Chatham Rock Phosphate: Slowing Momentum

Since our last update in May, Chatham Rock Phosphate’s (CRP) momentum has slowed. Delays to regulatory approval processes have weighed on confidence and investor sentiment. Following a soft result from a recent public offer, CRP has launched a new success-linked share offer to bridge it to and beyond separate consenting and approval processes. Our unrisked valuation rises slightly to NZ$2.04/share.

Progress stalls with approvals
In our last Update in May we highlighted an upswing in forward momentum by CRP, underpinned by increasing clarity towards regulatory processes and timelines. Explicit positive sentiment received by CRP from government authorities in April, informing that its mining permit application would be treated with priority, has yet to bear fruit. Uncertainty has weighed on investor confidence, which was an undertone to a weak result from a recently completed public capital raising.

Focus on funding and work programme
In June CRP launched, and in July completed, an on-market public offer to raise what it hoped would be the final tranche of pre-production capital it would need. Seeking up to NZ10m, the offer raised NZ$1.6m. The result sees CRP facing a near term but not unfamiliar funding crunch. We estimate a further NZ$7m is needed to fund its pre-development work programme, the largest component of which will be NZ$3.5m in costs associated with CRP’s application for environmental consents during H114. CRP has launched a further offer to professional investors that, if successful and combined with an assumed early part-exercise of a significant tranche of success-related share options by an existing cornerstone investor, should serve to meet its remaining pre-commissioning capital needs.

Valuation: Stable, but risk profile up
At a minimum, the recasting of its critical path to reflect extended approval processes means CRP is facing a delay of at least six months to the timelines it had been targeting until as recently as June. We assume CRP will receive a response on its mining permit application in October. Following this and securing new capital, a marine consent application can be lodged, the result of which would be expected in late-H114. During this time the technical work programme led by Boskalis, which is currently effectively stalled, can recommence. While our base case valuation lifts slightly to NZ$2.04/share, it importantly now assumes a lower diluted capital base as a result of the early strategic exercising of share options.

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