EMH (ASX) Not Gunna Be Enough Lithium

Originally posted by Chuxa: ↑

Long post alert.

As is known when the actual producers are going into Care & Maintenance, the explorers-turned-developers will consider delaying release of their study output and FIDs to time the commodity cycle entry (its pointless to ask for finance for a loss-making mine). This largely explains why DFS was 'late' and why we are supposedly going to see it in Q1 2024 (I am not holding my breath).

With a wide variety of analysts now forecasting surplus LCE products in the Li market extending into 2028/2029 before price starts to recover this may not look too pretty for EMH and its position on the cost curve. Unfortunately unless CRMA brings significant grants and subsidies to EMH as a 'local supplier' or EBRD wants to bet big on the LCE price recovery sooner - CEZ/Geomet may be deferring its FID process.

My analysis largely agrees with the piece below about CXO:
https://www.marketindex.com.au/news/tough-market-conditions-not-limited-to-core-lithiumThis may not be a popular opinion but it appears that my LTH target of 2026 just shifted to 2028. This may offer quite a few years to average my holding down to ~.3xx-.4xx (EMH may not exist by then).

Those who will say that "Spot price does not matter, we are building a mine to produce in 2026-2027", you are correct, however, the degree of discrepancy between spot price and LOM price does matter and convincing financiers is a lot easier when LOM price sits closer to the spot and not orders of magnitude above it.

My guess is that in the DFS delay was caused by price modelling for the capex and opex increases, as they have pushed the all inclusive cost per tonne of product well above the CEZ/Geomet economic cutoff for FID based on the available 5-year price forecasts for LCE products.

Let's revisit the 2022 PFS:
I've highlighted everything that needs to be read, it is clear that the costs are escalating at a tremendous rate, specifically after the introduction of the backfill plant as part of the design (2019 PFS Update) .

What they were not immediately showing in that executive summary text, above, is that the Net production cost per tonne has increased from $3,435 to $5567 thus shifting EMH's position materially on the cost curve compared to its junior peers, what we do not know at the moment is how much more that has increased since 2022? I would say knowing the inflation rate and recent DFS's produced by peers 30-45%. ~ $7200-8000.

PFS 2022:

PFS 2019:
Now the 2022 PFS figure for the total Capital costs is below, however, we also know from the recent announcement that capex and opex has increased. I would say that it would now bring us in the $1B-1.2B range (inclusive of the sustaining capital) compared to the 2019 and 2022 PFS:
So where does this leave EMH at this, 2024, moment? I think the figures in DFS are starting to challenge Cinovec's viability based on the available price forecasts for 2026-2028 however likely price recovery in the LOM extended to 2045 still maintains a healthy NPV and IRR figures....? The answer well at least the best available answer provided by EMH is in the sensitivity tables that conveniently shows individual impacts on the NPV based on the increases of 30% Capex 30% Opex and -30% LCE price impacts (against the baseline 2022 NPV of $1.94B, as per below):

Basically in the displayed 30% scenario results in impact of -$1.67B (-$170M 30% CAPEX, -$410M 30% OPEX, -$1.09B 30% LCE LOM Price @ $12k). This leaves this project with an NPV of $270M. For a $1B-$1.2B investment this will have a joke of an IRR and nobody sane will even consider it. EMH will have to consider using a higher LOM price than $17k to justify its economics and influence the FID, however the forecasts are not helping EMH and could make it look like a fool if the price drops to $8-10k and LOM price used in DFS is say $22k.

TLDR; EMH is being pinched with capex and opex and its cost curve position is blowing up whilst NPV is going down (as per the information that they have provided themselves to the market through the sensitivity tables in the PFS Update 2022). The only way for EMH to exist is to crank on LOM Price in the DFS, but that would delegitimize the DFS if it is overdone (i.e. EUR's DFS, LKE DFS).

What you should do? I don't know, I'll start with the adjustment of the investment horizon to reflect the market conditions and forecasts, if required.

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Geez Chuxa what are you going to post next, Youtube videos of EVs exploding en masse?

The Market Index story you've "based your analysis on" is already being debunked over in the PLS thread.

The below is from poster Cosmoterious https://hotcopper.com.au/posts/71751430/single

You can see the error already:

At the time of that article, the price of spodumene concentrate was around US$1,400-US$1,800 a metric tonne depending on which data provider you were looking at. Kerry noted core produced at around $1,225 (should have qualified this as AUD, a person who didn't read it carefully would conclude its USD in line with what has been written in this whole paragraph) a metric tonne in the September quarter.Spodumene concentrate prices are now around US$950-US$1,000 a metric tonne. The maths speaks for itself. (If you’re looking for daily lithium prices and charts,I post these daily on X / Twitter!).

Its Not the maths. I am thinking why would someone leave that out for clarification but subsequently used it to compare it to US$950-US$1000 Lol

END COPIED POST

You also recently posted https://hotcopper.com.au/posts/71574421/single Macquarie Commodities Strategy team’s latest lithium outlook used by the same Market Index journalist Carl Capolingua in this FUD article https://www.marketindex.com.au/news/bad-news-asx-lithium-bulls-this-broker-sees-surplus-for-several-years

Macquarie Commodity Strategy team Spodumene, 6% Li2O, US$/t (left) and 99.5% Li2CO3, battery grade, US$/t (right) old and new price outlook. Source: Macquarie Strategy, Macquarie Research, Dec 2023

But does this predict your sky is falling analysis of 30% price decrease from the $17k used in the 2022 PFS?
No. It actually predicts about $25k or better in the years we will be mining. That almost 50% better! So really you should be saying most likely scenario is the 30% price increase or better if you believe Carl Capolinguas analysis.... but only if you want to present a balanced approach instead of cherry picking numbers!
So why does your "analysis" focus on this unlikely scenario that you actually have no evidence for?
Do you have any evidence that Capex and Opex are going to be 30% worse?
How do you know they won't be say 10% better or more?

Going deeper, the article that's mostly about CXO, that you "base your analysis on" has used "Production Costs" but the comparison has also been shown as blatantly wrong here as different companies use different metrics for production costs so it's not comparing apples to apples either. https://hotcopper.com.au/posts/71751352/single
Furthermore CXO is a spod producer already in production whereas EMH will be a carbonate or hydroxide producer remember. So not apples with apples in that respect either. A quick glace at the graphs above (if you trust them) shows that even Macquarie predicts the carbonate price to be less volatile than spod which bodes well for EMH and makes your sky is falling analysis even more unbalanced.

Also consider that the big issue the CRMA is designed to address is less reliance on China so why worry about their current spot price which has already been shown to be manipulated by China anyway. Our partner wants to make batteries locally remember so really who gives a f*ck about China spot prices lol

Now if I was less trusting I might wonder what you are up to and if you forgot to change your disclosure to Not Held since I'm pretty sure you've told us your average purchase price was around the current SP.

Did you sell out.... and if you haven't why are you spreading FUD?