Ann: Presentation - RIU Fremantle, page-26

A few issues here. They are quoting figures from Phase 2 which seems a bit absurd to me as that has US$300M+ of capex and they haven’t even cleared Phase 1 capex yet. Most realistic figure to quote is opex from Phase 1 which is US$3,963 which according to the DFS assumptions produced US$54M of average annual free cash flow. However this was based off an average LiCL selling price of US$20,252/t. It had a payback period of 2.2 years but this was based on a low discount rate of 8%; in reality cost of debt has been showing to be much higher, likely 12-15%. Crucially, in the Phase 1 DFS their LiCL price is based off a long-term LCE price of US$28,000/t so their LiCL price was assuming a payability ratio of ~72%.

I haven’t re-created their DFS parameters, perhaps someone on these threads has (@daando37 or @Smith71?) but if you re-ran the numbers based on a more likely current scenario for Phase 1, you will find the economics aren’t nearly as attractive anymore. For example, what would the payback period and the IRR look like if you:

• Amended discount rate upwards from 8% to 12%
• Reduced assumed LCE price (for Phase 1) from US$28,000 to a more realistic current number, i.e. US$14,000/t
• Applying the 72% payability gets you an assumed LiCL selling price of US$10,080/t

So at present, unless there’s a solid recovery in the LCE price over the next 12 months, in the current market you need to effectively halve the price assumption for the phase 1 DFS. The problem is their sensitivity analysis (like many others) doesn’t allow for a -50% change in the assumptions, the lowest it goes is -30%. But even at -30% the post-tax NPV of the project drops from US$460M to US$246M, i.e. a reduction of almost -47%. In other words, a reduction of 30% in the price assumptions almost halves the project's post-tax NPV. So imagine how low the NPV falls when you halve the price assumption in the study? Now imagine you increase the discount rate (i.e. cost of debt) from 8% to 12% or even higher?

Perhaps now people can see why there is a real risk that even if the funding goes ahead, the cost of debt/terms from Glencore may be such that any future upside across the first five years is taken entirely by Glencore. This might help explain why the market cap has collapsed the way it has, even though they seem on the cusp of funding.