Trading halt?, page-48

Hi @Thesi

You and @bobsacramento have really turned into the Fox and Scully of Galaxy.
Me - I want to believe
but I still see lots of other credible paths that are no less as prospective.
Until someone can adequately explain why our last ship went to Mitsubishi Chemical/Motors/Lithium HQ in Mizushima rather than China
then I’m not sure that we don’t already have Contestant Number One already waiting with flowers.

$250-$300m.
Could really be either way.
Brine plants are modular in a sense and FMC have a plant that seems to have reached capacity, is producing quality but not enough quantity and suffering from a period where legacy contracts have limited its ability to profit.
The plant there will need serious upgrading if they are going to process a larger quantity.
Same as with Greenbushes expansion, when you reach capacity you basically have to construct the equivalent of a new plant.
Unlike hard rock operations, brine can add smaller amounts of capacity incrementally - but jumping up another 25kt is well beyond that level.
They have to look at building another processing facility.

So there is your $300m.
New Ponds and New Processor Plant.
Their cost for expansion is more or less what Galaxy would be looking at
with perhaps the advantage given to Galaxy, that GXY have already sunk their wells in the highest quality and easily exploited areas of their salar.
FMC don’t quite have that advantage. They may have wells that are performing reasonably but the resources isn't quite as good and they haven’t been investing much (if at all) in their business in Argentina.
If I was Donald Trump I’d simply call them “Low Energy FMC”.
The least expansionist of all lithium majors and suddenly with a supply deficit to meet their promises.

One thing that may be bringing a bit more investment attention to our salar is that it is now much cheaper to build a plant in Argentina.
The SDV DFS was produced with a higher ARG peso built in. Since then its dropped by a quarter.
The old capex bill could easily be 20% cheaper now putting it in that same range $250-300m USD.

In some ways Galaxy is a step ahead of FMC, having already laid out the blue-print plans for this next expansion with test results and new wells drilled, while it appears that FMC are still busier dressing up their story prior to spinning off their lithium biz, than doing real work out there. There may also be an issue with capablity of management and staff at FMC having deserted to work on new projects. GXY certainly is certainly top heavy in ex-FMC management.

btw: there is a micro-junior getting attention in Argentina that seems to be running hard without ever mentioning the obstacle of the cost of processors
to get beyond a micro-brewery sized operation.
Its as if brine was simply digging out a swimming pool that magically filled with $10,000 dollar bills.
AT was very dubious about micro-juniors in brine. Galaxy’s history at SDV and investment in the ground was already very substantial.
I can’t remember the figures now - was it 10s of millions, including the amounts put in by Lithium One? Sorry, my memory eludes me sometimes.

I do give that ninja mini brine company credit for running a wild game - and even wilder hype machine.
Rush in and do stuff and wave your hands around to attract attention.
It only works for so long, though.
Then its whether you can actually sustain an operation and ground game that needs $100s of millions to operate at more than boutique production level.
This is either industrial level production or its a craft beer operation. No-one is getting excited about 1000 tons of lithium.
Galaxy ships nearly twice the LCE equivalent of that per month already.

Galaxy has taken the view that to set up for an eventual 50ktpa then you can not afford to rush in and do things half-cocked. Both from a deal and plant construction POV.
Why risk it?
AT said that this was a plant that would operate for a generation. We may just be the investors who had to suffer through this intense period
of nervousness - but putting the right plans and the right deals in place is crucial for investors here for the next 20-30 years.

The eventual planned production rate of 50ktpa of brine production at SDV is
$750m USD per year at $15kUSD/t.
$1b AUD per year.

Our current market cap is around $700m.
What market cap will it have the first year it crosses over $1b of revenue?

The old DFS (from memory) set the basic cost of brine plant construction at $13,500USD/t of capacity.
This is the figure that may have had a good chunk taken out of it by the lowering ARG peso - but its still a lot of money.
That capex per ton is lower than the current price of lithium. Adding capacity pays for itself within a single dehydration-processing cycle.

However,
If your market cap is below what you need to borrow - the simple question is why would anyone lend it?
Particularly at the small end of town. Onerous finance deals only go so far before a company is making money to back it up.
Better to smash the market cap with manipulation and then take it over.

Its too easy to drag out a calculator and perform these kinds of magic tricks.
Multiply your entire resource by lithium price.
It only works if the company really has the technical and production skills to turn it into a reality.

The penny is going to drop that high impurity brine operations in the hands of very small companies, that face technical challenges to operating at scale, are exactly the kind of lithium operation that will fall over first.
In the old days, PLS blow-hards would rail against low quality brine resources. Ironic that one of their hardest blowers is now championing one of the lowest quality brine assets - which will also logically result in one of the higher cost producers that again makes hard rock costs look good.

