CLQ Announcement Archaeology...Part 2

CLQ Announcement Archaeology:   Part 2:  The Sallywoofs  Hypothesis

For those who find my posts long and cumbersome, I will put my hypothesis and speculations first,
then the evidence afterwards. This is a follow-up to post 31519693 on CLQ and scandium.

SUMMARY:  Clean Teq has a deep strategy, years in the making, that if successful  will revolutionize the
mining industry. Successful and timely completion of the Sunrise project is the key to that strategy.

The mid-year 2018 BFS for Sunrise, whether it is precisely on time or not,  will bring mining industry
attention worldwide and set off widespread interest in the company and its technology.

If Sunrise performs near forecasts, it will do more than make money.  It will be the proof-of-concept
that will create major changes in the industry and for Clean Teq as a company.

SELECTED BACKGROUND:
TARGETS Most are well aware that Sunrise has three target metals: cobalt, nickel, and scandium.  (Four elements, if one counts platinum.) Clean Teq technology is also proven as a viable extraction method in gold, uranium, titanium, and other elements as well. Furthermore, Clean Teq claims that their technology can be used for an astonishing variety of other elements:  See the  “Our Markets” tab on the CLQ website.
PROCESS This is not the place for a detailed explanation for Clean Teq technology and its methods. However the key elements in the process are individual resins that are designed for the target elements,  and employed in a continuous, automated ionic process. In cobalt and nickel sulfates the process eliminates steps needed in conventional methods. Based on what is known, it is reasonable to assume, though not certain, that Clean Teq methods will be comparatively economical.
IMPLEMENTATION The important differences between projects are the chemistry of the resins and solutions, the software for controlling the automated process adapted to the specific solutions,  and the size of the project. It is interesting that the basic components for the projects  are likely to be to somewhat similar, other than these three points of difference.


”MANAGEMENT ANOMALIES” That Need to be Explained
We read about “magnetic anomalies” in exploration companies. But with Clean Teq,
I have detected a number of “management anomalies”  that need to be explained.

1. FALL 2016 Scandium-only PFS…This PFS was done for Sunrise/Syerston to establish the deposit as a viable scandium project. The PFS outlined two options…a small scandium project, and scandium as part of a larger ni-co project. I refer you to my post 31519693 which discussed this in detail.

With respect to the current post, what is an anomaly is that two years ago CLQ spent a considerable sum of money to prove the Sunrise scandium resource; but now, with the project being the prime priority of the company, that scandium is excluded from consideration in the company forecasts.

1. The Pengxin partnership…January 2017 Pengxin was granted major equity and a board seat for $80 million in early 2017. There are a few notable facts about this.

First, the express purpose of the money raised was to fast-track and accelerate the Sunrise project. This was explicit in the Announcement. But  Pengxin Group, while they have a mining business, does not
have any particular need for the target minerals…they do not produce batteries, nor do they have a need for scandium. And Pengxin Mining’s expertise and know-how is not needed for Sunrise.

Second, the other connections of Pengxin are worth scrutinizing.  I concluded that they were mostly useful for political clout in China  for procuring water contracts. The water business is potentially important for Clean Teq, but it  does not have any special relevance to Sunrise.

Pengxin has contacts  in manufacturing, technology, international trade, finance, and construction; but they have no particular need for cobalt, or nickel or scandium. In fact they went out and established a position in a commodity firm, presumeably to capitalize on the production they just invested in.

So in my opinion, it merits a closer look at why Pengxin has such intense interest in CLQ, and why Friedland’s assessment of Pengxin is that they are a suitable STRATEGIC PARTNER.  

It is not just the water.  If it were, why would the purpose of the funds from Pengxin be to accelerate Sunrise, which is not a water project ?

It is not the Sunrise end products. Pengxin is not engaged in any industrial activities that would justify them taking a major position in a cobalt-nickel-scandium producer. In fact Pengxin had to get ready with a commodity broker to handle their share of the off-take; and the subsequent deals with Chinalco and Easpring underscore the fact that Pengxin itself has no need of the product.
It is not the stand-alone profit opportunity of a mining project in New South Wales.  Why would the   Chairman of Pengxin need to be a Co-Chair of such a company ? Why not just make a passive investment ?
Pengxin is a STRATEGIC PARTNER. But the money they put in is not going to water, it is going towards  acceleration Sunrise; butPengxin has no special interest in the products Sunrise is going to produce, and their help is not called for in building or operating the mine.

My conclusion is that Pengxin and CLQ have a very large and important reason for being partners, but have not really explained it.  

Something that goes beyond the you-scratch-my-back-I’ll scratch-yours of the Chinese water contracts.

Something that goes beyond the potential profits and production of a cobalt-nickel project in New South Wales.

Something that depends very much on the success of Sunrise… but not on the specific products Sunrise is going to produce.

The answer is at hand. What is of great interest is the TECHNOLOGY OF THE SUNRISE PROJECT.  
If Sunrise is successful, it will have a revolutionary impact on the mining industry.
This is why it is worth the time and energy of Jiang Zhao-Bai and $80 million of Pengxin’s money to get
an interest in a company that is going to produce products that Pengxin itself DOES NOT NEED.  

