 (3,964) - (15,844) (23,377) (23,872) (24,350) (36,790) (44,630) (45,223)

Corporate costs A$'000 (7,396) (2,659) (2,711) (2,765) (2,821) (2,877) (3,954) (4,376) (4,463)

EBITDA A$'000 (11,260) (2,659) 20,145 37,520 38,410 39,178 63,488 89,120 91,151

D&A expense A$'000 (199) (4,738) (13,619) (15,206) (15,303) (20,930) (26,610) (26,760) (26,916)

EBIT A$'000 (11,459) (7,397) 6,527 22,314 23,106 18,248 36,877 62,361 64,235

Interest expenses A$'000 - - (6,615) (8,472) (7,922) (11,632) (12,709) (11,734) (10,405)

Other finance costs A$'000 - (12,960) - - - - - - -

Profit before tax A$'000 (11,446) (20,357) (88) 13,842 15,184 6,616 24,169 50,627 53,830

Income tax expense A$'000 - - - - (1,924) (1,985) (7,251) (15,188) (16,149)

Extraordinary items A$'000 1,421 1,100 - - - - - - -

NPAT A$'000 (10,025) (19,257) (88) 13,842 13,260 4,632 16,918 35,439 37,681

Cashflow Statement

Cash flows from operating activities

Receipts from customers A$'000 - - 33,846 63,235 64,997 66,297 99,273 137,151 140,614

Receipts from Corporate A$'000 - - - - - - - - -

Interest received A$'000 75 - - - - - - - -

Payments to suppliers A$'000 (2,107) - (14,000) (23,284) (23,833) (24,310) (35,291) (44,476) (45,150)

Corporate costs A$'000 (3,426) (2,853) (2,707) (2,761) (2,816) (2,872) (3,837) (4,369) (4,456)

Tax paid A$'000 - - - - (1,924) (1,985) (7,251) (15,188) (16,149)

Cash flows from investing activities

Proceeds from disposal of property, plant, and equipment

A$'000 - - - - - - - - -

Proceeds from sale of other financial assets

A$'000 - - - - - - - - -

Payments for property, plant and equipment

A$'000 (107) (185,380) (37,295) (1,439) (1,468) (145,518) (24,324) (2,322) (2,369)

Payments for acquired exploration and evaluation expenditure

A$'000 (8,883) - - - - - - - -

Cash flows from financing activities

Proceeds from borrowings / Debt Refinancing

A$'000 - 176,000 - - - 223,353 - - -

Movements in DSRA A$'000 - - (6,591) (597) 2,719 (1,126) (9,551) (1,599) (286)

Proceeds from equity raised (net of costs)

A$'000 22,160 51,700 - - - - - - -

Proceeds from conversion of options A$'000 - 4,484 - - - - - - -

Interest and other finance costs paid (borrowing costs)

A$'000 - - (6,615) (8,472) (7,922) (11,632) (12,709) (11,734) (10,405)

Arranging Fees A$'000 (212) (12,960) - - - - - - -

Repayment of borrowings A$'000 - - (4,653) (11,363) (10,443) (118,716) (13,563) (26,063) (28,113)

Dividends paid A$'000 - - - - - - - (11,523) (24,158)

Net increase / decrease in cash and cash equivalents

A$'000 12,853 32,090 (38,014) 15,319 19,308 (16,509) (7,251) 19,877 9,528

Effect of exchange rate movements on cash

A$'000 - - - - - - - - -

Cash and cash equivalents at the end of the period

A$'000 28,939 52,615 14,601 29,920 49,228 32,719 25,467 45,344 54,872

Balance Sheet

Cash and cash equivalents A$'000 20,524 52,615 14,601 29,920 49,228 32,719 25,467 45,344 54,872

Trade and other receivables A$'000 363 363 5,218 5,645 5,750 5,858 10,817 11,792 12,016

Total Current Assets A$'000 20,888 52,978 19,819 35,564 54,978 38,577 36,284 57,136 66,888

Property, Plant and Equipment A$'000 1,927 187,305 213,388 199,794 186,133 310,894 308,781 284,517 260,144

Debt Service Reserve Account A$'000 - - 6,591 7,188 4,469 5,595 15,146 16,745 17,030

Total Non-Current Assets A$'000 4,531 189,910 222,453 209,283 192,729 318,443 325,706 302,868 278,606

Payables A$'000 415 220 2,068 2,165 2,209 2,253 3,869 4,031 4,111

Provisions A$'000 506 506 506 506 506 506 506 506 506

Total Current Liabilities A$'000 921 726 2,574 2,671 2,715 2,759 4,375 4,537 4,617

Borrowings A$'000 - 180,737 178,361 166,997 156,554 261,191 247,627 221,564 193,450

Total Non-Current Liabilities A$'000 - 180,737 178,361 166,997 156,554 261,191 247,627 221,564 193,450

Net Assets A$'000 24,498 61,425 61,337 75,179 88,439 93,070 109,988 133,904 147,427

Contributed Equity A$'000 53,539 109,723 109,723 109,723 109,723 109,723 109,723 109,723 109,723

Reserves A$'000 2,742 2,742 2,742 2,742 2,742 2,742 2,742 2,742 2,742

Retained Losses A$'000 (31,783) (51,040) (51,128) (37,286) (24,026) (19,395) (2,477) 21,439 34,962

Total Equity A$'000 24,498 61,425 61,337 75,179 88,439 93,070 109,988 133,904 147,427



First mover advantage in a growing fertiliser market

Need for higher agricultural yields a positive for SOP market

CRU forecasts SOP market to grow at 2.8% pa CAGR

Increasing global population, reducing arable land, and better diets in developing nations are driving a

requirement for higher agricultural yield globally, with fertiliser regarded central to achieving it. Sulphate

of potash (SOP) is a premium potassium fertiliser, which delivers potassium and a secondary nutrient

sulphur to plants. Importantly, SOP does not contain chloride, which is harmful to high value crops such

as fruits and vegetable, nuts, berries, tea, cocoa and tobacco. The global SOP market is ~6.6Mt,

comprising approximately 9% of the 70Mt potassic fertiliser market. It is under-supplied, and market

consultant CRU estimates SOP demand is growing at 2.8% CAGR, driving a SOP price increase from

US$530/t in 2021 to over US$900/t by 2040. Australia and New Zealand import 100% of their potash

requirements (~90kt annually).

Low cost SOP deposits are rare

Brine deposits are the lowest cost

The lowest-cost SOP producers exploit brine deposits, which by virtue of the requisite chemistry (high

potassium and sulphate) occur only in arid climates, where potassic rocks have been leached,

permitting economic concentrations to develop in the brines (eg Western Australia, Chile, China).

Beyondie – grade, proximity to infrastructure, de-risked status set it apart

Given the relatively remote locations of brine SOP operations globally, access to market and grade are key factors for project economics

KLL is targeting a Final Investment Decision this quarter

KLL’s Beyondie Sulphate of Potash Project (Beyondie) is one of the highest grade brine SOP projects

in Australia, and its location 78km from the Great Northern Highway and Goldfields Gas Pipeline allow

access to back haulage trucking rates (~A$40/t to Fremantle via Toll Mining Services) and low capital

development options for an owner-operated gas pipeline and gas-fired power station. These factors are

forecast to place Beyondie in the bottom quartile for operating costs globally, with an AISC operating

cost at US$178-208/t SOP.

At present, of the Australian SOP developers, Beyondie is the only project to have achieved all of the

following: Bankable Feasibility Study (BFS), Front End Engineering and Design (FEED) Study, an Ore

Reserve, a binding offtake agreement, and Native Title Mining Agreements. The company is targeting

a Final Investment Decision this quarter, following Ministerial sign off on state environmental approvals

(recommended for approval by the EPA board), and completion of project financing.

Offtake arrangement of strategic benefit to both KLL and K+S

Set to become Oceania’s first SOP producer

90ktpa is equivalent to the ANZ market for SOP

KLL will have a pathway to market without competing with the dominant supplier

KLL is now well positioned to become the first SOP producer in the Oceania region, with the ability to

supply that market and also export into Asia. The opportunity to gain a foothold in the region has been

recognised by German SOP producer and distributor K+S (SDR GER, mkt cap US$3.2bn), which

supplies over 50% of Australia and New Zealand’s SOP demand. Under the offtake agreement, K+S

has committed to taking 90,000tpa or 100% of Stage 1 production from Beyondie.

KLL will be able to leverage K+S’ marketing and distribution channels without having to compete with

the dominant supplier in the region, while K+S will be able to substitute its German production with

Beyondie tonnes, saving transport costs, and ensuring a competitive transport advantage over SOP

from other geographies seeking to gain market share in the region. Local production will also allow K+S

to manage its inventories more efficiently and respond to demand opportunities driven by seasonal

variation in application.

Strategic investor reduces construction equity task

If Greenstone maintains its interest in KLL, we estimate the remaining equity task falls from A$55m to A$44m.

In April 2019, following execution of the offtake agreement, natural resources private equity fund

Greenstone Resources acquired a 19.8% interest in KLL for A$20.8 million (A$0.44/sh), the proceeds

of which will be used for early works and long lead items for Beyondie. The placement agreement

included anti-dilution rights, which we anticipate Greenstone will exercise to maintain its interest. If it

does, then the balance of the construction equity funding task (which we have estimated at A$55 million)

will fall to A$44 million.



90-180ktpa Beyondie SOP operation underpins A$1.07/sh valuation

DCF Valuation represents 73% upside to current share price

Market is not pricing in expansion from 90ktpa demonstration plant to 180ktpa production

Near-term valuation catalysts include mine life extensions from 10 Mile, by-products, Carnegie PFS

Our A$1.07/sh valuation reflects an initial 90ktpa operation at Beyondie, lifting to 180ktpa in Year 6 of

operations (FY2026), which is funded from operating cash flow and refinancing of Stage 1 debt, without

the need for additional equity. It also includes A$0.04/sh for KLL’s interest in the Carnegie Potash

Project JV with BCI Minerals (BCI.ASX). At spot (0.69 AUDUSD, US$530/t SOP), our valuation

increases to A$1.49/sh.

