Personally I think this whole strategy of no communication on offtake is what the dominant factor here in killing the price recently . A bit of macro noise coming out of Argentina has contributed which frankly when you study it is probably more a net positive than a negative with the recent currency depreciation of the PESO as we haven't sunk much of our capex yet, so anything yet to bought in the local currency has got a bit cheaper and if a right of centre government gets up in the general poll later this year which is looking likely it can only be a positive. There is also a weak macro environment at the moment globally and there is a weakening spot lithium price in China, but all that doesn't explain how much this has been smashed over recent months.
There has been a a view by management and the board we will get to the offtake when the time is right but given chloride is a novel approach ( done many years back by SQM but to coins Howard Klein's terminology, hasnt been done in lithium 2.0 or 3.0) , hence the market simply doesn’t understand it.....FULLSTOP!!!
It's not the market's job to understand it either, its our company's job to explain it better and educate people on it's benefits if you want the investors to support you. As I posted here previously the cost economics of converting a high concentration lithium chloride to Li2Co3 at 13 % effective Li2O should be way lower than converting hard rock concentrated spodumene at half the concentration of Li2O, hence we should be right near the bottom of an all-in industry cost curve for primary feedstock to converters. But that message doesnt appear anywhere in company slide decks. So there is a void of information that the company needs to be getting out there and then not doing anything on the offtake front has just played into all the uncertainty, and there is a lot of it swirling around on many fronts at the moment.
Really the timeline should have been offtake first for stage 1 (which is small volume anyway, and it was clear we were doing this stage irrespective of what the dfs said) then dfs study on it if you wanted to do it though as I expressed some time back on this forum it was a waste of time. It's a pilot plant so the economics are in their own right somewhat irrelevant, it's only instructive on what the study can tell you about the commercial size operation coming in dfs stage 2 and later stages.
An offtake deal would have supported whether the biggest assumption in DFS Stage 1 of achieving 72% of the spot LCE price of $ 28K is credible . Even myself I worry a little over the 72 % number long run, though I am sure we will get it over short term if we can be in production as they say by 2025. The $28 K for LCE I have no issue with as the right hand side of the cost curve needs a price of $30K plus to keep the low grade lepidolite producers in China in business and they are needed alive not dead so the big converters don't get screwed over by Pilbara and SQM and other bigger producers while the supply chain is being fully built out over coming yearss with the scale up in the EV & ESS industries.
The way they have approached it , DFS 1 is being totally ignored and considered non credible until we see an offtake in my view. If I was advising the board the first thing I would say is offtake has to happen sooner rather than later , even if it’s non binding provided it shows some much sought after pricing parameters, if you want to stem the current route in price. No resource announcement is going to move the dial much here, so the upgrade to the resource number we know is coming from those northern tenements is far less important than an offtake.
We know we have a great resource in quality and lots of it, what we need to know is how are we going to monetize it and on this the board after all this time, hasn't really told the market much at all. This development strategy of deferring the offtake component is simply not working and needs to change. I am not calling for sacking anybody, but in this life you need to look at the facts and adapt to changing circumstances and understand why an approach is not working .
This strategy they are undertaking is going to keep costing shareholders way more through dilution then it gains shareholders by having a bit more flexibility down the track on who they can sell too . The strategy of deferring an offtake made sense when the market was exploding higher back in 2021/early 2022 but it makes absolutely no sense when market is now sideways tradings after coming way off last year's highs . The price is still way above their projected cost of production , so why wouldn’t you lock in a price now on an early offtake ? Such hedging is eminently sensible and you see it right across the resource space in early developers looking to gaian the support of capital markets. Yet Galan is acting like the established rules of the game for early developers don’t apply to it and hence it’s getting smashed accordingly . The board and CEO honestly need to have a rethink here.
(20min delay)