Chatham Rock Phosphate Ltd [NZX: CRP]
Mining
Making the right moves
Chatham Rock Phosphate (NZX: CRP) is an International mining company that has focused its approach to developing the Korella North Rock Phosphate Project in northwest Queensland. Chatham is rapidly moving towards production at its Korella North Project to benefit from 10-year high phosphate prices. The company expects production at the Korella North Project to commence in December 2023. With the tight market for phosphate rock and the soaring demand for Australian low cadmium phosphate, we see substantial value in the Korella North Project
Building an international phosphate business
Chatham’s long-term strategy is to build an international phosphate mining and trading house with a focus on low cadmium, organic phosphate. In addition to the Korella Rock Phosphate Project, Chatham owns two other phosphate properties in New Zealand and French Polynesia, each targeting potentially large resources of phosphate minerals. The company is also working on other phosphate-related projects in Australia to drive more value from its Korella phosphate operations. It's planning for manufacturing of Monocalcium Phosphate (MCP) nearby to its Cloncurry phosphate distribution hub and has also commenced a Prefeasibility study for its 2Mtpa Korella South export phosphate project matched with a scoping study into a stand-alone 5Mtpa phosphate/fertiliser export facility in the port of Townsville.
The tight phosphate market supports the project’s economics
Phosphate rock prices are firmly at 10-year high levels due to bans on Russian and Belarusian products and China’s export restrictions on its phosphate rock producers due to high domestic prices. Despite being the largest exporter of phosphate rock in the world for many years, China sits on only 2% of the world’s phosphate rock reserves. This is while the country is home to about 19% of the world's population. Therefore, we see China’s phosphate rock export levels as unlikely to recover entirely for the foreseeable future as the country would be more likely to conserve its limited reserves to ensure the food security of its massive population in a world with elevating geopolitical tensions.
Valuation range of NZ$0.25–0.41 per share
We value Chatham at NZ$0.25 per share in a base-case scenario and NZ$0.41 per share in a bull-case scenario using a DCF valuation methodology and based on a fully diluted number of shares on issue after assuming a full uptake of the ongoing private placement to raise NZ$4.6m at NZ$0.154. Our target price range represents a Price/NAV of 0.44x, which we believe indicates substantial upside potential as our valuation range only includes the value of Chatham’s Korella phosphate rock projects. The key risks to our investment thesis include commodity price risk, funding risk and project delay risk.