On a market multiple basis, the market has priced in the 90ktpa operation, as KLL is trading at a

premium to international fertiliser companies on our modelled FY2022 earnings (PER 17.0x vs 15.0x,

EV/EBITDA 9.9x vs 7.9x). Once 180ktpa is achieved from FY2026, our modelled PER falls to 6.6x, and

EV/EBITDA multiple falls to 4.6x. At current PE ratios and EV/EBITDA multiples for established fertiliser

companies, KLL would be valued at A$1.41/sh and A$1.06/sh respectively, at or above our valuation.

Near-term valuation catalysts include potential for future mine life from the Ten Mile West tenement

application, magnesium (and perhaps sodium chloride) by-products, and the Carnegie project PFS, due

in 2020. Longer term, on the strength of Beyondie’s operating margins and mine life, the potential for

long term dividends will be appealing to investors. We assume KLL starts paying dividends in FY2026

once steady state production at 180ktpa is achieved, and that these increase as KLL repays its debt.

From FY2027, based on our A$1.07/sh valuation, our forecast dividend yield is 6% fully franked.

Risk now largely reduced to construction and commissioning risk

Management is experienced in taking projects through construction into production

Ministerial sign off on remaining approvals and completion of financing anticipated this quarter

Tight register would not support a takeover without an appropriate premium

Our A$1.00/sh price target is set at a discount to our Sum of Parts valuation, reflecting construction and

commissioning risk. These risks play to KLL management’s strengths, which has experience taking

projects through development into construction and operations in Western Australia (Iron Valley – Iron

Ore Holdings), South Australia (Prominent Hill – Oz Minerals), and Indonesia (Gosowong - Newcrest).

The risks will also be partly mitigated by performance guarantees to ensure the product meets offtake

specifications, and K+S will be onsite to provide assistance during commissioning and ramp up; the

offtaker’s interests are aligned as it will be looking to integrate Beyondie SOP production into its sales

and distribution channels.

Remnant permitting and close out of financing risk are expected to be removed this quarter. Remaining

approvals include Western Australian EPA approval, recommended by the board of the EPA in April

2019, and now awaiting Ministerial sign-off, which we anticipate will occur in the coming weeks. Debt

financing also requires receipt of a credit approved offer from KfW-IPEX bank, and approval from

German Export Credit Agency (ECA) Euler Hermes, which has been supportive of KLL’s application to

date. The balance of equity financing should be achievable, particularly if Greenstone exercises its anti-

dilution rights, and the share price continues to respond positively as the project is de-risked.

Beyondie’s long life, position on the cost curve, and future earnings profile may attract corporate

interest, particularly given its pre-development status. However, as 54% of the register is held by

shareholders including Greenstone, key agricultural investors, and KLL’s board and management, an

opportunistic takeover without an appropriate premium is unlikely.

Table 1. Future Newsflow

Ministerial sign off on environmental approvals, financing and FID all targeted for this quarter

Newsflow KLL Indicative Timeline

Receive Final Regulatory Approvals Q2 2019

Completion of Project Financing Q2 2019

Final Investment Decision Q2 2019

Construction Start Q2 2019

Construction Finish Q3 2020

Commissioning and Ramp Up Q3 2020

Magnesium by-products Ongoing

Carnegie Potash Project JV updates Ongoing

Source: Kalium Lakes, KAF estimates



Valuation

Our Sum of Parts Valuation is presented below in Table 2. The valuation is struck at 30 June 2020,

when KLL is 12 months into the 15 month construction phase at Beyondie, and the initial debt facilities

are fully drawn. KLL’s 70% interest in the Carnegie JV has been valued on the basis of BCI’s earn in

expenditure (A$10.5 million to earn 50%).

Table 2. Sum of Parts Valuation

Sum of Parts Valuation NPV Undiluted Diluted

(as at 30 June 2020) A$M A$/sh A$/sh

Beyondie SOP Project 525.83 1.49 1.39

Carnegie SOP Joint Venture (KLL 70%) 14.70 0.04 0.04

Corporate (51.82) (0.15) (0.14)

Tax Shield 41.78 0.12 0.11

Debt (180.74) (0.51) (0.48)

Cash 52.61 0.15 0.15

Total Value of Common Equity 402.38 1.14 1.07

Source: Kerr Allan estimates. Note: 1 Valuation as at 30 June 2020.

Our Beyondie project model is based on the results of the September 2018 BFS and subsequent

February 2019 FEED study (Table 3), with key outputs depicted in Chart 1 and Chart 2. The Beyondie

project model is presented in Table 4, with sensitivity analyses included in Table 5 to Table 8.

Table 3. Comparison of Beyondie PFS, BFS and FEED outcomes vs Kerr Allan’s modelled operation

Through the study phases:

Production has lifted through improved recoveries

NAIF funding has seen the gas pipeline and power station capex brought forward, reducing $/t operating costs

EBITDA margin has stayed constant

NAIF and Euler-Hermes-backed debt financing identified during the BFS support use of a lower WACC

Devt Studies vs KAF Model Unit PFS BFS FEED KAF

Overall Plant Recovery % 61-74% 72% 91% 91%

Production ktpa SOP 75-150* 82-164 90-100 90-100

LOM Production ktpa SOP 4,725 4,664 4,664 5,012

Sales Price US$/t SOP

500* 606# 606# 566*

Long term AUDUSD AUDUSD 0.75 0.73 0.73 0.75

Assumed Life of Operations Years 34 30 30

LOM AISC Cash Operating Cost US$/t SOP

217-257 226-263 178-208 185-216

CAPEX (Pre-Production) A$m 124 159 216 -

CAPEX (Expansion) 96 125 125 -

EBITDA (average) A$m p.a. 83 116 126 108^

EBITDA margin % 61.5% 61.3% 61.0% -

LOM Free Cash Flow (Post-tax) A$m 1,450 2,069 -

Project NPV10 (Pre-tax, nominal) A$m 319 391

Project NPV10 (Post-tax, nominal) A$m 205 225

Project NPV8 (Pre-tax, nominal) A$m 575 606 574

Project NPV8 (Post-tax, nominal) A$m 347 358

IRR (Pre-tax) % 25.8% 20.4% 20.3% 20.6%

IRR (Post-tax) % 20.9% 16.5% 16.9%

Payback Period (Pre-tax) Years 7.00 6.7

Payback Period (Post-tax) Years 8.30 7.7

Source: KLL, KAF estimates; *real dollars, #nominal dollars,^ includes ramp up periods


Kerr Allan Research 29 May 2019 6

Table 4. Annual Beyondie SOP Project Production and Cash Flow Summary

Financial Year Units 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 LOM Total /

Average

CPI % 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%

AUDUSD Exchange Rate USD per AUD 0.73 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75

Standard SOP Price (FOB Fremantle) US$/t, Real - 500 500 500 500 500 500 500 500 500 500 500

SOP Price with premia (FOB Fremantle) US$/t, Real - 566 566 566 566 566 566 566 566 566 566 566

Brine Piped to Ponds GL/year - 5.6 8.0 8.0 8.0 12.4 16.1 16.1 16.2 16.3 16.4 476.4

K Grade mg/L - 5,565 5,565 5,565 5,565 5,565 5,565 5,542 5,512 5,482 5,452 5,242

SOP Recovery % - 80% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%

SOP Produced kt - 55 90 90 90 138 180 180 180 180 180 5,009

Gross Revenue A$'000, Real - 41,893 67,789 67,966 67,966 104,485 135,932 135,887 135,822 135,749 135,917 3,780,919

Royalties + Marketing Fees A$'000, Real - (4,900) (7,948) (7,969) (7,969) (12,262) (15,980) (15,977) (15,969) (15,960) (15,980) (444,399)

Net Revenue A$'000, Real - 36,994 59,842 59,998 59,998 92,223 119,952 119,911 119,853 119,789 119,937 3,336,520

Ex Works Operating Costs A$'000, Real - (11,404) (15,912) (15,923) (15,923) (22,890) (26,100) (25,848) (25,852) (25,855) (25,875) (737,425)

Haulage + Port A$'000, Real - (3,746) (6,062) (6,078) (6,078) (9,668) (12,659) (12,655) (12,649) (12,642) (12,658) (351,141)

Operating Costs A$'000, Real - (15,150) (21,974) (22,000) (22,000) (32,558) (38,759) (38,504) (38,501) (38,497) (38,533) (1,088,566)

Ex Works Operating Costs US$/t, Real - 154 133 133 133 124 109 108 108 108 108 110

Haulage + Port US$/t, Real - 51 51 51 51 52 53 53 53 53 53 53

Cash Costs US$/t, Real - 205 184 183 183 176 161 160 160 161 161 163

Corporate Costs US$/t, Real - 35 22 22 22 19 16 16 16 16 16 17

Sustaining Capex US$/t, Real - 14 11 11 11 9 8 8 8 8 8 9

All In Sustaining Costs US$/t, Real - 254 217 216 216 205 186 185 185 185 185 189

Construction Capex A$'000, Real 181,000 35,000 - - 130,000 20,000 - - - - - 366,000

Sustaining Capex A$'000, Real - 1,015 1,353 1,353 1,353 1,692 2,017 2,017 2,017 2,017 2,017 57,700

Total Capital Expenditure A$'000, Real 181,000 36,015 1,353 1,353 131,353 21,692 2,017 2,017 2,017 2,017 2,017 423,700

Net Revenue (Nominal) A$'000, Nominal - 38,701 63,662 65,102 66,405 104,232 138,126 140,838 143,587 146,382 149,493 4,816,515

Operating Costs (Nominal) A$'000, Nominal - (15,844) (23,377) (23,872) (24,350) (36,790) (44,630) (45,223) (46,125) (47,044) (48,029) (1,566,621)

EBITDA A$'000, Nominal - 22,857 40,285 41,230 42,055 67,442 93,496 95,614 97,462 99,339 101,465 3,249,894

D&A A$'000, Nominal - (11,341) (15,205) (15,302) (20,929) (26,609) (26,758) (26,915) (27,075) (27,238) (27,404) (475,270)

EBIT A$'000, Nominal - 11,516 25,080 25,928 21,127 40,833 66,738 68,699 70,387 72,101 74,060 2,774,624

Tax Attributable to Project A$'000, Nominal - (3,455) (7,524) (7,778) (6,338) (12,250) (20,021) (20,610) (21,116) (21,630) (22,218) (832,671)

