You probably already know him, the CEO of Zeotech, Mr. James Marsh. We're going to go into a bit of a deeper dive Q&A today, and we have a lot of questions here ready to go. James is going to kick us off with a bit of an overview on the ASX announcement regarding the DSO agreement with MSI that we saw yesterday. I'll hand it over to you to start that, James.
Yeah, thanks, Peter, and thanks everybody for joining us this morning. It's a great opportunity to explain what this means, our announcement this week, in fact, yesterday, the DSO offtake. This is a very significant step forward in the company's progress, and it's a very significant offtake. I've been in this industry for 38 years, and this is probably the biggest offtake ever that I signed up. It represents getting close to $200 million of revenue in the first five years alone. Very significant revenue for the company. This is based on DSO as well, so very simple, straightforward business. We're talking there, looking at margin probably around about 30%-35% based on our pre-feasibility numbers that we've published. That will give us in the region an EBITDA in the region of $10 million-$12 million per year starting from early next year.
Just around the corner, this will start. This is probably the biggest, I don't know, in fact, it is the biggest deal that's ever been made in the kaolin industry in Australia. That is really a demonstration of the quality of the product we have and also what value it offers in the market and how simple the business is. A very, very significant offtake this one. We're looking forward to now progressing this. It is a binding offtake, so I should emphasize the fact. It's a binding term sheet, so it's legally enforceable. It will progress to the next stage, which is a long-form agreement. That is just really getting details in place. Now, the core principles are accepted and legally binding. That is price, terms, and the conditions, and the volumes. That's all fixed.
Now we just have to work on a few things like ordering, supply, QA, QC, just details to follow on this one. That should happen in the very near future.
James, it was a great announcement for shareholders, and we saw the 20% increase on the price. I think the value of that will continue to become aware to the market. The DSO offtake agreement what does this offtake agreement mean for Zeotech? Can you talk through the metrics a little bit more and what it means in terms of the PFS numbers?
Yeah, so it's actually better than our PFS numbers. That is also very positive. The early cash flow is very significant to us. That's income from early next year. That really sets us up in a very strong position. We have actually quite a small capital investment required to get this business going. I mentioned before that number, $200 million almost in the first five years. The actual investment that we tabled in our pre-feasibility study was around about $7 million capital expenditure. We believe that we can probably do a lot better than that. We're talking about a very small expenditure to get the mine up and running. That'll get us into that early cash flow very quickly. Importantly, there's some very significant synergies with our core business.
Just to make that clear, this business with the DSO, it's very significant, but it's actually not our core business. We still have a much bigger deal that we're working on in the background. That's going to be greatly assisted by having this DSO in progress because the capital expenditure for the mine and the road improvements that we need to do, that's all going to happen with the DSO funding upfront. Everything will be in place for the AusPozz, which is our core business coming through. That's all going to be funded from this DSO.
It's almost a phase one, isn't it? How does this offtake agreement impact the AusPozz business? As you said, it gives you a bit of a start path, but overall, will it get in the way? Is it part of the overburden? Is it something that you can run concurrently?
Yep, so it can run concurrently very easily. The mining plans are very simple. I mean, like the whole company strategy and flow sheets are kept simple on purpose. Very simple, open cut mining. We have about two meters of overburden to push to one side, which is actually a bulk site. The trader who we're dealing with actually wants to buy that bulk site. We haven't included that in the first stage of this because we want to stockpile that and maybe incorporate that in the future. Once we've pushed that to one side, it's just free dig, so just quarrying. What that'll do is open the mine up. We'll get the whole road, then we'll get the council roads upgraded. That's all included in that about $7 million Capex. That'll be everything that's required for the main business to start.
When we start to produce AusPozz in the future, it'll just be following exactly the same process. The mine scheduling just incorporates the feed for AusPozz into the process. There are actually a lot of synergies there. It's going to help the whole business.
James, I would mention that the capital required for the AusPozz project will set you in a stronger position from which to work on that funding.
Yeah, that's very true. We're looking at maybe $100 million CapEx for the AusPozz plant that we're planning to build at Bundaberg Port. Having that early cash flow with the, say, $10 million-$12 million of EBITDA, that's really going to help us dramatically. The funding for that should be made relatively simple thanks to this DSO business. I should mention that DSO business is now split into two types. We've got the DSO kaolin, which is a low-iron material. That's the core amount, which is about 150,000 tons a year. We have the cosmetic grade that starts at 10,000 tons a year and it grows. That's much higher value material. If that one penetrates the Chinese cosmetic market, that 10,000 tons is just a drop in the ocean. That could grow dramatically. That product is a lot higher value than the actual normal DSO.
For us, it's exactly the same mining cost. It's some very useful business to have there.
James, without holding a guarantee ahead and quoting this into the future, what is your anticipated timeline for the commencement of the work on the DSO offtake?
