There have been a couple of references to waiting on large equipment. Given the impact equipment can have to mines in Mali, it would be reassuring to get an itinerary of what has been delivered and what is to be delivered as part of the next quarterly update (or sooner).
Here is my understanding of where we're at (would welcome a fact check)
Had planned to move 60-90k tonnes of DSO in 2023, with remaining tonnes in H1 CY2024 for a total of 185k tonnes of DSO. DSO tends to have 1-2% of lithium oxide (Li2O) with our economically accessible ore reserves noted as 1.51% for 52Mt of ore, with assessed total mineral resource at the site of 1.37% for 211Mt of ore. Only 82Mt of Ore has been used for the project NPV of US$2.95bn.
We had secured a 10-year port agreement at Port of Abidjan in Côte d’Ivoire and were in active discussions with Port of San Pedro in Côte d’Ivoire. However the recent article notes additional possibilities (challenged by a commenter and perhaps incorrect reporting) of Dakar (Senegal) and Canakry (Guinea).
Production of concentrate depends on further build of the processing plant. This is on target to begin producing concentrate in H1 CY2024. As at June 30, 80% of engineering and drafting was complete, and 80% of Engineering and Procurement tenders had been issued to vendors (presumably still to be awarded). As at end of July 35% of the project was completed, including 33% of construction, with 7% of the build completed in July alone, and construction expected to intensify for the remainder of 2023.
Spodumene concentrate typically gets to 6-7% lithium oxide - our tests are yielding 6%+ with low impurities which is a good sign. We have also successfully tested the conversion of this spodumene concentrate to battery-quality lithium hydroxide (spodumene concentrate being convertible to either lithium hydroxide or lithium carbonate). Ganfeng Lithium are a major producer of lithium hydroxide.
There are early discussions of a potential joint venture to build a lithium hydroxide conversion facility. In the meantime I presume LMSA simply sells the spodumene concentrate to Ganfeng who take and convert.
We are forecasting spodumene concentrate of 506k tonnes per annum for Stage 1 (with a plant processing 2.3Mt of raw ore per annum), increasing up to 831k tonnes per annum, for the first 5 years, with Stage 2 (with a plant processing 4.0Mt of raw ore per annum). There is however a note that only 65% of the Stage 2 numbers are a production target, with the rest being an "aspirational statement". There are also references to a total Stage 2 capacity of 1m tonnes per annum.
The current plan seems to be to complete construction of Stage 2 within 18 months of Stage 1 being commissioned. However, to do that we presumably need to start Stage 2 construction pretty soon after Stage 1 at a point in time at which we won't have funding to support our share of Stage 2 costs yet. Do we think debt or equity raising is more likely, and if the latter would we be expecting a capital raise for Stage 2 before EOFY?
AISC for concentrate per the prospectus was US$365/t, with DSO looking to be around US$220/t in that same document, noting some costs have risen since. Concentrate has been falling steeply but currently selling at US$3120/t - we've priced in US$1250/t for the first 5 years of the project, then US$900/t thereafter. Goldman are forecasting US$1800/t next year for what it's worth, and other projects are using US$1450/t for the near term in their forecasts. I can't find a good DSO price but Core Lithium sold some 1.4% ore at US$951/t in October 2022 when 6% concentrate was US$5200/t so on a similar ratio around US$570/t today?
All ore is sold at market prices, with profits split on ownership stake (e.g. 55 to Ganfeng/45 to us currently). Ganfeng will purchase 100% of Stage 1 production. Ganfeng have rights to control who buys 70% of Stage 2 offtake (LLL has 30% rights), and 55% of any subsequent Stage 3 offtake (LLL has 45% rights) if there is further expansion for the life of the mine.
So, napkin numbers with lots of very basic (and erroneous) rounding assumptions / ignoring cost of money over time:
If we complete processing build by let's say May 2024 as towards the end of the H1 target, and manage while ramping up to produce a third of the Stage 1 annual target in the second half of 2024, and let's say prices for spodumene concentrate average around the US$1250/t forecast for the next 5 years, and let's say 20% ownership goes to Mali, let's peg AUDUSD at around 0.65, let's ignore DSO, and let's use the prospectus ASIC.
Then let's say Stage 2 comes online in early 2026, and ramps up over the following years as the price of Lithium falls to US$900/t.
We're still looking at around A$300m / year back to LLL from 2025 onwards (likely a third of that in 2024, more than that in 2026, and then dropping to around that average for LOM), assuming the ASIC correctly bakes in future costs including capital for Stage 2.
Let's assume no further dilution which I think is one of the big question marks right now for Stage 2.
At a PE ratio of 7, that would put us at around A$2.1bn value. That puts us around $1.75 / share with the potential to be paying out $0.25 / share in dividends (14% dividend yield). Looking to competitors that seems a low PE/high dividend yield, meaning I'd expect the share price to be far higher.
Alternatively we look at the NPV from the prospectus of US$2.95bn, before resource upgrades, and assume repayment of Mali's second 10% through dividends to buy in, and get something like A$1.8bn NPV for LLL, which puts us around $1.50 / share, still with the potential to be paying $0.25 / share in dividends (again at 16.7% dividend yield I'd very much have to imagine our share price would instead rise further).
To put it another way, on the current plan we expect by 2025 to have annual profit back to LLL be half the current market cap - whether that gets returned as dividends or profitably otherwise invested. And that's before an anticipated mineral resource upgrade, before tapping into the potential broader mineral resource we believe we've already identified, and with what I'd consider fairly pessimistic assumptions about the future of the Lithium market.
(20min delay)