Operating Results After Tax A$'000, Nominal - 8,061 17,556 18,150 14,789 28,583 46,716 48,090 49,271 50,470 51,842 1,941,953

Add: Depreciation A$'000, Nominal - 11,341 15,205 15,302 20,929 26,609 26,758 26,915 27,075 27,238 27,404 475,270

Less: Increase in Working Capital Invested A$'000, Nominal - (3,010) (334) (67) (68) (3,459) (821) (150) (153) (155) (182) -

Operating Cash Flow A$'000, Nominal - 16,392 32,427 33,385 35,649 51,733 72,654 74,854 76,193 77,553 79,065 2,417,223

Total Capital Expenditure (Nominal) A$'000, Nominal 185,380 37,295 1,439 1,468 145,518 24,324 2,322 2,369 2,417 2,465 2,514 470,770

Project Free Cash Flow A$'000, Nominal (185,380) (20,903) 30,988 31,917 (109,869) 27,409 70,331 72,485 73,776 75,088 76,550 1,946,454

NPV A$'000, Nominal 653,331 674,089 694,677 829,743 910,921 912,497 909,775 905,683 899,695 891,756 881,630 -

IRR % 16.9%

EBITDA Margin (incl Corporate costs) % - 52% 59% 59% 59% 61% 65% 65% 65% 65% 65% 67%


Kerr Allan Financial 29 May 2019 7

Chart 1. KAF modelled brine abstraction and grade profile

In line with the BFS, we assume a minor grade reduction accompanied by increased pumping after expansion to 180ktpa in FY2026

Source: KAF

Chart 2. KAF modelled production and cost profile

Staged production:

Demonstration 90ktpa at AISC US$216/t

Base Case 180ktpa at AISC US$185/t from FY2026

Source: KAF

Table 5. Sensitivity Analysis – SOP Price vs AUDUSD

At spot (US$530/t SOP, 0.69 AUDUSD), our valuation is A$1.49sh

NPV (A$/sh)

SOP Price (US$/t)

440 460 480 500 520 540 560

AU

DU

SD

0.675 1.009 1.131 1.253 1.375 1.497 1.618 1.740

0.700 0.914 1.031 1.149 1.267 1.384 1.502 1.619

0.725 0.824 0.939 1.052 1.166 1.279 1.393 1.506

0.750 0.741 0.852 0.962 1.072 1.182 1.291 1.401

0.775 0.663 0.770 0.877 0.984 1.090 1.197 1.303

0.800 0.589 0.694 0.798 0.901 1.005 1.108 1.210

0.825 0.520 0.622 0.723 0.823 0.924 1.024 1.124

Source: Kerr Allan estimates

5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

11.00

11.20

11.40

11.60

11.80

12.00

12.20

12.40

12.60

FY

21

FY

22

FY

23

FY

24

FY

25

FY

26

FY

27

FY

28

FY

29

FY

30

FY

31

FY

32

FY

33

FY

34

FY

35

FY

36

SO

P G

rade (

g/m

3)

Brin

e A

bstr

acte

d (

GL/y

r)

SOP Grade Abstracted Brine

-

50

100

150

200

250

300

-

20

40

60

80

100

120

140

160

180

200

FY

21

FY

22

FY

23

FY

24

FY

25

FY

26

FY

27

FY

28

FY

29

FY

30

FY

31

FY

32

FY

33

FY

34

FY

35

FY

36

Opera

tin

g C

ost (U

S$/t

SO

P)

SO

P P

roductio

n (

kt)

Premium Std. SOP Produced Premium Granular SOP ProducedPremium Soluble SOP Produced Ex Works CostAISC Cost



Table 6. Sensitivity Analysis – Construction capex vs operating costs

KLL’s FEED Study has been completed to AACE Class 2 Standard (+/-5%)

NPV (A$/sh)

Operating Cost

-20% -10% -5% 0% 5% 10% 20%

Co

ns

tru

cti

on

Cap

ex

-20% 1.431 1.340 1.295 1.250 1.204 1.159 1.068

-10% 1.342 1.252 1.206 1.161 1.115 1.070 0.979

-5% 1.298 1.207 1.162 1.116 1.071 1.025 0.934

0% 1.254 1.163 1.117 1.072 1.026 0.981 0.890

5% 1.209 1.118 1.073 1.028 0.982 0.937 0.845

10% 1.165 1.074 1.029 0.983 0.938 0.892 0.800

20% 1.076 0.985 0.940 0.894 0.848 0.803 0.711


Table 7. Sensitivity Analysis – process plant recovery vs SOP grade

NPV (A$/sh)

Process Plant Recovery (%)

-7.5% -5.0% -2.5% 0% 2.5% 5.0% 7.5%

K G

rade

-20% 0.476 0.522 0.569 0.615 0.661 0.707 0.752

-10% 0.689 0.741 0.793 0.844 0.896 0.947 0.998

-5% 0.795 0.850 0.904 0.958 1.012 1.066 1.120

0% 0.901 0.958 1.015 1.072 1.129 1.186 1.242

5% 1.007 1.066 1.126 1.186 1.245 1.305 1.364

10% 1.112 1.174 1.237 1.299 1.361 1.424 1.486

20% 1.322 1.390 1.458 1.526 1.594 1.662 1.730


Table 8. Sensitivity Analysis – equity raise vs equity raise price

NPV (A$/sh)

Size of Raise (A$’000)

35,000 40,000 45,000 50,000 55,000 60,000 65,000

Rais

e P

rice

(A$/s

h)

0.44 1.126 1.104 1.082 1.062 1.043 1.025 1.009

0.46 1.138 1.116 1.096 1.076 1.058 1.041 1.025

0.48 1.149 1.128 1.108 1.089 1.072 1.055 1.040

0.50 1.159 1.139 1.120 1.102 1.085 1.069 1.054

0.52 1.168 1.149 1.131 1.114 1.097 1.082 1.067

0.54 1.177 1.159 1.141 1.125 1.109 1.094 1.080

0.56 1.185 1.168 1.151 1.135 1.120 1.106 1.092




Gearing, low cost of debt financing warrant lower WACC

Australian Federal Government body the Northern Australia Infrastructure Facility (NAIF) has approved

a A$48 million infrastructure facility and a A$26 million project facility as part of Beyondie construction

funding. KLL also has agreed non-binding terms for A$102 million in debt financing from German bank

KfW IPEX, of which approximately A$50 million is expected to be covered by a guarantee from Euler

Hermes. While the interest rates for these facilities have not been disclosed, KLL’s announcements

indicate the financing is ‘competitive’ and ‘low cost’ (we assume 4.86%: Table 9). Our calculated cost

of equity is included in (Table 10).

In Table 11 below, we derive a post-tax nominal WACC for KLL of 5.67%. The equity markets / investors

are unlikely to heed this theoretical WACC, given KLL is pre-cash flow, and pioneering a brine SOP

operation in an industry new to Australia.

However, prior to their involvement, NAIF, KfW IPEX, Euler Hermes, K+S, and Greenstone would have

undertaken due diligence on the project and the development risks, and in our view the gearing

combined with competitive debt financing terms view justify use of a WACC below 10%, common

industry practice when valuing resources projects at feasibility stage. We have used 8% in our valuation.

Table 9. Cost of Debt Chart 3. Australian 10 year bond yield – currently 1.68%, we assume 4.00%

Debt Facility A$'000 Rate % Post-Tax

NAIF - Infra 48,000 4.50% 3.15%

NAIF - Project 26,000 5.00% 3.50%

KfW - EH 102,000 5.00% 3.50%

Total 176,000 4.86% 3.40%

Source: KLL announcements, KAF assumptions

Table 10. Cost of Equity

Cost of Equity

Risk Free Rate 4.00%

Market Risk Premium 5.96%

3mth Beta 1.16

Cost of Equity 10.91%

Source: Stern Business School, NYU; Yahoo Finance, KAF assumptions

Table 11. WACC Calculation (post-tax)

Funding A$'000 % WACC %

Debt 176,000 70% Debt 2.38%

Equity 75,814 30% Equity 3.29%

Total 251,814 100% WACC 5.67%

Source: KAF estimates Source: RBA

Table 12. WACC sensitivity analysis - the market appears to be valuing KLL using an 11% WACC

WACC 5.0% 6.0% 7.0% 8.0% 9.0% 10.% 11.0%

NPV A$M 713.9 590.3 487.7 402.0 330.1 269.3 217.7

NPV A$/sh 1.89 1.57 1.30 1.07 0.88 0.72 0.59

Source: KAF Estimates

In Table 12 we present our valuation across a range of discount rates. On our modelled assumptions,

the current share price (A$0.62/sh) implies the market is using ~ 11% WACC to value KLL. As outlined

above, given the gearing level, low cost debt financing, and the de-risked nature of the project, we

consider an 8% WACC more appropriate when valuing KLL at its present stage.

Earnings Based Multiples – market pricing 90ktpa operation

In Table 13 we present P/E and EV/EBITDA multiples for major fertiliser producers. These companies

are trading on a median PE ratio of 15.0x, and a median EV/EBITDA multiple of 7.9x.

At steady state 90ktpa SOP production in FY2022, our modelled earnings reflect a PE ratio of 17x and

an EV/EBITDA multiple of 9.9x, equating to a 13-25% premium to the multiples applied to established

fertiliser companies.



We anticipate KLL will seek to expand operations to 180ktpa as soon as practicable, balancing delivery

of steady-state operations and SOP market demand against generating sufficient operating cash flows

to avoid additional equity issuance during expansion funding. We assume expansion will occur in

FY2024/FY2025, and KLL will achieve nameplate 180ktpa in FY2026. Once KLL is delivering 180ktpa,

the PE ratios and EV/EBITDA multiples fall to 6.6x and 4.6x respectively. At that time, on the median

market multiples presented in Table 13 below, KLL would be valued at A$1.41/sh (15.0x PER) and

A$1.06/sh (7.9x EV/EBITDA).

Table 13. P/E ratios and EV/EBITDA multiples of select international fertiliser companies

Company Yara Tessend-erlo

Mosaic K+S Israel Chem.