Joe Lowry has worked for FMC.
He is not Mr Popular on HC any more.
He does not ramp specs for kudos points at the bar on a Friday night after another successful ramp-a-thon.
I think he genuinely believes that the lithium sector needs a dose of reality checking and that its important that the best, and most advanced projects are funded as quickly as possible.
One day people will realise that he was right about a lot more than he was wrong about.
And by then a lot of those good lithium investment dollars will have been wasted backing companies that may eventually disappear.

Brine is harder than it looks. You can rush in and dig wells and fill ponds but its a resource that is utterly dependent on the chemistry
and very careful plant construction. Its the processor that makes the money.

Its hard to get it right but not as hard as ORE makes it look.

When I had the chance to have a good long chat with AT last year I quizzed him about ORE.
It was my assumption that their production problem was traced back to their resource.
But no. He said it wasn’t that at all.
It was a plant construction/performance issue and some badly implemented infrastructure. I already knew about the sinking of multiple wells and pond failures. He said the resource itself was OK - its just that the plant could do with major refurbishment and upgrading - possibly even a shut down to facilitate this. This is backed up by some Argentina insiders who’ve observed that the plant is already showing signs of having aged badly in the short time it has been operating.

That made sense to me. I was in Orocobre in 2015 and sold out after hearing the word “bottleneck” too many times.
Interesting that FMC are using that term now.
I would suggest that the word BS could easily be substituted there.
De-bottlenecking is brine code for Need To Build A New Plant.

Galaxy has, of course, done their DD on what has gone wrong at ORE
and has assembled the cream of Argentinian brine brains. Dr Mehta is arguably the most experienced brine scientist in the world
and worked on this salar before, as have several of the team members.
Somebody mentioned that there was a comparatively small spend by GXY out there at the moment.
Please remember that seasoned miner wages in ARG are only approx $15kUSD per year.
A couple of million bucks can put a team of 100 experienced miners to work for a whole year.

Sal de Vida is one of Argentina’s lithium jewels. Anyone saying anything else is flying in the face of decades of brine studies.
Its mentioned in glowing terms in several old books on lithium resources in South America.
The Argentinian govt mentioned it recently as one of only a dozen or so projects across all mineral resources that it was excited to see proceed.
That shows that GXY are doing the political work necessary too.
They have an office in Salta near the local govt and we’ve seen the popping their heads up at various govt talk-fest.
All important stuff to getting support and making sure that infrastructure and permitting and red/green tape etc is all in place for every stage.

GXY looks like they have the best of the best when it comes to ARG drilling and hydrology too, having secured the services of
Andina Perforaciones. You can make out their logo on the drilling equipment in the video that you posted @Thesi.
They have also been working at Cauchari.
Far from FMC freezing out Galaxy - they may find the reverse - that Galaxy has jumped the gun and is now a lot further ahead than they are.

So. I don’t know.
I’m inclined to agree with @NinjaTuner.
But I’d be just as inclined to call BS on FMC and suggest that they were still advertising aspirational goals to dress up the company prior to spinning it off
and to assuage fears from their new clients that they have a strategy to fulfil their supply commitments.
SDV could easily make them a much better and less risky investment to put the best of the best of their ex-employees to work on the excellent asset around the corner to meet their contracted supply requirements.
Whether they would stump up this much cash for a lesser percentage of ownership
or whether there were a few more moving parts to the deal that made it work both ways - hard to guess from where we are.
FMC does have some spare hydroxide capacity in Salta - but I believe that wouldn’t be sufficient for 25kt.
Tolling for test plant sized operation is probably an easier fit.

Consider me on the fence with FMC.
My money is on GXY’s SDV giving FMC more than a run for their money, supplanting them in sheer profitability within a few years and taking the Number 5 spot on the lithium producers table.

When it comes down to it. FMC may need SDV more than GXY needs FMC.
They have contracts to fill. If they can’t demonstrate a clear strategy and capacity to expand then they’ll lose them.

If they are planning to spin off their lithium assets then I don’t see them signing off on massive capex expenditure at this point.
You don’t load down your new spin off with debt or massive expenditure.
My guess is that will continue to be the snail among the majors and will take the easiest of all options
and make a bid for SDV offtake.
I don’t think they are going to succeed.

There are much bigger companies than FMC that are not “low energy” and are already looking at the missing gap in their supply chain.
SDV can be one of the world’s largest and most profitable brine operations and I think FMC will be simply left behind at the bidding table.