Macquarie Report

Ok guys and girls, I spoke to @ozblue last night and in order not to cause copyright issues for either of us he won't be sending out the report.

I did however say that I would do a little bit of a debrief of the report from my own perspective to share some of what I think are the glaring issues with it and we can go from there.

So let's start with what I feel is the most salient issue with the entire report. Macquarie's interpretation of a demand curve. Below I have transposed Macquarie's demand forecast with a simple comparison to a 10% CAGR and a 20% CAGR out to 2021. In my opinion 20% CAGR might not even get us there. (in kt LCE)



As you can see there is not a huge difference between the Macquarie estimate and a 10% CAGR. A diversion does begin to occur in later years. However there is a stark difference between there demand curve and a 20% CAGR. Over 50% extra demand by 2021 and as mentioned 20% growth might be under.

Let's stop for a minute and consider what a linear demand curve as Macquarie have used actually means? Well to have a linear demand curve it actually means the rate of growth is declining each year. Wait what? Macquarie you think a disruptive technology in its infancy, with 12 gigafactories being built worldwide, governments putting in place targets for EV's on road and some countries even banning ICE vehicles, but our growth in demand is going to slow each year? Can anyone honestly tell me (even the lithium bears) that that makes any kind of rational sense?

Next let's move onto some of their either misguided assumptions. Below is a chart of their projected lithium (spodumene) prices:



Let's start with the obvious issue. How can you have such a broad range of price curves for what is essentially the same product (other than variances in grade). Next how can Galaxy selling 5.5% grade have a price only slightly lower than Pilbara selling 6-6.5% spod, and higher than Altura by $100/t when they will also be selling 6% grade? Anyone? Obviously no direct comparison to Orocobre as they are a brine producer.

Now the final point I will make is on the cost curve they have assumed for the 4 spod producers in AUD (AISC - pretty sure that is a gold producer term but whatever Macquarie):



Really Macquarie? I know it will take time for AJM and PLS to both ramp up (which affects costs), but does anyone really believe Neo will be producing for 60% of Pilbara's cost or Galaxy at 67% of Pilbara's cost. Now on the note of being honest. I like Altura a lot but even I don't think they will be producing cheaper than Pilbara, that is just ridiculous.

Macquarie clearly have an axe to grind.

Anyway hope the above helps you all. Happy to field any questions from the above.

Cheers