General Discussion AGY, page-21369

@blacktrade

I agree with your assessment that a fair valuation could fall within the $1-3 range, provided that the status quo of SOI remains unchanged and all other assumptions I've made come to fruition. This scenario seems plausible once the 10 ktpa expansion is fully paid off and AGY actually begins accumulating cash reserves, which likely won't occur until the early 2030s.

In the hypothetical scenario of 2032, with a spot price surging above US$50k per tonne, CAPEX paid back and SOI remaining at 1.4b, it's conceivable that AGY could reach the $2 mark, although I consider that outcome highly improbable. Here's why:

AGY likely requires ~US$300m (A$480m) for the 10 ktpa expansion, based on comparative spending with Arcadium's Sal De Vida CAPEX figures. Now, can you name any lithium companies that have secured strategic investments or pre-paid offtake agreements worth more than double their current MC? I can't think of any, and when you really think about it, it doesn't make any sense. A potential offtake partner would be better off by launching a TO of AGY, where they could probably take control of AGY's share of the Puna JV for a lesser investment than a double-MC pre-paid offtake. Therefore, I think assuming funding for the expansion without substantial dilution seems unrealistic.

My guess is about 10% self-funding (from 2 ktpa profit), 50% pre-paid offtake, and 40% equity raise. However, a 40% equity raise of US$120m, or A$184m, at even 25 cents per share (a generous assumption) would result in a ~50% increase in SOI, leaving AGY with approximately 2.1b SOI. Consequently, my previous valuation estimate would need to be reduced by about a third, from ~$1.20 to around ~80 cents per share (in the early 2030's). This highlights a major flaw in many people's valuations, as they often assume that a partner will entirely fund the expansion. I believe it's more plausible that an additional 50% increase in SOI is necessary, given the circumstances.

Regarding comparisons with peers like ORE, while typically reasonable, the vast differences in circumstances between the two companies render this comparison a bit dodgy mate. ORE reached a peak of approximately A$2.6b MC, shortly after securing funds for Olaroz Stage 2 from Toyota at $7.50 per share. At that point, ORE had Olaroz Stage 1 operating at 12ktpa, fully funded and environmentally approved 25 ktpa expansion plans (Olaroz Stage 2), a funded 10ktpa Lithium Hydroxide Facility (Naraha) about to start construction, a Tier 1 strategic partner (Toyota), Argentinian Government support, multiple offtakes and $50m cash on hand. Additionally, ORE's resource base was substantially larger (17 times) and of higher grade compared to AGY's current Rincon resource. Even with ORE's diluted ownership of Olaroz (66.5%) and missing "peak lithium" as a pure brine play in 2022 due to the GXY merger, its circumstances during the first lithium bull run were vastly different from AGY's current situation. Therefore, simply comparing AGY's MC to ORE based on them both being brine operations is a bit too simplistic IMO.

Please let me know if any of my figures or assumptions require adjustment, these are my thoughts only.