Quoting Col. Nathan Jessup
"youcan't handle the truth ..."ANYTHING that isn't positive or reinforcing of Sayona "as a superior investment" is "put down" in mostly nasty ways by a loud handful and cheered by the herd.
But here goes. So while the commentary might be unpopular it is a shareholders PoV (albeit a small one). I don't think there was anything in the JB interview that wasn't already known. Much of it however has been "in dispute" by a cadre of posters that continue to obfuscate information that is generally known - because their view is/was different. Since this is the OTA thread I'll stick to that topic (mostly). The first passage of dissection from the interview is:
"I've had a lot of contact in regards to the offtake and I think Keith made some statements that were, you said it's not overly complex, but people don't understand it. I agree with him 100%. It's a life of mine agreement. It does have the floor and the ceiling price. It does have a passive switch in there, which the decision to go downstream and we fully support that process. Preference is given to supply to the plant on site - or in another location – however it's not a sale of that material then, it's a waiver on the volume that would come out under the offtake agreement, is waived."
I bet you have James! (and Dougal).
For the longest time it was refuted that the OTA is (mostly because KP/PLL was the source)
1) Life of Mine ... it is and unequivocally confirmed as LoM
2) Floor and CeilingPrice exists SUBJECT TO GRADE Adjustment
3) Market Price isDAP (Cherryville) ... means the Seller (i.e. Sayona Quebec) pays shipping frommine to Cherryville - whatever that allowance is
4) Volume is greaterof 113,000 tpy or 50% of production .... many examples given in the past andeven on the interview
5) What PLL's intended use (e.g. using it at CLP or TLP or just sellingit) is irrelevant ... PLL is free to do with it what it wants...
6) Preferentialsupply to JOINTLY OWNED downstream conversion plant is a trigger (of sorts).
Now this gets down to interpretation in terms ofwhat actually happens in a downstream conversion plant. We have
KP said"we would sell the material into a jointly owned chemical plant"
JB said" however it's not a sale of that material then, it's a waiver on thevolume
DE wrote "it is provided from one section of NAL operations (concentrator) to the conversion plant"
So how is one meant to unravel that. Set aside for the moment the “jointly owned aspect”. Perhaps “sell”/”sale” isn’t the right word as it conveys that funds flow between business entities as buyer & seller. The JV is on both sides of equation – but in all likelihood not in equal ownership - AS THE REFINERY IS ALMOST CERTAIN TO INCLUDE ANOTHER EQUITY PARTNER - so jointly owned but not solely owned by the JV partners.
If, as I opined in the block picture earlier, that SYA and PLL retain 100% ownership of the mine and concentrator but spin out the refinery and sell 50% of that to a “PSP” … why wouldn’t you want to sell SC to that entity on commercial terms. Remember the new PSP is not a part of SYQ - just the spin out and so why would that tonnage be considered as part of the "volume waiver"? The remaining50% (where SYA owns 75% of that (so 37.5%) and PLL 25% (so 12.5%)) of the refinery’s need could get it’s SC “provided” to it by some form of transfer pricing … all to do with tax primarily IMO.
That is complex and far from simple and no one (not even SYA or PLL) would have an answer yet and it depends on the Partner. And its not on the radar until post 2026 (per the inteview).
Which puts us back to CY 2024 … and as per the interview, if the JV produces 190,000 tonnes then 113,000 tonnes goes to PLL and 77,000 tonnes goes to the JV … NOT TO SAYONA. And just like I have said many many times, it will not be a SYA OTA. It will not be SYA Revenue and it will not be SYA profit. It is SYQ not SYA.
Again, per the interview:
(HK) “But I wanted to go to your offtake comments - if you're at 190,000 tons production and 113,000 goes to Piedmont, then there's 77,000 tons left over. You said that those are not Sayona's, those are joint venture tons? "
(JB) "Yeah. The joint venture has the rights to sell as tons. I just want to separate Sayona as the parent company, where 75% shareholder is the joint venture. The joint venture sells those tons, not Sayona."
