I spoke with PSC this morning regarding the LTR DFS figures. A few things i've already suggest on twitter and also on AVZ threads.
"I spoke with a few MD's from lithium companies today to test the assumptions of the LTR SC6 and Hydroxide price.
Apparently they've received the same November report. They confirmed to me that the contracted long term price in that Roskill report is ~930usd/t. The $1400 from derived from what the expected spot market might be.
Noting that no project can be financed based on spot pricing for sales. That's why offtakes exist. They guarantee revenue, which is what anyone looking to finance via equity or debt will want to see.
They also confirmed that the cannacord and Argus contracted prices were lower at around $850usd/t and 736usd/t. Long and short the economics are underpinned by used the highest forecast, used the spot pricing and then projected it across LoM. It's borderline irresponsible without investor understanding the huge risk of underpinned economic based on spot prices.
With all that said, 80% of it's post-tax NPV. If funding 500M odd will need to factor that dilution into the economics as well.
If any other lithium company used $1400usd/t i'd be equally critical. The same as the LoM projection of hydroxide at all time price. Make no mistake the project has been one of the best ROI across the entire ASX in the last couple years - but this probably confirms the MC as fairly bloated when the post-tax NPV needs ballooned figures. Rest of the sector has much better MC to NPV ratio's IMO and looks like the early market impressions are the same.
A couple other lithium projects have much better RvR. More advanced. More upside on lesser economics.
They're the ones i'd be holding..."
If you're going to even use spot price, they definitely should not have amended their figures to weight average.
Those that understand how discounted free cash flow calc work will know that the first years of operation heavily skew the IRR and NPV. Essentially, the revenues in year 1-5 weight the NPV more than 5-10 so on and so forth.
So to pump the NPV even more, they made a weight average price which means they pushed the price 250-300usd/t higher in the first 5 years which is not what the roskill report for price actually even suggests.
Re-run the inputs using $1100-1200 in year 1-4 as prescribed and the NPV actually takes a significant haircut. Again all on the most bullish forecast from the analyst's and again on spot prices.
... and other peers would be absolutely demolished if they used these types of figures. I'm actually surprised that a company considered the pinnacle of corporate governance and professionalism would produce this.
Much happier with my "super risky african projects" Using LoM SC6 in the low $700's and discount rates of 10%. This is why risk is relative.
Regarding PSC specifically, they have the same forecast from Roskill. The long term pricing forecast for contracted SC6 was $930. Now they said, there was discussion internally about what is the best pricing to use the next study.
It was mentioned that they've spent a lot of time trying to build credibility hence the conservative nature. Essentially the people they're dealing with to finance the project and the equity players hate pumped figures, but equity/retailers love it. I was told that the figure in the OFS was from the conservative side of all the figures.
They are definitely working on a method to display economics at varying SC6 inputs but deliberately on best method and also the base case. One method is to take an average across all the forecasts. Another was to have a chart with each contract forecast and then simply show PSC's input on the scale. aka conservative.
Anyways the team was fully aware and it was being heavily discussed. The main reason for the option to be conservative was based on remaining conservative and building a reputation. They made a decent point that the PSC NPV was 700M odd for a long time and didn't really turn the dial on equities and even still isn't. They're also in the middle of the finance process. They would look like idiots moving from 736 and adopting a spot price from the highest forecast. IMO we might see them increase the input but i can assure that the majority of contracted pricing forecasts for SC6 are between 700-900usd/t. So PSC's base case will be in that range. IMO with roskill releasing an update forecast at the higher end, there's a viable choice for PSC to say we we're conservative in the OFS, but guess what roskills new figures show that that conservative figure is now potentially even more conservative.
If i'm an investor, the figures on the page just represent a number and doesn't always reflect reality. LTRs NPV at 800usd/t is 1.6bn. Or under halve it's market cap.
PSC is only 30% of its OFS figures using $736usd/t. It's clear that in reality one is much more overvalued than the other. Was very happy with the PSC discussion and have full confidence that the figure is done with best intentions. IMO that's not about propping up stupid eyewatering NPV's it's about getting finance. 5-10 companies doing DD for finance aren't stupid enough to swallow a SC6 price without running their own inputs to it. The $1400 SC6 spot price for LOM but then pulling the weighted average forward is borderline irresponsible IMO, glad PSC is not going anywhere near that embellished corporate governance.
SF2TH