Compass Minerals

Nutrien Intrepid Potash

CF Industries

Sesoda Corp

Arab Potash

Median

Ticker YAR NO TESB BB MOS US SDF GY

ICL US CMP US NTR US IPI US CF US 1708 TT APOT JR

Mkt Cap (USD) 12,055 1,411 8,333 3,315 6,786 1,780 29,084 408 9,020 163 974

P/E 13.0x 12.4x 12.5x 12.8x 13.0x 17.8x 16.2x 15.9x 20.5x 15.4x 15.0x 15.0x

Current year 14.6x 12.4x 12.5x 12.8x 13.6x 20.2x 16.2x 15.9x 20.5x 21.6x 15.3x

12mth fwd 13.0x 11.8x 10.9x 11.5x 13.0x 16.6x 15.3x 14.9x 17.9x 13.0x

5yr avg 1yr fwd 12.9x 14.6x 17.7x 14.4x 11.8x 17.8x 18.0x 74.9x 86.4x 9.2x 15.0x 15.0x

EV/EBITDA 7.8x 6.3x 5.8x 7.9x 7.4x 9.7x 8.6x 7.4x 9.4x 8.1x 8.7x 7.9x

LTM EV/EBITDA 11.1x 7.7x 5.8x 10.1x 7.3x 10.9x 9.2x 8.1x 9.5x 9.2x

Current 8.1x 5.8x 5.9x 8.0x 7.6x 9.3x 8.0x 6.6x 9.4x 8.0x

EV/ 12mth fwd 7.6x 5.7x 5.6x 7.6x 7.4x 8.7x 7.8x 6.4x 9.0x 7.6x

5yr avg 1yr fwd 6.9x 6.8x 8.1x 7.8x 7.5x 10.1x 9.4x 10.3x 9.3x 8.1x 8.7x 8.1x

Source: Bloomberg (26 May, 2019).

Potential catalyst: potential to extend mine life from Ten Mile West

An additional 5 years mine life from Ten Mile West adds 10% to our valuation

On 29 October 2018 KLL announced it had entered an agreement with AIC Resources to acquire a

portion of its tenement E69/3247 and lodged a new tenement application E69/3594 over the ground.

The tenement is contiguous with M69/145, which is the mining lease containing the 10 Mile production

bores and trenches comprising 32% of KLL’s current Reserves, approximately 10 years of current mine

life. M69/145 has an area of 48.2km2 and covers approximately 17km2 of the Ten Mile lake surface.

E69/3594 has an area of 131km2 and covers 28km2 of the Ten Mile Lake surface (Figure 1). Assuming

the upper aquifer is contiguous across the lake, then the additional area could represent an additional

40% in trench Reserves, adding ~4 years to mine life at 180ktpa. The additional production bore

potential is harder to assess, given gravity and seismic traverses have not been undertaken across the

new tenement area (Figure 2). Should the palaeochannel continue to broadly follow the present playa

trend, there is potential for additional production bores along its length.

Figure 1. Estimating potential for additional mine life from Ten Mile West trenches

Source: KLL, Google Earth, Department of Mines, Industry Regulation and Safety.



Modelling an additional 5 years of operational life sourced from Ten Mile West lifts our valuation from

A$1.07/sh to A$1.18/sh.

Importantly, any additional Reserves that can be identified at 10 Mile will:

defer the requirement for additional infrastructure to establish bores and trenches at other

lakes, particularly the eastern lakes; and

lift Reserve grade and potentially lower extraction volumes, as the average Reserve grade of

Ten Mile brine is 60% higher than Sunshine brine, the second lake included in the current Ore

Reserve (7,494kg/m3 K vs 4,655kg/m3 K).

Figure 2. Gravity and Passive Seismic Traverses, Western Area of Beyondie

Source: KLL

Potential catalysts: magnesium and sodium salt by-products

Magnesium, sodium chloride by-products could monetise waste from the evaporation without impacting SOP production

Beyondie has the potential to add a magnesium by-product stream to its SOP output via processing of

magnesium-rich waste bitterns from the evaporation ponds, which have a grade of 8-9% magnesium.

Potential by-products include magnesium chloride (bischofite), and magnesium sulphate (epsomite), or

higher value products such as hydrated magnesium carbonate (HMC) and magnesium hydroxide

(MgOH). These products can sell for over US$1,000/t.

In July 2017, KLL announced it had successfully produced 99.5% pure HMC from Beyondie bitterns in

collaboration with public unlisted company Ecomag Limited (Ecomag). Ecomag has access to patented

Korean technology to produce HMC, which sells for US$1,250/t.

Ecomag is also seeking to develop a plant at Karratha, which will process bitterns from Dampier Salt’s

operations into 80,000tpa HMC1. The estimated construction cost for the Dampier project is A$130

million. While its focus appears to be developing a standalone facility at Karratha, a second operating

at Beyondie would leverage access to high grade magnesium brines, KLL’s ownership of the Beyondie

Resource, and the existing permitting that will be in place for the SOP operation. We anticipate further

newsflow on the potential for magnesium by-products once a Final Investment Decision has been made

on Beyondie.

In March 2018, KLL announced it had signed a Letter of Intent with WA Salt to assess the potential for

sodium chloride products. This has the potential to monetise additional waste products from the

evaporation ponds, and also remove waste salt production from site. In its June 2018 PFS on the Mardie

Salt Project, BCI Minerals assumed a US$30/t FOB salt price (US$43/t CIF China), which is the 5-year

historic average. KLL would need to target a premium salt market to overcome the US$51/t transport

costs to deliver salt for export.

1 https://ecomagnesium.com/wp-content/uploads/2019/05/EcoMag-Media-Release-20May2019.pdf



Potential catalyst: Carnegie Potash Project PFS

KLL’s second SOP project, the Carnegie Potash Project (Carnegie), is subject to a joint venture with

BCI Minerals, in which BCI can earn up to 50% interest by sole funding $10.5 million in exploration and

development activities to completion of a Feasibility Study. KLL is manager of the JV. To date, a Scoping

Study has been completed, and BCI has earned a 30% interest in the project. BCI has elected to

continue to earn in, funding a PFS for Carnegie. No Scoping Study detail has been published, other

than a maiden Inferred Resource of 0.88Mt drainable SOP.

Adjacent SOP developer Australian Potash Limited (APC.ASX, mkt cap A$26.8m) has defined a 14.7Mt

SOP Resource and also completed a Scoping Study at its Lake Wells Potash Project. Its enterprise

value is A$23.4m (A$3.4m cash at 31 March 2019), resulting in an EV/Resource valuation of A$1.59/

Resource t SOP. On this basis, Carnegie would be worth A$1.4m. BCI considers the project to be worth

more, given its decision to spend a further $3.5 million to earn an additional 10% interest.

At present, we value KLL’s interest in Carnegie based on the expenditure terms in the JV agreement,

ie 100% being A$20.5 million, with KLL’s 70% interest being A$14.7 million. Release of the PFS in 2020

will provide an opportunity to reappraise our valuation, and for the market to better understand the

economics of this project versus its nearby peers and also Beyondie.

The Beyondie SOP Project

Location & Tenure

KLL owns 100% of the Beyondie SOP Project (Beyondie), located in the East Pilbara region of Western

Australia, 160km south of the iron ore hub of Newman. It can be accessed via the Great Northern

Highway 78km to the west, which connects the project to destination ports in Fremantle (1,110km) and

Geraldton (875km). The Goldfields Gas Pipeline also runs along the Great North Highway.

Figure 3. Location of the Beyondie Potash Project

78km from the Great Northern Highway and Goldfields Gas Pipeline

Source: KLL

Beyondie tenements cover an area of over 2,400km2, and have a strike length of over 260km. Granted tenure comprises two mining leases, twelve miscellaneous licences, and a gas pipeline licence. The project also includes an exploration licence application covering western portion of 10 Mile West.

Climate

Beyondie is located on the edge of the Little Sandy Desert, in a zone of high evaporation (4,100mm per

annum; Figure 4), low humidity (Figure 5) and low rainfall (~238mm per annum). Most rainfall occurs

from December – April.



Figure 4. Evaporation map of Australia Figure 5. Relative Humidity map of Australia

Net evaporation of ~3,860mm per annum

Source: KLL, BOM Source: KLL, BOM

Geology / Hydrogeology

Brines within the Beyondie deposit are hosted within the Ilagarari Palaeochannel System, at the

southwestern limit of the North-West Officer Basin, which is interpreted to have been incised following

Late-Carboniferous / Early Permian glaciation of the basement rocks. Regionally, potassic granites

within the Archaean Marymia Dome and mafic intrusions associated with the Warakurna Large Igneous

Province have been considered as potential sources for the high potassium concentrations in the brine.

Figure 6. Schematic diagram of the architecture of the Beyondie palaeochannel system

Abstraction possible from bores and trenches

Source: KLL

The palaeochannel comprises three distinct sedimentary zones (Figure 6):

A basal sand and silcrete horizon up to 20m in thickness from which brine can be extracted

using bores;

a thick sequence (18 to 41m) of clays and siltstone, which contains brine, but cannot be directly

abstracted (referred to as an aquitard); and

an upper horizon, extending to a depth of 20m below surface, comprising alluvial and lacustrine

sediments including coarse gypsum mineralisation, which can be trenched to abstract brine.

Mineral Resources and Ore Reserves

KLL has defined a JORC 2012 compliant Mineral Resource of 19.6Mt of drainable SOP at Beyondie

(Table 14). The resource estimate is also compliant with the new Guidelines for the Resource and

Reserve Estimate for Brines adopted by JORC in May 2019, which require determination of the specific

yield of a brine resource based on aquifer characteristics, in addition to defining the volume of the

aquifer and brine grade.