(HK) "And then those tons would be 75% to Sayona and 25% to Piedmont?"
(JB) "In essence, yes, Howard, because in the end, the money would go to the JV and any repatriation of loans or funding would come out of the JV, but that would be the proportion. But they would be JV funds because it's NAL as the seller."
This goes back to what I’ve always said about the way a JV operates and how Sayona consolidates the JV financials (because they own 75%) into their financials (e.g. cash). Many have loudly disagreed … hopefully it is clear to them now.
And so this is why the brokers value SYA as they do. HK referenced Desjardins and their fair value (unrisked) of Abitibi Hub of about $0.15/sh … which at 10B shares suggests $1.5B and then risked at 60% brings the “value” down to $600M (which is 75%)… understandable – right – about what it costs to build a 240Ktpy SC operation with tonnage for 30yr LoM.
And here comes the rub … if its 190,000Ktpy for CY 2024 (assuming all Capex spent and Opex improvements done) then on 113,000 tonnes to PLL, SYQ made roughly $100/t on SC5.4 … so $11.3M on that piece. And if SC5.4 avg is $1,260/t (a bit low IMO) and costs are at $810 then SYQ made roughly $300t (since $150/t is freight) on the "remnant" 77,000 tonnes - so ~$23.1M. All up for 2024 the JV makes ~$34.4M (and a FCF yield of 4.3% (34.4/800) at SYQ JV) of which SYA would receive $25.8M if the JV chose to pay it out. That makes for a FCF yield to SYA of ~ 4.3% (25.5/600) … and that’s not a good business since I can earn a risk-free rate above that. And I don’t mean FCF for the company as a whole, really just the JV OCF less any JV sustaining Capex (not interested in rest of company (yet)). In my calculation I’ve assumed all Capex already spent (so none subtracted from OCF).
All I’m doing is trying to illustrate how the market may be thinking about SYA. What’s a good FCF yield for a miner in general? My research says the median is around 15% while 20% is considered good. Some might say I’m using the FCF or OCF out of context and the denominator in my calculation is not valid (for a listed company it would be their Market Cap and SYQ is not listed so doesn’t have a market cap value). All you have to do is think about if the JV partners wanted to list SYQ Mine & Concentrator as a standalone entity, what would be the value given to it. Is $800M too much or too little (just remember if you were to say double the value to $1.6B then you have just halved your yield).
Contrast that to PLL, which using those same numbers above would get:
113,000 x (1,260 – 810 – 150) = 33.9M + 8.6 = $42.5M
on their $200M investment proportionate valuation of SYQ, is a OCF yield of 21.25% on their interest in the JV.
As JB said
“…that there's no doubt that the market sees the offtake Piedmont holds at NAL to be swayed in Piedmonts direction”.
The above math just sort of confirms what we’ve all known for a long time. And investors will get attracted to higher cash flow yields – especially when you (SYA) are considered as and compared to a producer (because an explorer does not have operating cash flow).
So what does SYQ need to get to "good" OCF yield of 20% in future years when its a cash cow? ... Well that number would be $160M. On the assumption of 213,000 tpy (for simpler math) and $2,460 SC6 (costs of $810 & freight still $150) that means JV has 100,000 tonnes at $1,500/t net cash = $150M and tonnes to PLL of 113,000 and $100/t net cash is still $11.3M. Overall $161.3M and 20.1% yield
Now if costs go down to $710 and freight goes to effectively $0 (because "selling" to refinery on the same site) that reduces the SC price by $250/t down to $2,210/t to get that same %yield out of the mine/concentrator.
This is all just perspective though - same as someone saying 10X PE when the E part is an accounting perspective. What I am illustrating is how the present form of the OTA operates on a value basis.
The NAL refinery is surely going to happen ... its the when and what the eventual capital structure looks like - that is the great unknown at present. But I do expect to see NAL downstream happening - just not the way its represented on this forum. Patience required.
(20min delay)