Yep, now we've got the agreement signed. Now that it's a legally binding agreement signed, it's all systems go. We've now engaged GHD, who are a tier one engineering design company. They are already working on the road upgrades designs. They've identified some very interesting opportunities to save money as well and do the work much more quickly. They're engaged fully. We've met the council, presented to the council. They're really positive and behind us, ready to back the whole project. That's now moving forward as quickly as possible. We've just started our heritage clearance process. That's all happening. We're looking at getting this done. According to this offtake we signed, we need to get all of our permits, permissions in place by end of Q1 next year. Our target is to get this done in advance of Q1 next year, and then we can move into supply shortly afterwards.
That's right, pretty quick. This is not easy and easy permitting, but this is a pretty, pretty fast movement. That would be very well received by shareholders. James, MSI, what is their final use for the kaolin? Where is this kaolin going to be used in their business?
Good question. Yeah, MSI is probably, I think, the world's biggest trader in kaolin. They know this business well. They've done it for many years and very successfully. They're a great partner to have. We've kept this business to one customer only to make the whole thing a lot more simple. Dealing with one customer with such a large amount is very unusual in the kaolin industry. Normally, you have to have dozens or even hundreds of customers with individual contracts. It's so complicated, difficult. This is very simple. One customer, DSO, and also FOB business, so free on board business. That means that all we do is get the material to the port and then they deal with the rest. We haven't got any risks. It's very significantly de-risked right through the whole process here. Now our kaolin is unique in the world.
It's such high purity from the ground. Our DSO doesn't need to be refined to be used. It can be used as is, straight from the ground, and it will compete directly with highly refined products. Other kaolin products that you may have heard of produced around the world have to be refined, usually wet. The wet is the best way to do it, and that costs a lot of money. It's also high labor. They also have logistics issues. They're normally a long way from ports. The fact that our material doesn't need to be refined, it can be used directly as received, is great. Cosmetic grade exactly can be used just milled and sent to customers with nothing further required. MSI is specialized in some areas of the industry where they sell into areas like coatings, which is paints and inks, for example.
There's some very high value business to be had. In China, they know those customers. They've dealt with those customers for years. They could refine our material, which doesn't take much effort at all. Now we're talking about 90%+ recovery. That compares with a typical Australian kaolin who's about 35%-40% recovery. They can refine our material. It's a 90% recovery. It takes minimal refining and they'll get something that's worth a lot more money. We both stand to make a lot of money from this, which means it's going to be a great partnership together.
Could you describe, if you can, the operation of pit to port, getting the product from the pit project and where it's going to go, the pathways, the port facilities? How easy is that going to be? Do we have access to loading and all of that?
Yeah, that's another problem with a lot of kaolin projects around Australia, especially that it's a situation close to a deep water port. Now we're very fortunate that the Toondoon deposit, which we have, is only about 200 Km, a bit over 200 Km from Bundaberg Port, which costs us about $40 a ton to get to the port. Digging is absolutely minimal cost because it's just quarrying. It's about a $40/ton truck cost to get to port. At Bundaberg Port, we have a very underutilized port there that's invested over $20 million value recently in a bulk minerals loading system that's not being used at the moment. We have access to lots of storage brand. We have a multi-use conveyor that's already sitting there, not being used, that can load directly into ships in bulk. Extremely well positioned there to make this, as I said, for a very simple business.
It's just free dig, truck down to port in B doubles. It's on a fully approved logistics route by the transport main road. No issues with trucking, straight to the port, plenty of ground there to store it. There's actually three or four options at the port to store it. It's onto the conveyor belt onto ships. Free on board business, as I mentioned before, that means that all that risk then is carried by the customer.
It sounds like it's perfectly situated, which is great. This agreement with MSI is potentially the beginning. Let's just summarize the discussion of the offtake agreement, James, that this is a five-year deal with a DSO, easy dig, easy ship, but could be the beginning of a much longer agreement with MSI.
Correct, yeah. As I said before, we've got 20 years at least of supply of this mineral that they, the two types they want, the cosmetic type and the DSO type, which is low iron. Five-year initial term, getting close to $200 million of revenue. There'll be a price increase every year on that. It's going to be something very interesting to negotiate every year. Because once customers start using this material and they get it into the market in China, and especially the cosmetics one, if that gets a foothold in the market there, this could even grow and grow. It's capped at the amount we have at the moment, but we could well find more of this. In that case, it could be expanded to much bigger volumes.
All right, I'm going to move on to the AusPozz part of our Q&A now, because that is the longer-term plan and the major priority. What's next for the AusPozz, the DFS testing, approvals, commercial scale demos? Can you talk us through that? I think some of the trials that you've been running in the background.