Table 14. Beyondie Resource Estimate

Beyondie Brine Volume K Grade K SO4 Mass SOP Grade SOP

Mineral Resource Mm3 mg/L Mt Mt kg/m3 Mt SOP

Measured 149 5,155 0.77 2.33 11,544 1.72

Indicated 735 5,591 4.11 11.91 12,476 9.17

Inferred 695 5,647 3.92 11.86 12,590 8.75

Total 1,579 5,585 8.80 26.10 12,438 19.64

Exploration Target 920-2,810 1,800-3,300 1.6-9.3 5-25.6 3.7-20.7

Source: KLL

Table 15. Beyondie Ore Reserve Estimate

Aquifer Type Brine Volume K Grade K SO4 Mass SOP Grade SOP

Mm3 mg/L Mt Mt kg/m3 Mt SOP

Ten Mile Production Bores 104 7,558 0.79 2.252 16,840 1.75

Ten Mile Trench Pumps 28 7,256 0.21 0.598 16,176 0.46

Sunshine Production Bores 226 4,246 0.96 2.778 9,459 2.14

Sunshine Trench Pumps 55 6,325 0.35 0.964 14,092 0.78

Total 414 5,561 2.30 6.59 12,390 5.13

Source: KLL

The Ore Reserve of 5.13Mt SOP has been estimated from Sunshine and Ten Mile lakes, comprising

two of the westernmost lakes within the Beyondie lakes system. It includes brine abstraction from both

trenching and bores, with 76% of the contained SOP being abstracted from bores (Table 15).

A cut-off grade of 2,500 mg/L potassium was applied to the Ore Reserve to avoid inclusion of more

dilute brine, which would decrease production rates as a greater evaporation area and additional

evaporation time would be required. KLL also excluded recharge effects from its Ore Reserve

estimation, modelling of which has been shown to boost potassium concentrations later in the mine life

(Chart 4). Recharge remains a source of potential upside to the existing Ore Reserves.

Chart 4. Effect of Recharge on Lake Sunshine potassium concentrations

Source: KLL



Brine Extraction – Bores & Trenches

The FEED study determined brine will be abstracted from 20-40 bores, and from 21-45km of trenches.

Trenches and production bores have been installed as part of development works (Figure 7).

Figure 7. Installed Trenches and Production Bores

Source: KLL

Brine Concentration – Evaporation Ponds

Brine concentration will occur via trains of evaporation ponds. The initial ponds are concentrator ponds,

driving off water, before precipitating gypsum (calcium sulphate), halite (sodium chloride) and also

astrakainite (hydrated sodium-magnesium sulphate). Subsequent ponds crystallise mixed potassium

salts, comprising leonite (potassium-magnesium sulphate), schoenite (potassium-magnesium sulphate)

and carnallite (potassium-magnesium chloride). These salts are harvested to recover potassium.

Residual bitterns are comprised largely of magnesium sulphate and magnesium chloride (Figure 8).

Figure 8. Evaporation Pond sequence and proposed pond layout at Beyondie

Source: KLL



Offlake ponds will be tiered, permitting early harvesting

Lined ponds improve recoveries

The pond configuration has been tested at a series of scales up to 10ha to define the requisite

dimensions and design (Figure 9). KLL will establish the evaporation ponds off the lake surface, which

will permit construction of a tiered pond system. Tiered ponds use gravity rather than pumps to move

the brine between ponds, as precipitating salts can cause blockages and pump corrosion issues. Off

lake ponds also provide an immediate trafficable surface for salt harvesting, which means harvesting

can be commenced earlier on a thinner bed of crystallised salts in the ponds. KLL will also line its ponds,

as the economic benefit of higher SOP recovery outweighs the cost of lining the ponds at Beyondie.

Figure 9. 10ha scale evaporation ponds established at Beyondie in 2017

Source: KLL

Brine Processing

Brine processing involves a series of dissolution and re-crystallisation steps to sequentially remove

sodium, chloride, and magnesium to produce SOP. A simplified flow sheet is presented in Figure 10. In

more detail, the steps involve:

Pre-treatment – mixed potassium salts from each harvested pond are stockpiled separately. They are

passed through a ferrous and ferrous and non-magnetic particle separator before being mixed in a

controlled ratio and crushed to 1mm particle size as feedstock for the processing plant.

Decomposition of kainite to primary schoenite – the feedstock is mixed with water at 20°C, then

mixed with cooled SOP mother liquor, which causes primary schoenite and halite to crystallise

separately.

Schoenite flotation – schoenite is direct floated from the waste halite, then separated from the

floatation liquor using centrifuges.

Cooling crystallisation of secondary schoenite – hot mother SOP liquor is progressively cooled,

crystallising secondary schoenite, which is centrifuged and combined with the primary schoenite.

Conversion of schoenite to SOP – schoenite is decomposed into SOP by mixing with aqueous SOP

solution at 48°C. It is then centrifuged and washed with aqueous liquor, which is recycled.

Drying – SOP is then dried using a fluidised bed drier.

Compaction and packing - Dried SOP is either compacted (for granular product) or packaged directly

into 25kg bags, 1.2 tonne bags, or stored as a bulk product.



Figure 10. Simplified Beyondie Flow Sheet

Source: KLL

Power, Gas & Water Requirements

Approximately 7MW of installed power is required for the 90ktpa operation, and will be provided by an

onsite gas-fired power station. Gas requirements will be met by a DN100 diameter gas pipeline

connected from a spur off the Goldfields Gas Pipeline. Water will be pumped and piped from water

supply bores at 10 Mile South or Kumarina. 10 Mile South has sufficient water for the 90ktpa operation,

while Kumarina will be used for the expansion to 180ktpa if required.

Haulage

KLL will to truck its containerised product using to the port of Fremantle. KLL has disclosed a backhaul

rate of ~A$40/t (~A$0.04/t/km) with Toll Mining Services (Toll), and will store SOP in Toll’s sheds at

Fremantle. The backhaul rate is available to KLL given the project’s location close to the Great Northern

Highway, along which ammonium nitrate is trucked from Perth to Newman for blasting in the iron ore

mines, with the trucks returning to Perth empty.

Port

KLL will ship the bulk of its product through Fremantle Port, given it is a container port, has mobile ship-

loading facilities, and is a regular shipping destination. Kwinana or Geraldton are preferred ports for

bulk export due to the availability of existing facilities, proximity to agricultural distribution centres, and

the availability of storage and stockpiling facilities.



Environmental Permitting

KLL has received its Federal environmental approvals (EBPC approval), and is awaiting Ministerial sign

off on state environmental approvals, which have received board approval.

Native Title & Royalties

Native Title Mining Land Access Agreements are in place with the two local indigenous groups, the

Gingirana People and Birriliburu People (represented by the Mungarlu Ngurrarankatja Rirraunkaja

Aboriginal Corporation (MNR). A Native Title Royalty is payable to these groups. The BFS notes a

0.75% mine gate royalty is applicable.

A 1.9% royalty is also payable to the founders of the company.

As SOP will be a new commodity in WA, the applicable royalty for SOP is yet to be tested. Under the

Mining Regulations 1981, if SOP is classified as a salt, it will be subject to a $/t amount under Amount

A. KLL has assumed a A$0.73/t royalty in the Beyondie BFS, which is consistent with the approach

taken by Australian Potash (APC) in the Scoping Study for its Lake Wells SOP project. Other developers

have assumed an ad valorem royalty will apply, (Salt Lake Potash (SO4) 2.5%, Reward Minerals (RWD)

3.75%), with RWD basing its rate on guidance from the WA Department of Mines, Industry Regulation

and Safety.

Given the WA Government recently reduced the annual tenement costs (rates have reduced from

A$18.70/ha to A$2.32/ha for the first five years, and A$4.64/ha thereafter) in recognition of the large

areas required to underpin brine operations, we think it unlikely that they will apply a minimal royalty

rate (on our assumptions, A$0.73/t is equivalent to a 0.097% ad valorem royalty). We have modelled a

state royalty rate of 3.75% in our valuation. Applying a A$0.73/t royalty would lift our valuation by A$42

million to A$1.19/sh.

SOP Pricing, Product Specifications & and Offtake

In both the BFS and FEED study, KLL referred to SOP price forecasts by market consultant CRU. CRU

has forecast an average LOM SOP price of US$606/t SOP, and that the SOP price during KLL’s first

year of full product (FY2022) will be US$530/t. KLL also notes that the current landed SOP price in

Australia is US$530/t. Finally, CRU anticipates 2.8% growth in SOP, with prices reaching US$961-997/t

in 2040. Our base price is US$500/t (FOB Fremantle).

KLL is targeting production of a premium +51% K2O SOP product (benchmark is 50%). It will also

compact a proportion of its production into a granular form, while a further proportion will be classified

as soluble. This product suite is expected to achieve a premium over the base price. We have added

premia to our pricing reflecting these products, resulting in a price of US$566/t (FOB Fremantle).

K+S has a binding offtake agreement with KLL to take 100% of production from Stage 1 over an initial

10-year term. Given K+S will be marketing the product, we have assumed K+S will charge KLL a

marketing fee (5%).

Financing

As outlined previously, KLL has received NAIF board approval for A$74 million in concessional debt

facilities (A$48 million for 15 years, A$26 million for 10 years), which it states is low cost funding. The

company has also agreed non-binding terms for A$102 million in debt financing from German bank

KfW-IPEX, partly guaranteed by German ECA Euler Hermes. The German funding also has a 10 year

tenor, and a ‘complementary’ low cost. In our modelling we have assumed 4.5% for the 15 year facility,

and 5% for the 10 year facilities.

The debt would appear to comprise 70% gearing, although KLL states gearing will be 65%. We have

assumed an equity task of A$75.8 million, comprising the A$20.8 Greenstone Resources placement in

April 2019, and an additional A$55 million, raised at A$0.48/sh. We note the share price is currently

A$0.62/sh. We anticipate Greenstone will use its anti-dilution rate to maintain its 19.8% position, leaving

a residual equity task of circa A$44 million.



Carnegie Potash Project

KLL’s second brine SOP Project Carnegie is centred on the Wells / Carnegie Lakes palaeodrainage

system, which is located 220km northeast of Wiluna along the Gunbarrel Highway. Carnegie is adjacent

to the Lake Wells SOP projects of SO4 and APC (Figure 11). Both companies have completed Scoping

Studies on their projects.

Figure 11. Location of Carnegie Project and neighbouring SOP projects.

Carnegie is adjacent to

the Lake Wells SOP

Projects of SO4 and

APC

Source: KLL

Carnegie comprises once granted tenement, and five exploration licence applications. The area covered

by the granted and pending tenements totals 3,053m2, has a strike length of 135km, and is up to 30km

wide (Figure 12). The area has a similar climate to Beyondie. Rainfall and evaporation rate estimates

interpolated from meteorological records obtained from nearby stations suggest an average annual

rainfall of 240mm and annual evaporation rate of 3,520mm.



