The Offering

Company Overview

Chrysos Corporation Limited (hereinafter referred to as “Chrysos” or “The Company”), founded by Australia’s national science agency, CSIRO, is a market leader in gold mining analysis technology with the help of Photon Assay. The company’s Photon Assay technology delivers precise, safer and environment-friendly analysis of gold, silver, and other precious metals. The Photon Assay technology uses high-energy X-rays on the rock samples, which activates atomic nuclei of the metals, hence magnifying the atomic structure, which helps in a comprehensive analysis of gold, silver, and other precious metals in minimal time.

Corporate Structure of the company

Source: IPO Prospectus

Key Highlights

Primary offering: The company is undertaking an IPO of 10.0 million new shares and 18.2 million existing shares for sale offered by Chrysos Sale Co Limited (SaleCo) at an offer price of AU$ 6.50 per share, except for the Employee Offer. The applicants falling under the Employee offer would be paying AU$ 5.85 per share.  The estimated proceeds from the issuance of new share would be AU$ 65.0 million before cost, while around AU$ 118.5 million from the Sale Shares offered by SaleCo. Hence, the total funds raised under this offer would be AU$ 183.5 million.

Use of Proceeds: The company intends to use these proceeds for the following:

• Around AU$ 61.3 million of the proceeds will be used in growth capital expenditure to construct and install additional Photon Assay units.
• Around AU$ 115.5 million of the funds raised from the transfer of Sale Shares will be paid to the Selling Shareholders (before costs) and will not be accessible for the Chrysos’ activities.
• Around AU$ 6.7 million will be used in other expenses incurred by the firm during this offering. Below is the table showing a detailed breakup of the use of proceeds:

Source: IPO Prospectus

Advantages of Photon Assay Technology: The company is a pioneer in Photon Assay Technology, with various benefits over fire assay. The company's current Photon Assay Technology is ecologically friendly since it eliminates toxic waste from the environment, reduces CO2 emissions, and minimizes exposure to hazardous chemicals.

Expansion in Total Addressable Market (“TAM”): The company has secured contracts to provide an additional 25 Photon Assay units until 2024 and is trying to expand its order book. Photon Assay Technology is now employed for gold metallurgical analysis and copper and silver to a lesser extent. However, since this technology can detect more than half of all naturally occurring elements, the organization may eventually expand into other elements.

Attractive Customer Proposition: The firm has leased Photon Assay units to Barrick Gold and Agnico Eagle, the largest gold mining companies by production. Moreover, it has also leased Photon Assay units to the largest Testing, Inspection and Certification (TIC) companies by revenue, ALS, Intertek and SGS.

Dividend Policy: The company does not intend to declare or pay cash dividends shortly. Its current strategy is to utilize cash available and future earnings to support its business operations and expansions.

Industry Overview- Recent Trends and Outlook

The Photon Assay Technology is primarily used by gold and polymetallic mining companies and independent geochemistry services providers. Below is a brief overview of the industry trends impacting the use of geochemistry services:

• Global Addressable Market for Photon Assay: The installation of Photon Assay units is done in two ways, on-site labs and off-site laboratories offered by Testing, Inspection, and Certification (TIC) firms. According to Chrysos management, installation at on-site laboratories is commercially viable for gold mines producing 40koz or more annually. There were 410 mines approximately in this category globally in 2020. Also, 200 off-site laboratories continue to offer fire assay services, making them viable deployment sites for a Chrysos Photon Assay unit.

• Global Gold Production: Demand for Photon Assay is related to gold production, as Photon Assay Technology is used to identify ore zones from waste, process control, and determine final product grades. Global gold production increased at a compound annual growth rate of 2.7% from 2010 to 2019. Although production subdued in 2020 due to the COVID-19 pandemic, it has bounced back sharply in 2021.

• Gold Price: The price of gold is a crucial factor that drives activity in the gold mining industry and, therefore, demand for geochemistry services such as assaying. The U.S. Federal Reserve is expected to contain inflation through a series of interest rate hikes in 2022, which is expected to drive gold prices higher in 2022. However, estimates for the average gold price in 2022 remain well above historical averages, which is conducive to strong margins for operating gold mines. Historically, higher gold prices have aided the mining companies in generating lucrative returns. Below is the graphical representation of historical gold price and S&P/ASX 200 Index returns.

Source: IPO Prospectus

Financial Highlights (expressed in 000’s of AU$)

Source: IPO Prospectus

• Increasing Revenue: The company’s total revenue and other income for H1 FY22 increased to AU$ 5.52 million, as compared with AU$ 2.02 million in H1 FY21. The increase is mainly attributed to higher leases of Photon Assay units and increase in minimum monthly assay payment (MMAP) made by customers under the Photon Assay leases.

• Rise in Operating Expenses: During H1 FY22, the total operating expenses increased to AU$ 4.05 million, against AU$ 2.13 million in H1 FY21, mainly due to higher employee benefit expenses.

• Increasing EBITDA: Primarily, on the back of elevated revenue, the company’s EBITDA increased to AU$ 0.63 million in H1 FY22, against negative EBITDA of AU$ 0.50 million in H1 FY21.

• Net Profit After Tax (NPAT): The company minimized its net losses to AU$ 1.0 million in H1 FY22, against a loss of AU$ 1.90 million in H1 FY21.

Key Management Highlights

Source: IPO Prospectus

Risks Associated (High)

Investment in the IPO of "C79" is exposed to a variety of risks such as:

• Supplier Risk: The company is dependent on third party manufacturing suppliers. There is no certainty that suppliers will be able to meet the company's cost, quality, and volume requirements.

• Cybersecurity Risk: The company relies on information technology to perform its operations. Any adverse situation such as damage and hacking could potentially disrupt the financial performance and reputation of the firm.

• Mechanical Risks: The commissioning and operating of Photon Assay units are complex and technically challenging. Any damage/operational problem may lead to revenue loss and higher operating expenses.

• Other Risks: The company’s success will depend, in part, on its ability to enhance product offerings with advanced technology and regulatory changes and emerging industry standards and practices.

Conclusion

Chrysos has reported decent revenue numbers of AU$ 5.52 million in H1 FY22 v/s AU$ 2.02 million in H1 FY21. The company has recently expanded into Canada and Tanzania and holds expansion plans into other jurisdictions. The company has good growth opportunities in gold assay analysis and other elements, including silver and copper. Furthermore, the company has a significant growth opportunity with a current market penetration of 5.4% based on 610 eligible on-site and off-site laboratories.

However, given the company's history of net losses, it may sustain net losses in the future. Forecasting the company's future income and spending involves significant risks. Furthermore, the volatility of precious metals prices and world metal output might have an impact on the company's prospects.

Therefore, based on the above rationales, we have assigned the IPO of Chrysos Corporation Limited, with an “Attractive” rating. This IPO is only suitable for investors with a high-risk appetite given the associated risks and the current market scenario [basis further evaluation].

*Please note that an IPO can be postponed or put on Hold at the discretion of the company or regulatory authority.

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