WA Kaolin commences trading at a premium after heavily subscribed IPO

WA Kaolin (ASX: WAK) began its journey on the bourse today, offering investors exposure to its kaolin operation and plans on becoming a “globally significant” producer to meet mounting market demand.

The company’s initial public offering was heavily oversubscribed after offering 110 million shares at $0.20 each.

They were also given one free attaching option for every two shares.

In total, the company raised $22 million before costs to fund its stage one expansion plans, with an implied market capitalisation of $56.5 million.

Shares in WA Kaolin reached an intraday high of $0.325 before settling at $0.25 mid-afternoon.

Proven operational success

WA Kaolin has been around for more than two decades and owns the Wickepin kaolin mine which has a current JORC resource of 644.5 million tonnes of high-grade premium kaolinised granite.

WA Kaolin secured the project, from Rio Tinto (ASX: RIO) in 1998 and has since spent more than $42 million on developing the asset, which is 220km southeast of Perth.

According to WA Kaolin’s chief executive officer Andrew Sorensen, the Wickepin project hosts one of the largest remaining premium primary kaolin resources globally.

The resource is characterised by its purity, quality and brightness which has typically attracted higher prices from a “growing collection of top tier customers”.

Proprietary technology

Part of the funds invested over the years were used to optimise WA Kaolin’s propriety dry processing method for the ore to expand its global end-user markets.

Known as the K99 Process, WA Kaolin’s proprietary technology is able to generate an ultra-bright kaolin at a low production cost.

Unlike other processes, the company’s technology does not require chemical bleaching or multiple wet mechanical or magnetic separation stages.

WA Kaolin’s ore is currently treated at a plant in Kwinana using the K99 Process with up to 5t per hour of material produced over a 16-hour day, five days a week.

Established buyers in place

To de-risk its operation further, WA Kaolin has an offtake agreement with an existing buyer Dak Tai Trading.

Under this deal, WA Kaolin will supply 338,000t of its ore over six years.

Other informal arrangements are in place that support WA Kaolin’s targeted production from Wickepin.

Combined, these contracts amount to 551,000t of kaolin from Wickepin over three years – representing about 83% of the planned 664,000t production over the period.

IPO proceeds to fund expansion

Earlier this week, WA Kaolin published a definitive feasibility study for Wickepin to underpin its plans to boost production to 400,000t of kaolin annually.

The study evaluates a staged expansion program that will involve constructing a new processing plant at east Wickepin.

It is estimated the plant will have a capital cost of $16 million and this will be funded from the IPO proceeds.

The plant will take 12 months to complete and is expected to boost production to 200,000tpa of kaolin by the of 2022, while lowering operating costs.

Additional modular increases to boost production further to 400,000tpa have been planned in a further two stages, with upgrades to coincide with demand and funding capability.

Over the first 12 years of operational life, the definitive feasibility study predicts average earnings before interest tax depreciation and amortisation of $321/t of product sold – equating to about $350.6 million.

Annual operating cash flow of $20.87 million is anticipated.

Prior to beginning the first project expansion phase, WA Kaolin will continue its current mining and processing operations.

Increasing demand

WA Kaolin plans to begin approaching customers across multiple markets to inform them of its higher production coming onstream.

Other offtake negotiations are already progressing with customers that have already been engaged.

As part of its market expansion strategy, WA Kaolin said it will be targeting customers across paper and plasterboard, ceramics, fibreglass, pains and coatings, plastics, rubber, pharmaceuticals and medicine, cosmetics, concrete and agriculture sectors to potentially secure more offtake agreements.

The company is looking at entering the premium paper and packaging market by constructing additional wet processing facilities. Approvals for this product have already been secured with major producers in China, Japan and Korea.

Further research and development as well as market testing of this products will be undertaken.

Meanwhile in the high-value, high purity alumina space, WA Kaolin noted it will continue monitoring the industry and make a move to enter the market “at the appropriate time”.

Another potential market that WA Kaolin is evaluating is in metakaolin production.

The company plans to commercialise its technology for generating metakaolin at its Kwinana pilot plant.

Metakaolin is used in geopolymer cements that do not require the extremely high temperature that is critical in the Portland process.

WA Kaolin estimates geopolymer cements could reduce carbon dioxide emissions by as much as 80%.