BGS Chart !, page-1322

Your arguments against BGS apply to AVZ 3-fold due to AVZ’s increased distance to port, even more so considering the lack of infrastructure i.e. roads & power. You acknowledge that AVZ won’t be able to profitably sell concentrate, but you didn’t address the multitude of issues that AVZ will have building a carbonate plant onsite:

1. Construction can’t commence until the road is complete in approx. 3 years (likely more) - China wants supply by 2020

2. Logistics costs (3x those of BGS) to bring reagents and fuel sources to site will still munch up profits making the project less competitive to peers

3. Power and fuel requirements will be prohibitive considering a 4Mtpa mine + 100ktpa LCE plant to suit would require >170MW & >340,000MWh not including thermal energy requirements for roasting

With regard to your comment about producing sub $10k/t being sufficient, wouldn’t the Chinese want the lowest cost i.e. most profitable project? Nemaska will produce at around $3,000/t, why would a Chinese company want to buy a project that has triple the OPEX?

Furthermore, the company has no feasibility study, where the heck are you pulling negative operating costs from? I’ve spoken to Michael Langford before about factoring by-product credits, he advised that he personally does not add in the credit as it requires additional CAPEX and OPEX to produce that are not reflected in feasibility studies and gave the example of not factoring tantalum credits for PLS. Did you know that the high-grade tin at Manono does not even occur with the high grade lithium?

In terms of operating costs for BGS, I am basing my comments off the recent announcement from the company stating that operating costs will come in below $300/t for a 2Mtpa operation with scope to reduce much further with economies of scale, grid power connection, metallurgical improvements etc. The interim CEO, Greg Walker commented in an interview that they are initially targeting $275/t.

If you are factoring in a low GCM on the trucks for BGS which has existing asphalt roads all the way to port, what GCM are you factoring for the road going in at Lubumbashi? Below is an example of a road currently being built by the Chinese in DRC...




Back to BGS now... in my opinion, initial mine construction at Goulamina will be funded by the Chinese in exchange for BGS guaranteeing offtake of concentrate. However, the greater strategy for the company will be to tie up quality long term offtake partners i.e. Korean battery manufacturers and or European automakers for carbonate supply in some form of partnership to jointly construct a carbonate plant, similar to the KDR/SQM JV.

Integrating a carbonate plant will multiply potential earnings and decouple BGS from the spodumene market which in my opinion will experience a glut in 4 – 5 years, whilst the carbonate price will continue to remain strong/increase, allowing BGS to profit even further.

Due to the strategic location of BGS, in close proximity to the multiple Korean gigafactories going up in Europe i.e. Poland & Hungary, BGS will be able to offer the most competitive CIF Europe costs for spodumene concentrate supply.

Therefore, the carbonate plant would end up being built en route to these gigafactories, in the location that makes the most economic sense, i.e. access to cheap power and fuel, cheap reagents and a large skilled workforce.

Korean battery manufacturers and European automakers are currently dependent on Chinese converted battery grade carbonate & hydroxide, so they will be on the hunt to lock up their own secure supply chain so that they can reduce their cost of supply and no longer be at the mercy of China.

In my opinion, a carbonate plant onsite for AVZ is a pipe dream (especially if you actually believe that it will only cost $140M to build as promoted on Twitter) because the project will offer a much lower IRR compared to peers due to huge CAPEX requirements (to build roads, bridges, city sized power plant, mine, carbonate plant) to only receive 60% of the earnings, plus the increased operating costs (logistics, reagents, fuel, bringing in skilled labour) impacting profits, not to mention a long list of additional risks when compared to the ideal model I described above.