Figure 12. Granted and pending tenements comprising the Carnegie Project

Source: KLL

Carnegie Joint Venture

On 1 March 2017 KLL and BCI announced a joint venture in respect of Carnegie, whereby BCI may

earn an interest in the project through sole funding exploration and feasibility studies. KLL remains

manager of the project.

The earn terms are presented in Table 16 below. On 27 July 2018 both companies announced that the

Scoping Study had been completed, lifting BCI’s interest to 70%. BCI has agreed to progress to a PFS,

which is anticipated to take 12-18 months to complete, and will be due in 2020.

Table 16. Carnegie Potash Project Joint Venture Earn In Stages

Stage Expenditure (A$m) Milestone JV Interest (KLL:BCI%)

Stage 1 1.5 Scoping Study 85%:15%

Stage 2 3.5 Pre-Feasibility Study 70%:30%

Stage 3 5.5 Feasibility Study 50%:50%

Source: KLL

Mineral Resource

The JV announced a maiden JORC 2012 Inferred Resource, based on exploration activities undertaken

on the top 1.7m of the 27,847ha aquifer on tenement E38/2995, and subsequent analysis of aquifer

characteristics. Brine encountered below this depth (being the depth of augering) has been included in

an Exploration Target.

Table 17. Carnegie Mineral Resource

Carnegie Brine

Volume K Grade K SO4 Mass

SOP Grade

SOP

Mineral Resource Mm3 mg/L Mt Mt kg/m3 Mt K2SO4

Inferred 113.55 3,466 0.39 1.33 7,750 0.88

Total 114 3,466 0.39 1.33 7,750 0.88

Exploration Target 459-960 3,410-3,420

1.56-3.29 5.77-12.30

3.46-7.33

Source: KLL

Next Steps

The JV is focused on securing the additional tenements, which comprise 82,000ha of the ground

position. Native Title access agreements and works approvals will then be required to undertake

exploration on the new tenements, which would comprise drilling, trenching and test pumping to

increase the current Mineral Resource, and improve the JORC 2012 classification.



Potash Points

Potash refers to potassic fertilisers, which contain potassium (K), one of the three

macronutrients essential for plant life, the others being nitrogen (N) and phosphorous (P).

Potassium improves crop quality, appearance, and taste. It also aids photosynthesis, and

increases the water use efficiencies within the plant.

Key demand drivers for potash include increasing global population, reducing arable land, and

increased cropping of high value crops, reflecting higher returns for producers and a shift to

higher value diets.

Muriate of Potash (MOP) comprises 86% of the global potassium fertiliser market, and is the

cheapest and highest grade potassium fertiliser. However, it contains chloride, and cannot be

applied to certain high value crops such as fruits and vegetables, nuts, tea and tobacco, or in

areas where soil salinity is an issue.

Sulphate of Potash (SOP) comprises 9% of the potassium fertiliser market. It has <0.1%

chloride, and contains sulphur as a secondary nutrient.

SOP commands a price premium over MOP due to its chemistry, and due to the fact that

approximately half of the world’s SOP is produced from conversion of MOP.

The lowest cost SOP producers exploit brine deposits, which are relatively rare and located in

arid locations distal to end use markets.

Substitution of SOP by polyhalite (a calcium-rich SOP magnesia - SOPM) is a potential risk as

it enters the market in 2022, although its lower potassium content (14%) and secondary

nutrient mix may limit this.

Chart. Potassium Fertilisers by Market Volume

Potassium Fertiliser Formula K2O N S Mg Volume (Mt) %

MOP (Muriate of Potash) KCl 60-62% 63.9 85.7%

SOP (Sulphate of Potash) K2SO4 50-52% 17.5% 6.6 8.8% SOPM (Sulphate of Potash Magnesia) K2SO4.MgSO4 28% 16% 10% 2.5 3.4%

NOP (Potassium Nitrate) KNO3 44% 13% 1.6 2.1%

Total 74.6 100.0%

Source: KLL

Potassium Fertiliser Applications

MOP is typically used in broad acre farming of chloride tolerant crops including grains and cereals, in

regions where soil salinity is low. Chloride-free fertilisers including SOP are applied to more intensive

cropping of high value crops such as fruit and vegetables, berries, nuts, citrus, tea, and tobacco, and /

or in areas where soil salinity is moderate to high, and soils may be sulphur-deficient.

NOP and SOPM are specialty forms of potash. NOP is applied to chloride sensitive crops that also

require nitrogen, and due to its solubility characteristics, is used in foliar sprays and fertigation. SOPM

is applied to high value crops, particularly where soils are deficient in magnesium.

SOP Demand

In 2018, SOP demand was ~7Mt. In its February 2019 FEED Study KLL reported that CRU forecasts

SOP demand to grow at 2.8% CAGR. This equates to 8.9Mt by 2030 and 11.8Mt by 2040.

The key drivers for demand growth are:

Increasing global population and decreasing amount of arable land requiring higher agricultural

yields; and

Switching from low value crops to higher value crops (which are often chloride intolerant) as

producers seek higher returns, and as global diets consume higher value crops.

Downside risks to SOP demand could stem from substitution by other chloride-free potassium fertilisers,

particularly polyhalite (a calcium-bearing form of SOPM) which is produced by Israel Chemicals, and is

being developed by Sirius Minerals. SXX has marketing agreements for 10.7Mt of its product Poly4,

and it is unclear how much of this will substitute into the SOP market. Polyhalite includes 14% K2O and

19% S, together with 17% Ca and 6% Mg. To deliver a similar about of potassium, farmers would need

to apply 3.5x the volume of SOP, which would also lift the Ca and Mg content of their soils.



Chart 5. More people, less arable land to feed them Chart 6. Increasing cropping of Cl-intolerant crops

Source: FAO (ICL Presentation May 2019) Source: CRU, FAO (Agrimin Presentation March 2019)

SOP Supply & Cost Curve

SOP is currently produced via three main processes

Brine Processing: involving evaporation, concentration and processing of brines enriched in

potassium and sulphate ions to form SOP;

Mannheim Process: addition of sulphuric acid to MOP in a furnace at 600°C, producing SOP

and hydrochloric acid; and

Mixed salt reaction: Mixing of MOP with sodium sulphate to form a double salt that is

subsequently decomposed to form SOP.

Based on the cost curve information published in KLL’s BFS, approximately 50% of global SOP output

is produced via the Mannheim process, with mixed salts comprising 20%, and brine deposits 30% (Chart

7). With the exception of Compass Minerals’ Utah operations, brine SOP operations (largely China) are

the lowest cost SOP producers. KLL’s Beyondie project remains within the lowest quartile of operating

costs among the current producers, at both the commercial demonstration scale and full scale. At the

top of the cost curve sit the Mannheim producers, due to the costs of converting MOP to SOP. These

are swing producers that can be restarted and switched off, and run at low utilisation rates.

Chart 7. Beyondie within the first quartile of CRU’s cost curve in 2021

Source: KLL. NB. Operating costs are BFS estimates; FEED cost estimates place KLL on par with SDIC Luobupo (Xinjiang)

Installed capacity

While the market is 6.6Mt, the installed capacity much larger. CRU estimates that Chinese installed

capacity alone is equivalent to the current size of the market (Chart 9), and that its Mannheim producers

have been operating at ~50-60% capacity. Ex-China producers such as K+S have also been operating

at below utilisation, due to waste water issues. Factors limiting a supply response from Mannheim

producers include the inputs costs (MOP, sulphuric acid) and also the ability to dispose of the by-product

hydrochloric acid. In the absence of an offtaker, hydrochloric has to be neutralised, or stored, with finite



storage also curbing output. In China’s case, anecdotes suggest Mannheim producers have been

caught in the Chinese push to lift environmental standards.

Impact of China lifting tariffs

In January 2019 China removed a RMB600/t (US$90/t) export tariff on SOP, which has previously been

effective in curbing Chinese exports of SOP. There is a risk that this will incentivise Chinese capacity to

be directed towards export markets, however, for the Mannheim producers along the coast, hydrochloric

acid disposal, rising MOP input prices, stronger domestic prices, and the cost of transport to export

destinations will determine the quantum of Chinese exports. CRU considers that there will be increased

competition, however, it expects that ‘the unique supply and demand dynamics in the SOP market will

buffer the impact on international suppliers’. Position on the cost curve (ie brine producers) will be key

to insulating against any impact of increased supply / competition.

Chart 8. Chinese SOP capacity over time vs sales Chart 9. Chinese exports vs domestic margins

Source: CRU, HIS-Markit Global Trade Atlas Source: CRU, HIS-Markit Global Trade Atlas

SOP Development Projects

With Chinese Mannheim now potentially being the international as well as domestic swing producer,

new projects will need to be at the bottom of the cost curve to secure funding. Those that are more likely

to achieve this in scale will be those seeking to produce from brine sources, or via mining / solution

mining of hard rock sources and subsequent production using brine processing methods.

There are a number of large scale SOP development projects which could add primary capacity, which

could have a significant impact on the market.

Danakali is developing its Colluli deposit in Eritrea, which it has a 50:50 ownership in with ERAMCO,

the Eritrean Government. Stage 1 of Colluli is forecast to produce 472ktpa from 2022, at an AISC of

US$258/t. The capital cost is US$302m, and, like KLL, DNK is progressing through project finance, with

non-binding terms for a US$200m debt facility agreed.

In the same region, but across the border in Ethiopia lie Yara’s 600ktpa Dallol Project (US$740 million

capex), and Circum Minerals’ 750ktpa Danakil Project (US$2,300m capex).

Including KLL, there is a cohort of five Western Australian brine SOP developers seeking to enter the

SOP market (Agrimin, Australian Potash, Reward Minerals, Salt Lake Potash), with another SOP

explorer (Trigg Mining) currently attempting to list on the ASX. Cumulatively, they would represent >1Mt

of additional SOP into the market, if each operation were to be successfully developed base on Stage

1 production only. All are pushing ahead with their development studies, and warrant review. A detailed

comparison of these projects is included in Table 18.

