Good post. However a notable concern that consistently emerges in recent discussions about the supply/demand balance, shared across various lithium company threads, is the uncertainty surrounding which operations or developments will face setbacks first. At these prices, everyone expects supply to fall off, but no-one expects it will be the company they are invested in.
To counter my own biases, I make a point to read threads about both companies I've held (or do hold) and those I don't. The common belief across these threads is that once lithium prices rebound, these companies will prosper. While this may be true, not all will emerge as winners, and some may even fail, leading to a reduction in supply for the success of the remaining players.
While successes like PLS are frequently highlighted, instances such as AJM being absorbed by PLS after facing financial challenges during the last downturn or A40 with Bald Hill now owned by MIN, should also be acknowledged. Examining AGY's competitors raises concerns, especially when some assert that AGY is de-risked. Contrary to this view, I believe AGY is among the most vulnerable lithium plays in the next 12-24 months for several reasons:
1. Stable Jurisdiction: The stability of Argentina is questionable due to ridiculously high inflation, significant debt, and systemic government issues. Although Milei has taken over, his unpredictability and skepticism about climate change raise doubts about his ability to bring genuine economic stability. I view him as a bit of a Pauline Hanson/Bob Katter type; great for headlines and a bit of a character, but probably won't actually effect much tangible change for the people or economy of Argentina.
2. Geographic Proximity to Battery/EV Production Lines: While AGY is close to US gigafactories, it lacks the geographical advantage of operations in North America with rail access to EV/battery production lines.
3. Free Trade Agreement Incentives: AGY lacks the FTA incentives that Chile has with the USA and South Korea, potentially putting Albermarle and SQM products in higher demand for EV tax credit incentives.
4. Strategic Partner/Offtake: Unlike some competitors, AGY seems to be required to prove its production scalability to lock down a partner/offtake, while others do not, particularly with the following pre-production offtakes for competitors in Argentina:
Rio Tinto (Rincon) - Ford
Lake Resources - Ford, WMC and SK On
Eramine - Glencore
Galan - Glencore
Argentina Lithium - Stellantis
5. Capitalisation: AGY's financial position with $10-12 million on hand may be insufficient to last until the end of H2. IMO, without a source of income, that represents significant risk of a near-term cap raise or debt.
6. Resource Size and Grade: Even after the recent MRE upgrade, AGY has one of the smallest JORC measured brine resources in South America, lacking the scale and attractiveness of larger resources. Additionally, the average grades at Rincon are comparatively lower than many peers, being roughly a third of the grade that our competitors are achieving over at Hombre Muerto.
7. Scale: 2 ktpa is a pilot plant by any reasonable metric, and notably several years ago AGY were describing it as such in company releases. Smaller scale equals higher OPEX, and this is problematic in the current pricing environment.
I know that listing the points above won't be popular, and I don't do it to rub salt in anyone's wounds. I just don't share the opinion of some that AGY is effectively de-risked. It's perfectly fine to be optimistic about our investments, but we should do it with eyes wide open. While AGY has the advantage of Pablo's expertise, ongoing delays create uncertainties. Although the company has the potential to thrive if lithium prices rise and management handles these challenges effectively, it's certainly not without risks.
I have no doubt that AGY will succeed when lithium prices eventually recover. I'm just concerned about what happens in the meantime, and whether AGY is best placed to weather the storm.
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