1. Pre-BFS expense anomalies…CLQ has spent millions and millions of dollars on pre-construction and long lead-time equipment that are normally not considered until a favorable BFS is produced. The most notable was the $8 mil autoclave purchase last summer, over a year in advance of the BFS and subject of several news releases, which are also anomalous in that equipment purchases for pre-BFS projects are not usually the subject of multiple news releases and photographs.

The implication is clear that they are supremely confident that the BFS will excel, and they have already decided to build. They have also declared that Sunrise is the sole priority for the company.

1. The Friedland time management anomaly…Whatever one wants to say about Robert Friedland, whatever other opinions one may hold, it must be conceded that he is a superb manager.

So why does such an excellent manager devote so much of his time to the Sunrise project ?

I have been a manager myself, over a business with different sectors and personnel. One cannot
allocate a high percentage of one’s time and energy and resources to a sector that is only a small part of the business.  Unless…

Unless one believes that the small sector has the potential to be much, much larger.  

I do not have access to RF’s calendar or how much time and energy he is giving to Sunrise.
But I can give you a list of his other responsibilities:

-A capital and venture investment fund
-I-Pulse, a high-tech company
-HPX, a tech company
-Chairmanship of Pu Neng, a VRB manufacturer with a large contract in China
-Management and negotiation with major counterparties in academia, industry, finance, government
-Ivanhoe Mines Kamoa-Kakula,  which is developing the third or fourth largest copper mine ever discovered, and is currently at the center of the political mayhem in DRC
-Ivanhoe Mines Platreefs, itself valued at over $300 million, likely the best PGM project world-wide
-Ivanhoes Mines Big Zinc Kipushi, the world’s highest grade zinc project by a 2x factor
-Interests  in African graphite and uranium, Bolivian copper, Chinese coal, and Canadian zinc
I list these interests not to praise Friedland, or to sell his track record, or to impress.
I mention them to give a context of what he has to manage. It is in the billions and billions.

Sunrise was  worth next to nothing a short while ago.

Why is it  so important to Robert Friedland, that he would devote so much of his precious time to it ?
.  

1. Deliberate and systematic understatement of Sunrise financial projections

Typically miners overinflate their accomplishments and  spin all data to the maximum to persuade potential investors that their project is worthy of investor capital.

In contrast,  Clean Teq has  systematically and dramatically UNDERSTATED
the financial potential of Sunrise:

1. The positive results from the 2016 scandium PFS are excluded.
2. The fall 2017 study used $12 cobalt.
3. The February presentation used $14 cobalt.
4. The sulfate premiums are excluded in the February presentation.
5. While the results from an expensive prior study on scandium are excluded, and Clean Teq IR itself

downplays the immediate importance of scandium, the company files patents on scandium processing, and completes a deal with the largest ALUMINUM COMPANY  in China, and a first-rate
Chinese research university, for the explicit purpose of developing sca-alu applications in global aerospace and transport. Mind you, global scandium production is under 50 tons per year.
Yet here is Clean Teq intent on producing 170 tons of the stuff within five years.


THE SALLYWOOFS HYPOTHESIS…A speculative  explanation for CLQ Management Anomalies

Obviously, I believe that Sunrise is going to be a hugely  profitable operation.
I have even stated that I believe this will be the most profitable mine ever built,
depending on what measure one wants to use.

However, an even more dramatic possibility comes into view:  The Sallywoofs Hypothesis,
herewith:

Clean Teq will provide a revolutionary technical model for the mining industry;  
Clean Teq will sell mine “component kits” for a variety of different target elements; and
Clean Teq and Pengxin will wholesale mining technology  world-wide, and
Clean Teq will JV on the best projects

A few  notes on The Sallywoofs Hypothesis, which fits known facts and explains anomalies:

Many of the applications will be for tailings and waste, for which the rights will cost very little.
In some cases, Clean Teq will be paid to do it.  Negative capex to acquire deposits.  
Low costs never go out of fashion.  The business will be not affected by normal economic upturns and downturns. In downturns it is even more important than ever to have low costs.
The savings in time and money will be irresistible for new projects, and the savings will be such that there is plenty for a royalty.
Target variety: Clean iX has a large variety of targets
Target library:  Clean Teq acquires another product with every successful application

Marketing: Clean Teq has Multotec as a distributor, world-wide offices,  and great clout in China;
Friedland’s mining contacts alone are worth many millions in such an enterprise

Synergy of the Strategic Partner:  Pengxin’s capabilities in finance, manufacturing, technology, software and trade become fully utilized in TSWH; mine “kit “ components can be manufactured at low costs in China; and Pengxin can deliver huge Chinese volume, not only in water but in mining

IP and research; Clean Teq has three top-rate universities doing pertinent research in materials. These are not needed for just a nickel-cobalt project.

   A few statements by RF himself…paraphrased
“Mining is a rotten stupid business”
“Our concept of what ore is, is about to be changed forever”

“Traditional mining metrics like cut-off grades  are about to be obsolete”

But my favorite statement of his was at a presentation he delivered at the Indaba convention. The  presentation on the future of copper and battery materials, given to an audience of investors, analysts, and industry types.  At the end he said (paraphrased):

“Before I go, I know all of you are looking for a stock tip. Everybody wants a hot stock tip.  
Well, I am going to give you one:  BUY CLEAN TEQ !”

It was so bold and tongue-in-cheek everybody laughed.  

But I bought Clean Teq.