Finally, in North America there are several SOP developers, including Crystal Peak Minerals’ >300ktpa

SOP Sevier Playa Project (US$412m capex) in Utah, Belgravia Capital’s Ochoa Project in New Mexico

(US$1,100m capex), SOPerior Fertiliser’s 230-645ktpa SOP Blawn Mountain and 40ktpa Valleyfield

Mannheim projects, and American Pacific Borates’ 40ktpa Fort Cady Mannheim project (US$37m

capex). ABR is seeking to develop a Mannheim operation to produce hydrochloric acid, which it intends

to use to solution mine borates within a sedimentary basin at its Fort Cady Project in California.



Table 18. WA brine SOP Developers - Overview

Company Kalium Lakes Reward Minerals Agrimin

Salt Lake Potash

Salt Lake Potash

Australian Potash

Ticker KLL.ASX RWD.ASX AMN.ASX SO4.ASX SO4.ASX APC.ASX

Project

Name Beyondie Lake

Disappointment Lake Mackay Lake Way Lake Wells Lake Wells

Ownership % 100 100 100 1001 100 100

Development Status

FEED done, Financing

PFS done, FS underway

PFS done, FS underway

SS done, FS underway

SS done, PFS underway

SS done, DFS underway

Target Production Date 2020 Q4 2022 Q4 2022 early 2020 2020/2021

Location

Distance from sealed road km 78 355 590 2 220 160

Distance from gas pipeline km 78 175 440 2 203 173

Preferred Shipping Ports

Fremantle, Geraldton Port Hedland Wyndham Geraldton Esperance Esperance

Distance to Preferred Ports

Rail km 648 650

Road km 1088, 862 866 970 ~7152 320 280

Total km 1088, 862 866 970 ~7152 968 930

Resources & Reserves

Deposit style

palaeochannel & playa playa playa

Playa, palaeochannel and open pit

palaeochannel & playa palaeochannel

Proposed extraction method

bores & trenches trenches trenches

Trenches, pit dewatering

bores & trenches bores

Ore Reserves Mt SOP 5.1

Reserve Grade kg/m3 SOP 12.39

Drainable Mineral Resource Mt SOP 19.64 153 26.1 8.2 293 14.7

Brine Resource Grade kg/m3 SOP 12.44 11.35 8 15.0 8.74 7.9

Na:K Ratio 8.8 ~16.9 ~29.7 ~11.0 ~21.8 ~14.6

Production Metrics

Mine life

Min years 30-50 23 20 6.5 20 20

SOP Production Estimates

Stage 1 tpa SOP 90,000 407,500 426,000 50,000 200,000 150,000

Stage 2 (if applicable) tpa SOP 180,000 400,000 300,000

Brine Extraction Volume

Stage 1 GL/a 7 63 66.3 5.2 32 16.9

Stage 2 (if applicable) GL/a 14 64 37.3

Evaporation Pond Area

Stage 1 ha 399 4,772 6,000 350 2,990 1,270

Stage 2 (if applicable) ha 798 3,170 2,540

Waste NaCl Salts4

Stage 1 t 1,000,000 12,100,000 18,000,000 1,000,000 7,100,000 3,150,000

Stage 2 (if applicable) t 2,000,000 14,200,000 6,300,000

Evaporation Pond Design

Onlake / Offlake Offlake Onlake Onlake Onlake Onlake Both Lined / Unlined (for determined Leakage / Seepage) Lined Selective lining Unlined Selective lining Unlined Selective lining

Proposed Seepage mm/a 0 91 25 31-315 46 31.5

Recoveries

Pond % 95 76 76-77

Plant % 94 92 71-72

Total % 91 65 80 63 70 80 (including

MOP addition) Production as % of Global Market (6.6Mt + Project)

Stage 1 % 1.35% 5.82% 6.06% 0.75% 2.94% 2.22%

Stage 2 (if applicable) % 2.65% 5.71% 4.35%

Source: ASX releases, Company reports, EPA website. 1SO4 and Blackham Resources (BLK) have entered a binding agreement whereby SO4 acquires rights to the brine on BLK’s tenements at Lake Way.2SO4 plans to truck initial volumes to Geraldton.3Since its Scoping Study SO4 has reclassified this Resource as an Exploration Target. 4Calculated using the following formula: Produced SOP / Recovery * K2 / K2SO4 (78.196/174.259)* Na:K ratio * NaCl / Na (58.44/22.99).



Table 10. WA brine SOP Developers – Overview (continued)

Company Kalium Lakes Reward Minerals Agrimin

Salt Lake Potash

Salt Lake Potash

Australian Potash

Ticker KLL.ASX RWD.ASX AMN.ASX SO4.ASX SO4.ASX APC.ASX

Development Study

Level FEED PFS PFS Scoping Scoping Scoping

Accuracy Level (capex, opex) +/-5% +/-20% +/-25% -10/+30%, +/-

30% -10/+30%, +/-

30% +/-35%, +/-

20%

Capex

Initial Capex A$'000 216,000 519,300 545,000 48,900 223,706 174,900

Gas Pipeline Capex A$'000 29,000 NI NI NI NI NI

Power Station Capex A$'000 10,000 NI NI NI NI NI

Capital Intensity A$/t SOP 2,400 1,274 1,279 978 1,119 1,166

Opex

Opex (site)

Stage 1 A$/t SOP 174 251 110

Stage 2 (if applicable) A$/t SOP 166

Opex (FOB)

Stage 1 A$/t SOP 335 297 347 241 368

Stage 2 (if applicable) A$/t SOP 185 339

Opex (AISC)

Stage 1 A$/t SOP 244 376 341 387

Stage 2 (if applicable) A$/t SOP 284

Approvals Status

Environmental

Federal (EPBC) Approved

Decision whether action needs approval

Invitation for public

comment Not referred Not referred Not referred

State (EPA) - Status

Stage 4: EPA Report and

Recs Released Stage 3: PER Period Closed

Stage 2: decision on whether to

assess published Stage 1 Not submitted

Stage 3: Environmental

Scoping Document Approved

State (EPA) –Level

ER - No Public Comment Public ER Public ER

ER - No Public Comment

Native Title

Exploration Agreement Yes Yes Yes Yes Yes Not Required

Mining Agreement Yes Yes Yes No No Not Required

Mining & Other

Mining Leases 2 granted Granted Not applied (BLK) 1 granted 3 granted

Miscellaneous Licences Granted Granted

Gas pipeline licence Granted - - - - -

Mining Proposal Approved Small scale

trial

2 ponds approved

Works Approval - Ponds Approved

2 ponds approved

granted - full scale to be submitted

Large scale trial approval ha 150 133

Offtake Status

Offtaker

Counterparty 1 K+S Mitsubishi Sino-Agri

Counterparty 2 Sinofert Hubei-Agri

Volume t, (% of production)

Counterparty 1 t, % up to 90,000 Up to 50% of GSLP production

up to 30% 100,000 from

Stage 2

Counterparty 2 t, % Up to 50% of GSLP production up to 100,000

Status

Counterparty 1 Binding MOU MOU

Counterparty 2 MOU MOU

EV/Resource Metric

Market Capitalisation A$m 148.2 15.6 84.5 121.1 26.8

Current Cash A$m 23.9 2.1 8.9 6.8 3.4

Current Debt A$m 0.0 0.0 0.0 0.0 0.0

Enterprise Value A$m 124.3 13.5 75.6 114.3 23.4

EV/Drainable Resource t SOP A$/t SOP 6.3 0.1 2.9 13.9 (3.1)5 1.6

Source: Company reports, Bloomberg, EPA website. EPBC website, Data current as at 28 May, 2019. 5Stated with and without Lake Wells Resource tonnage.



SOP Pricing

SOP has traditionally commanded a price premium over MOP due to the fact that MOP is an input cost

into the production of SOP using the Mannheim process, which accounts for about 50% of global SOP

production. The premium is currently ~US$233/t (Chart 10). The margin needs to be wide enough to

support the conversion costs to incentivise the Mannheim producers to operate.

Historically, the SOP market has been a fragmented market, with China supplying itself, the US largely

supplying itself, and Europe supplying the rest of the world. Pricing currently ranges from US$450/t in

China, US$600-650/t FOB Utah, and US$500-550/t elsewhere, with transportation costs reflecting the

difference. As noted previously, with the Chinese Government lifting the export tariff in January this

year, China may start to export more significant volumes. If this occurs, we would expect that with its

higher prices, the US market would be the most likely destination for export volumes originating from

SOP producers on the eastern Chinese coast.

Chart 10. SOP price vs MOP price and SOP premium

Source: Integer Argus Media in KLL Presentation (February 2019)



Capital Structure

Table 19. Issued Capital

Issued Capital Strike Expiry Source Date

Ordinary Shares 233,966,103 23/04/2019

Escrowed A1C Shares 5,000,000 26/10/2019 18/04/2019

Sub-total Shares 238,966,103

Director + Advisor options 3,500,000 0.250 16/12/2019 18/04/2019

Advisor options 330,882 0.425 29/02/2020 18/04/2019

Advisor options 843,936 0.525 16/01/2020 18/04/2019

Management options 1,000,000 0.525 17/05/2021 18/04/2019

AIC options (escrowed) 5,000,000 0.500 30/06/2025 18/04/2019

Sub-total Options 10,674,818

Performance Rights 15,000,000 18/04/2019

Diluted Issued Capital 264,640,921

Source: ASX Announcements

Table 20. Directors’ Shareholdings

Director Brett Hazelden Rudolph van Niekerk Mal Randall Total

Shares 8,328,452 1,457,800 1,513,207 11,299,459

6,390,614 2,157,800 8,548,414

Sub-total 14,719,066 3,615,600 1,513,207 19,847,873

2,000,000 2,000,000

Sub-total 2,000,000 2,000,000

Performance Rights 3,150,000 900,000 0 4,050,000

Sub-total 3,150,000 900,000 0 4,050,000

Total 17,869,066 4,515,600 3,513,207 25,897,873

% (Undiluted Basis) 6.2% 1.5% 0.6% 8.3%

% (Diluted Basis) 6.8% 1.7% 1.3% 9.8%

Appendix 3Y Date 17/10/2018 17/10/2018 23/04/2019

Source: ASX Announcements

Table 21. Major shareholders

Major Shareholder Number % % Diluted

Brent Smoothy 59,855,083 25.0% 22.6%

Greenstone Resources 47,305,588 19.8% 17.9%

Brett Hazelden 14,719,066 6.2% 5.6%

Thomas Ellis 14,548,093 6.1% 5.5%

Rudolph van Niekerk 3,615,600 1.5% 1.4%

Mal Randall 1,513,207 0.6% 0.6%

Source: KLL, ASX announcements



Recent Performance & Newsflow

Chart 11. Share Price Performance

Source: Thomson Reuters, ASX.