Yeah, so AusPozz, which is our core business, the DSO is a great starter and it will make us a lot of money and make us very successful. We have something even bigger coming along and it's not that far away, to be honest. The AusPozz opportunity is progressing very rapidly. We issued our pre-feasibility study fairly recently, that was a milestone, which has triggered some other things, which we'll talk about in a minute. Now we've done that, we are moving rapidly into our definitive feasibility study phase. We are engaging, in fact, we have engaged a whole load of consultants already, very specialized consultants in the right space that will get us through our final permits improvements around the road. I mentioned DHD doing the road upgrades and so on. That's happening from a company perspective.
Out in the market, we have been testing AusPozz in a whole host of applications, various types of concrete, but it's also gone out to other building products. I can say without exception, we're having positive feedback everywhere. We've had no negative feedback anywhere. That's progressing very well. We've got all of the major concrete companies in Australia testing, and we've got all of the tier twos below, the independent cement and concrete people testing. Plus, we also have engineers, consultants who are very clued up to what we're doing and very interested in what we're doing and planning to incorporate AusPozz into their future designs and projects. In that vein, we have our biggest concrete tour planned for later this month. We're aiming for about eight truckloads, so that'll be about 90 cu m of concrete.
That's a full-scale commercial trial demonstration that's going into a weighbridge, a high usage, a high demand concrete area. Excellent to demonstrate the performance of AusPozz and how good it is. At that demonstration, we'll be having, at the moment, there's about 20, maybe 30 Senior Engineers from various companies coming along, including main roads and concrete cement companies coming to watch what's happening there. That's the third, fourth in the line of commercial -scale runs that we've done. This isn't the first one. We know it's going to work beautifully. We've already put down a slab there that we haven't talked about much. This is going to be a next step up. This will really sign off all of the outstanding questions around AusPozz, and it'll also show how well it can be used and what quality concrete it does produce.
James, what are the driving points from perhaps some government and industry bodies on AusPozz from an environmental and construction point of view? Is there engagement with those authorities?
There is because this is a very hot topic now. The decarbonization of the construction industry is becoming a major focus of the Australian government. This is putting a lot of pressure on the high emitters, which is the tier one concrete cement people. They have to reduce their carbon footprint. The safeguard mechanisms coming in, it's already set at 100,000 tons of carbon or above, which captures all of those majors. The word is it's going to be reduced to lower than that. It means that they are under big pressure to decarbonize. AusPozz is just a fantastic opportunity to do that. We've demonstrated that it's such reactive material with such a low carbon footprint that it can probably allow them to hit their targets, now in short-term targets very quickly.
That will allow the government also to get close towards their targets that they're now struggling to get to. There's a lot of government interest in this. Now we're talking about a product that can our train one that we published for our PFS. That's only one. We could do multiples of that probably. We'll reduce about 230,000 or 240,000 tons of carbon emissions per year. They'll eliminate those emissions. That's a very significant amount because there are companies out there in the cement concrete space that have received in excess of $15 million from the government to reduce their carbon by 100,000 tons, less than a half of what we can do. We can create jobs in a rural area. That means that we've got all of the, we tick all the boxes for the government.
The results we're getting in the concrete now are so outstanding that we're getting every week, we're getting more and more interest, more and more requests for samples. The key thing here is it's not just a technical solution for concrete people. It's very easy to get technical solutions that never become economic. They fall over all the time. You see them everywhere falling over. This one is, this has got everything it needs. It is extremely economic. We're looking at matching cement prices, but also exceeding the performance of cement dramatically, as well as being low -carbon. We've got all the makings of something here that's going to be a huge success.
James, in terms of, as you say, it seems to tick all the boxes. In terms of the pathway now for Toondoon's project and the AusPozz production ahead, do you see any impediments, hurdles, or with the trials, any interest from industry, any MOUs that we're seeing that this is now a project which is, the runway is clear and it's just a matter of time and funding?
I would say that, yeah, certainly what we're seeing now, the runway is clear. We've got a few things to do to get there, but we have got none of the barriers to entry that normally you'd get in this industry. Now we've got a project that has what's going to be a world-class product that we can sell 100% of that in Australia. Now this AusPozz, we don't need to go outside of Australia. We can sell the whole lot here. We are completely world-proof. This is a great business. It's very, very low risk. Probably one of our major milestones we need to now get through is to get more of our material. Because the ore that we use to make AusPozz, we've put about 10 million tons into our pre-feasibility study. That gives us some great metrics. That gives us over $1 billion like a mine EBITDA.
We know we've got 20 million tons though, within only 60% of our mining lease. We haven't drilled the other 40% of our mining lease, and we haven't drilled outside that. We own 10x that area of freehold land outside of the mining lease. We want to do some more drilling now. One of the questions is, okay, this is a great product. It works really well. We want it, but how much have you got? How many, not years, how many decades can we supply it for? Now we're going to expand that. We've got a drilling program worked out to find out how many multiples we may have, that 10 million tons or 20 million tons. The other question for the industry is, we've got orders now for it. People want to buy it right now. How quickly can we get into production?
