Using after-tax FCF is correct as it is cash that can be used for future projects development and funding, operation working capital and/or dividend payout (with franking credit).
Note the statement made by TG at last year’s AGM Chairman’s Address:
A$12,180m after-tax FCF LOM divided by 21.35 years = approx. A$570m/annum; I will use this basis as part of my calculation which you will see below.
But before that, as many are aware - lithium spot price are currently trading at multiple of the average price used in LTR’s DFS/Downstream Scoping Study and probably will be even more so given the market is expected to go into extreme deficit if we accept what CG had forecasted in terms of supply vs demand.
So what can we expect the various price level of SC6.0 and LHM scenario to be like when LTR commences production and how will it affect the after-tax free cash flow to LTR’s KV Project?
An insane amount that can rival that of established Bluechip mining companies.
I’ve updated my calculations for both SC6.0 Project (based on LTR’s DFS) and further below the Integrated LHM Project (based on LTR’s DSS) to show how the prices of SC6.0 and LHM could do affect after-tax FCF, EPS, availability of dividends and LTR’s SP while staying relatively conservative on my numbers.
I’ve made a number of changes/assumptions over LTR’s DFS and Downstream SS metrics:
1. Removal of initial & pre-production cost as we’ve already secured 80% of funding resulted in an increased in SOI;
2. SOI; assumed all options exercised (fully diluted) = 2.211B;
3. Price of LHM is 20x of SC6.0 in the Integrated LHM Project;
4. LOM Revenue are extrapolated as per LTR’s DFS and DSS;
5. Increased in OPEX cost due to inflation/tight labour market, etc;
6. Loan of $121m (as per LTR’s BP Unearthed presentation)+ 10% interest – I expect this to be repaid in the 1st year or if not; 2nd year of operation;7. For the sake staying balance, I’ve also included 2 scenarios where lithium prices fetched are subsequently 10% and 20% below LTR’s average.
8. The DFS scenario should only be applicable at most up to the 5th year or 6th year of operation as LTR has plan for downstream and is currently working on a downstream PFS.
Am I being too optimistic when I’ve used the prices that I used in my calculation?
Perhaps so; but I believe these calculation speaks for themselves; is $15.00/share or more even possible in the longer term? Very likely and only if prices remains an average of approx. $2500/t for SC6.0 and just slightly under $50K/t for LHM over LOM. Even in “worst case” scenario; a $6.00/share or $3.00/share is not impossible.
One cannot deny there are bound to be operational hiccups but LTR had always stressed they’re learning from the peers and watching their every move (even now) to ensure they don’t make the same mistakes. They are definitely following the other Lithium Hydroxide Plant currently under construction in WA so that they could put together the Downstream PFS on the back of an already impressive Downstream Scoping Study.
Some here like to argue Underground mining? TO had previously worked at 2 underground mines – I believe he is capable of building a team to manage the risk associated with it. It’s not like this is the first ever underground mine the world had ever seen.In the next 2 (or less than that) years before production is expected to commence, the SP may do whatever it likes and there’s no denying any macro events will affect SP; war, Covid, inflation, interest rate rise, etc.However, what do you think would have a more profound impact on living beings?
1. A war between Russia and Ukraine (or any other above stated) or;
2. A world no longer inhabitable by delaying the transition to clean sustainable energy.
The answer is just plain obvious.
If SP drifts lower; personally, I see it as a fantastic opportunity to rebalance/move the “locked away” shares into a different investment holding vehicle; i.e. Company, Trust or SMSF ensuring it is effectively taxed once the dividends eventuate.Now, with $474m in cash and 50% held by Top 20; what are the chances of selling KV or let LTR be taken over by a major?… even if offered $5/share or $6/share; I know I will definitely vote against the takeover.
Remember the RSS article from November 2021?
(20min delay)