Table 22. Recent Newsflow

Date Announcement

23/05/2019 Key Purification Plant Contracts Awarded

8/04/2019 EPA Board Recommends Environmental Approval

3/04/2019 Greenstone Resources A$20.8 million cornerstone investment

26/03/2019 Binding Offtake Agreement Concluded with K+S

19/03/2019 A$102 million debt funding terms agreed with KfW IPEX bank

4/03/2019 Front End Engineering & Design Study Results

20/02/2019 A$74 million debt facilities agreed with North Australia Infrastructure Facility

18/02/2019 All Mining Tenure Granted

23/01/2019 EPBC Environmental Approval Received

21/01/2019 FEED Update - Higher Process Recoveries achieved (72%-91%)

13/11/2018 Gas Pipeline Licence Approval

8/11/2018 K+S Completes Offtake Due Diligence

29/10/2018 Beyondie West Tenement Acquisition from AIC Resources

18/09/2018 Bankable Feasibility Study Completed

4/09/2018 Beyondie Resource Upgrade

31/08/2018 Mining Proposal Approved, Mining Tenure Granted

27/07/2018 Carnegie Potash Project - Scoping Study Completed

23/07/2018 German Government Progresses Credit Guarantee Scheme

16/07/2018 German Government Credit Guarantee Scheme - In Principal Support

21/06/2018 Offtake Terms Signed with K+S

7/06/2018 Beyondie Mining Leases Granted

Source: ASX



Board of Directors

Mal Randall (B.Chem, FAICD) – Non-Executive Chairman

Mal is a chemical engineer with more than 41 years’ experience in corporate management and

marketing in the resources sector, including over 20 years with the Rio Tinto group of companies. His

experience encompasses the iron ore, diamonds, base metals, coal, uranium, mineral sands, and

industrial minerals markets both in Australia and internationally. Mal is currently a Non-Executive

Director of Hastings Technology Metals Ltd and Argosy Minerals Ltd and Executive Director of

Magnetite Mines Ltd.

Brett Hazelden (B.Sc, MBA, GAICD) – Managing Director

Brett is a metallurgist with over 19 years’ experience in project management, engineering, design and

operations within the Australasian resources industry, working for companies including Rio Tinto,

Newcrest, Fluor Corporation, Iron Ore Holdings Ltd and Ferraus Ltd in South Australia, Western

Australia, and Indonesia.

Rudolph van Niekerk (B.Eng, GAICD) – Non-Executive Director

Rudolph is a mechanical engineer with more than 12 years’ experience in management of projects and

operations, from financial evaluation through to construction, commissioning, production ramp-up and

project hand-over to operations. He has previously worked for AngloGold Ashanti and Dowding Reynard

& Associates on precious metals projects in South Africa, for Ausenco at Gosowong gold mine,

Indonesia, and has extensive experience working on Pilbara iron ore projects in Western Australia for

Iron Ore Holdings Ltd and Ferraus Ltd.

Stephen Dennis (BCom, LLB, GDipAppFin (Finsia), CFTP)– Non-Executive Director

Stephen has over 30 years’ experience as a company director. Previously he was Managing Director

of CBH Resources and is non-Executive Chairman off Heron Resources Ltd, Rox Resources Ltd, EHR

Resources Ltd and Graphex Mining Ltd. He has held senior operational and commercial positions at

MIM Holdings Ltd, Minara Resources Ltd, and Brambles Australia Ltd. He will be seeking re-election at

a General Meeting on Tuesday 21 May 2019.

Chris Achurch (B Com, CA) – Chief Financial Officer

Chris has worked with a number of major businesses across the exploration, mining, and agricultural

sectors. Having spent 10 years in public practice with RSM Australia based in Perth, with secondments

to Dallas and New York, Chris has a comprehensive understanding of commercial accounting, audit

functions and corporate finance.

Gareth Widger (BA, GIA (Cert)) – Company Secretary

Gareth has over 30 years’ experience in senior roles managing corporate administration and strategic

communication activities for public and private companies within the agriculture, industrial chemical,

mining, civil engineering, retail and wholesale sectors. His responsibilities have included incorporating

investor relations, stakeholder engagement, marketing and acting as media liaison.



Investment Risks

Commodity Price: KLL has single commodity risk, and will be affected by market sentiment towards

the SOP price, which may stem from changes in supply-demand balance, reduction in MOP price

(reducing the cost base for Mannheim SOP producers), evidence of China transitioning from net

importer to exporter, and substitution by other products such as polyhalite, etc.

Currency: As the SOP price is US dollar denominated KLL’s future earnings are exposed to AUDUSD

currency movements. There is also near-term risk to movements in the EURAUD, as a portion of the

initial capital expenditure is sourced from Germany (evidenced by Euler Hermes’ involvement). Finally,

there may be currency exposure on the Euler Hermes debt facility, if it is USD or EUR denominated.

Financing: The KfW-IPEX-Euler Hermes debt is yet to receive credit approval. Until all conditions

precedent are met, debt funds under these facilities will not be able to be drawn. KLL will also need to

raise equity to complete construction funding for Beyondie.

Project Development: It is likely that Beyondie will be the first brine SOP operation in Australia. KLL is

seeking to minimise project development risk through inclusion of performance guarantees and

liquidated damages in its contracts. K+S will be on-hand to provide support during the commissioning

phase. Notwithstanding, delays due to weather, delayed arrival of imported components, as well as

contract disputes are possible.

Operations: Key operating risks include:

Abstraction: not achieving target abstraction rates or brine grades as estimated in the

hydrogeological model upon which the Ore Reserves are based;

Evaporation and concentration: scale up differences between the 10ha trial ponds and the

full-scale ponds, as well as the potential for leakage, damage during harvesting, etc;

Process plant risk: not achieving product specification (eg chloride content) which could

affect the realised sales price;

Weather: cyclones and wet weather events can impact site access, restrict lake access, and

disrupt trench supply of brine to the ponds. Increased humidity also lowers evaporation

rates, which could slow / reduce availability of processing plant feedstock; and

Water: for the 180ktpa scenario, KLL may need to establish an additional bore field to

secure additional process water.

Government royalty: There is no specific royalty rate for SOP in Western Australia. KLL has assumed

SOP will fall within Amount A under s86 Mining Regulations 1981, and has used a state royalty of

A$0.73/t SOP in its BFS and FEED study. There is a risk the WA Government may seek to apply a

higher royalty rate, given the relative value of SOP compared to salt and other industrial minerals, and

it has already provided concessions to SOP developers in 2019 through reduced tenement rent costs.

Regulatory approvals: KLL is awaiting EPA approval (WA Government) for the Beyondie Project. The

Company has announced the EPA board has recommended approval, however Ministerial sign off is

required. This is anticipated this quarter.

Single asset: KLL’s core business will be SOP production from Beyondie. Risks are inherently higher

for single project companies due to a lack of diversification. Future SOP revenues may also come from

Carnegie, as well as magnesium and sodium chloride by-products from Beyondie.

Key personnel: Founders Brett Hazelden, Rudolph van Niekerk, and Brent Smoothy are largely

responsible for development of the project to date and will be through its ongoing development.



This Research has been prepared and issued by Kerr Allan Financial (“Kerr Allan”) and remains the property of Kerr Allan. No material contained in this

Research may be reproduced or distributed, except as allowed by the Copyright Act, without the prior written approval of Kerr Allan.

This report has been prepared and issued (in Australia) by Kerr Allan Financial (ABN 70 127 843 627 / AFS Licence No. 319 830) (“Kerr Allan”) and is subject to

the disclosures and restrictions set out below.

Analyst Certification

The research analyst(s) identified on the cover of this report individually certify that in respect of each security or issuer that the research analyst covers that this report accurately reflects his or her personal views about any and all of the subject issuer(s) or securities.

Disclosure

This is a commissioned research report.

The research process includes the following protocols to ensure independence is maintained at all times:

The research process has complete editorial independence from the company and this is included in the contract with the company; Our analyst has independence from the firm’s management therefore the management and sales team cannot influence the research; Our research does not provide a recommendation therefore this report cannot be interpreted as advice; All research mandates are settled upfront so as to remove any influence on the report; and All research staff are not allowed to trade in the stock or accept options before, during or after (for a period of 6 weeks) the research process.

Kerr Allan and its associates (as defined in Chapter 1 of the Corporations Act 2001), officers, directors, employees and agents, from time to time, may own or have positions in securities of the company(ies) covered in this report and may trade in the securities mentioned either as principal or agent or may be materially interested in such securities.

Kerr Allan does and seeks to do business with companies covered in its research. As a result, investors should consider this report as only a single factor in making their investment decision.

Disclaimer & Warning

This report may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This report does not purport to contain all the information that a prospective investor may require. Before making an investment or trading decision, the recipient must consider Market developments subsequent to the date of this document, and whether the advice is appropriate in light of his or her financial circumstances or seek further advice on its appropriateness or should form his/her own independent view given the person’s investment objectives, financial situation and particular needs regarding any securities or Financial Products mentioned herein. Information in this document has been obtained from sources believed to be true but neither Kerr Allan nor its associates make any recommendation or warranty concerning the Financial Products or the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. This document is not an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any Financial Product, and neither this document or anything in it shall form the basis of any contract or commitment. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Kerr Allan, its associates, officers, directors, employees and agents. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

Country specific disclosures

US Investors: This material is intended for use by “major U.S. institutional investors” (as defined in Rule 15(a)-6 of the U.S. Securities Exchange Act of 1934, (SEA 1934)). The information upon which this material is based was obtained from sources believed to be reliable but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer's best judgement as of the date of preparation and is subject to change without notice. Kerr Allan and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account.

United Kingdom: This report is issued and distributed by Kerr Allan only to persons falling within Articles 19 (5), 38, 47 and 49, of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, (all such persons together being referred to as “relevant persons”). Directors, officers and employees of such entities are also included provided their responsibilities regarding those entitles involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document.

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