We're working very hard on looking at opportunities to get into production early. We know we've got the perfect feed here. We've got a great product. We've just got to find a way to get it into market earlier. We're working those options now. The pre-feasibility study went to our partner, Holcim . That was part of the MOU we had with them. That was a major milestone with them because now they've got the full pre-feasibility study. They are now looking at that closely, and now we're talking to them. The next step with them is, okay, what's the next step? Is it an offtake agreement? Is it a joint venture? What do we do next? Some very exciting times ahead. These aren't long-term objectives. These are happening short-term.
James, the Holcim partnership is very significant. As you say, there's opportunities, not just at offtake, but perhaps more strategic engagement. Has there been any discussion or is there potential for Toondoon to supply Holcim internationally, not just in Australia?
Oh, there is, yeah. I mean, I mentioned before we've got 10 million tons, which gave us our 20-year mine life for a train one. We've got another 10 million tons there we can convert into an ore reserve fairly easily. We could potentially supply 20 years to another operation. That could be supplying the raw ore over to a site somewhere offshore where it's processed and we have maybe some profit -sharing agreement. Those things are being discussed. We do already have some major companies overseas that have tested AusPozz. They like it and they want to know when they can buy it. Not just Holcim . This is other major construction companies. There's probably six countries now where we've got approvals and they want to buy AusPozz. There's definitely some offshore opportunities there. As I said before, we don't need to take those opportunities.
We can keep it all in Australia, keep it simple. What we can do is we can cherry-pick those opportunities, whether it's some high-value business, high-margin business, or just maybe some very easy business. We can start that as well. Bundaberg can handle as much as we can ship out, as much as we can produce. No issues there. It's just going to be a case of getting our core relationships converted into offtakes here in Australia. We've got the DSO now. We're working on the AusPozz. Once we've got those core offtakes in place, we're going to have a fantastically successful business. We can just grow on the, now cherry-pick the real cream on top for these, maybe some offshore opportunities. Even in Australia, there's a whole host of people who want AusPozz in smaller operations. Everything from grouts, renders, mortars, plasters, even adhesives.
It's been tested and approved. That's some very high business there. They are using metakaolin right now, but they're buying it for up to $2,000 a ton from overseas. It's a bit constrained by the price. If we can come in at the prices we're talking about, we're talking about our high-value business, less than half of that, then we can make some very nice margins on that. From that point on, it'll just get more successful.
I'm just going to circle back to where we started with the DSO agreement. Queensland seems to be supporting their mining industry quite strongly. The regional area we are at is obviously going to see the benefit of lots of jobs and industry, which will ripple into different areas. Are there any other permitting issues that you might have? Environmental, Aboriginal, any other sort of access issues, or do you think those have already been laid down?
We have a fully granted mining lease, so that means that we could actually mine tomorrow if we wanted to. We need heritage clearance, but there's native titles that are extinguished there. It's a process to make sure we follow the right process to get the full heritage clearance. That's not an issue. That's not a blocker. The only permits we do require, ones I mentioned before, are some council permits for the road upgrades. The council, we've met the council, they are very supportive and they're keen to support this business. It'll create about 140 new regional jobs. That's quite significant. We also, of course, have our Horizon 2 product I had mentioned, which is our Zeolites that will come off the back of the AusPozz. Horizon 2 is looking like it's going to be an interesting solution for landfill sites.
The council there, North Burnett Council, which is where the mine is, they are very keen to assist us and also get the benefits for their landfill operation. The answer, the quick answer, no more, there's no barriers to entry there, just some final permitting. This can start. That's why we're confident. Our conditions precedent in the offtake state that we have to get this done by end of Q1 next year. We're very confident we'll achieve that. We'll start the shipping and the sale soon after.
Right, James, I think we've covered everything there. We're looking forward to, as you said, movement towards the end of the first quarter next year to see some activity and getting the DSO operation underway. AusPozz is hot on the heels of that. We're looking forward to hearing more news. Is there anything you'd like to leave your shareholders and potential investors with before we sign off?
No, just to let everyone know that, yeah, this is, you know, we've done what we said we'd do here. We said we'd get the DSO offtake done as quick as possible, and we've got the biggest offtake deal for kaolin ever been achieved in Australia. That's a big one ticked off. We've now said we're moving to the offtake for AusPozz, and we'll do that next. Just stand by for some more good news coming through.
Terrific. Thank you very much. We'll have a recording list for everybody who's registered and the rest of the market today. If there are any other questions you'd like for James to answer, please send them through to peter@nwrcommunications.com.au. Thank you for your attendance today. Thank you, James. We look forward to hearing from you again soon.
Thank you. Goodbye.