Hi all, had some down time today so I have been playing with the HMW economic model I built (I love spreadsheets!).
The results below should be fairly representative of what we should except from the company as I have validated the model against the published PEA results and its a very good match (plus I've built many economic models in my time, mostly back when I was a working chemical engineer!) so fairly confident in the results - subject of course to the key input assumptions, if I am out here then NPVs will be off!).
As expected what really drives the NPV is the Li price and production level assumptions primarily, and then the capex and opex.
With JP saying in his Singapore presentation that the DFS would now be Lithium Chloride only, I wanted to see what kind of NPV number we should expect in a few weeks when DFS comes out. I have no idea what the new long-term max production rate will be (hoping 30ktpa), so I modelled a range from 4ktpa (to see NPV of just the pilot) up to 50 ktpa to cover the full potential range I see possible given the MASSIVE resource. I also don't know what kind of price we will get for LiCl as a percentage of the Li2CO3 price so modelled 4 alternatives,. 50%, 60%, 70% and 80% - personally I am hoping for about 70-75% given the quality of our concentrate and the fact some of the converters could be quite desperate for feedstock to maximise the value from their lithium plant investments and potentially to meet offtake commitments (and remember, their Li plants already built and so these costs sunk so they only need to cover incremental opex to run the plant before they are making a profit from our concentrate)!
Well here are the results, I threw them into a pretty graph for you all...
A few insights:
The numbers get staggeringly large with scale and higher price realisations. I am personally hoping for ~30ktpa & 70% price in the DFS = US$2B post tax NPV!! That would be outstanding, however with the huge resource we have, potential exists to go much higher in time, but I expect a second DFS would be needed to locate and design pond layouts for these higher rates, plus any integration with Candelas?
To put these NPVs in perspective...In the Oil & Gas industry were I have spent 25years, companies would routinely spend many billions in capex just to get NPVs of a few hundred million, as its long-term free cash flow that we are primarily after from large projects. These HMW numbers are staggering and better then the best oil& gas projects I have ever seen, and will also deliver huge long-term EBITDAs and free cash flow.
FYI - For a LiCl only DFS to match the prior Li2CO3 PEA post tax NPV8 of US$1,338 at 20ktpa, we would need to secure a chloride price of about 65% of the carbonate price. I think this is well achievable given our super high quality liquid spodumene LiCl concentrate and remember a LiCl only project is exponentially lower risk and easier to deliver than a battery grade carbonate one, and quicker...
In reality, I would not model a flat price, and I hope Galan don't. I did it for simplicity here. If it were me, I would use a curve where we see higher prices for the next 5 years, reducing down to a long-term price of ~24/t, similar to what Lithium Americas did for Thacker Pass - this will boost the NPV as higher price sin early years adds a lot of value (It does as I've also modelled the LAC price deck in my HMW model).
Opex as been assumed at 60% of the full PEA carbonate opex but I have assumed +20% inflation on that old PEA opex number. I'm hoping with our superior grade, our chloride only opex may be a little lower than I modelled as its just ponds, pumping and some liming really...
Capex, I assumed ~$80M for the 4ktpa pilot (just a conservative guess, I hope its a little less) and then just prorated this for the higher rate cases. In reality there may be some synergies and economies of scale as you scale up.
I have also modelled many cases where we go ahead and build a Li processing plant in a few years and switch to carbonate production (spend the capex for the higher price). These all add incremental NPV (but a lot more risk) but only of you are getting <65% for your chloride price.
The beauty of HMW is the flexibility we have to either remain chloride only and sell it locally or overseas, or switch to carbonate down the track if the pricing and demand dictates. That way we can also use the free cash flow to fund the carbonate plant - JP/DJs strategy to start chloride (and maybe stay chloride) is very compelling and hugely de-risking and value adding --> GENIUS!
Anyway, thought some might like to see the above, disclaimer, its not to be used as financial advise and its based on my own assumptions and modelling so could be way off...but I'm very confident in Galan going forward and a re-rate coming once DFS is out, especially if its anything like the above!
HAPPY EASTER
GLN Price at posting:
$1.02 Sentiment: Buy Disclosure: Held
(20min delay)