General Discussion AGY, page-3090

I love this original post from Reddit.

In relation to the subsequent comment to go with it, i think in principle yes i would also love to agree AGY is still yet to reach its full valuation potential

but

On this forum can we all please abstain from:
- "Everyone else is overvalued, but AGY is so undervalued"
- "[your company] stinks, AGY Rocks - yours sincerely AGY supporters
- "Everyone has much higher Market Cap than AGY even though we are much better!"

While these statements in their own way may be correct, i challenge people to provide objective reasoning to support it which agrees with how the market actually behaves. Subjective phrases and generic statements make my eyes roll a little because well... i know exactly what is going on on every other lithium asx forum (the EXACT same thing):

- "AGY stinks, [their company] rocks - yours sincerely [their company] supporters"
- "everyone else (including AGY) is overvalued but [our company] is super undervalued"

to say AGY is an exception because we have good things on the horizon is also not a valid argument, because theoritically every other ASX lithium company's management has "good things" on the horizion on their own timelines too.




May i be the person that comes in and provides the objective evidence for us why AGY is actually the best from a risk/reward perspective.

Column "M" outlines the value of the company against the deemed Net Present Value derived from the latest Feasibility report or economic assessment.

Like most other companies we have hit around the 100% valued mark, with some now past 100% value of their NPVs as pointed out by the poster on Reddit.



Point 1 - Why are other's market caps higher than ours?
Not because there is some form of injustice or foul play against AGY and favouritism for everybody else but us, but because:

1a) Other projects have more resources in their tenements, other projects have endeavoured for a larger tonnes per annum project than us, and some other projects (e.g. GLN) have less impurities which means they have a less cost per tonne because they save in reagents to remove them. This cost saving then improves NPV

1b) Our Value / NPV ratio is sitting around the same as most other stocks. Other stocks have simply declared a higher NPV using the variables from point 1a

Point 2 - Now, let me explain to you the REAL reason why despite having researched nearly every lithium play on the ASX i still consider AGY the best and have invested ONLY in this stock.

2a) Our declared Net Present Value (NPV) of ~ $409m AUD after tax as per the 2018 preliminary economic assessment (PEA) is extremely outdated.

This NPV takes into account:
i) a current JORC of 245,120 tonnes of lithium, we are intending to upgrade the JORC to somewhere between ~500,000 - 750,000 tonnes of lithium
ii) A discount rate of 10% when everyone else uses 8% (ours would be higher if we used 8%)
iii) assumption of 10,000 t.p.a instead of 12,000 t.p.a

We will have a feasibility report updating our NPV around the start of next year, which i feel a portion of this hasn't been priced in yet.

2b) As the Reddit user highlights, the market especially in a boom doesn't have much regard for risk that the project won't actually go ahead and happen.

So many lithium companies have market caps much higher than ours FOR NOW because they prioritised the big resource and high tonnes per annum endeavour because in a boom the market doesn't price in risk.

Come 2-3 years time when feasibility, scoring the funding, and getting the project into production actually matters, we will be the ones laughing with the high valuation.
See below:

i) Jerko has saved us drilling money by keeping our JORC to a low 245,120 tonnes.
why? - Because when it comes to actual production 16 years life of mine is more than enough.

☕️Does it affect NPV and limit current valuation - Yes,
☕️Does it affect profits and revenue per year and therefore valuation in the future - No.

we can worry about extending it later, quite easily in fact. (others did not save money)
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ii) Jerko staged our progression from 500 tonne plant, to 2,000 tonne plant, to 10,000 tonne plant - Because when it comes to actual production good luck getting someone to fund you without a derisked project. This also means the money we require to build the plant we require is around $190m AUD, instead of $500m AUD, or $1,000m AUD like the other projects.

☕️ Does it affect NPV and limit current valuation - Yes,
☕️ Will others actually reach production while AGY does - potentially not.

Others will have huge trouble actually getting the funding because their CAPEX (capital required to fund the project) is way too high, and they haven't proven the process yet with a pilot plant in decent quantities, and they have not derisked by demonstrating it works even at medium scale (i.e. 2,000 tpa)

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iii) Pablo selected the area he did even with high impurities (so what, i said it) because as others have pointed out the brine is homogeneous / analgous.
What the hell does homogenous mean?
It means that the impurities are uniform through the brine, there is consistency in their levels throughout all of it. This means essentially that the formula for processing the brine into battery grade lithium is constant and viable, which means you don't have to tweak the formula every couple of hours as different levels of impurities come through, its all the same.

☕️ Does it affect NPV and limit current valuation - Yes
(because selection of the homogenous yet high impurity area affects the cost per tonnes
and therefore the NPV)

☕️ Is there any actual risk in the viability of processing all brine to 100% battery quality -
No.
(unlike Orocobre, where only a fraction of their lithium carbonate is battery grade). Ours
will all be battery grade.

So what if our declared cost per annum is ~$800-$1,000 higher than the wannabies, having low impurities does not mean that you can realibly and constantly process it into a battery grade product on a high scale. This is something that has been ticked off for us despite impurities, impurities is not even a consideration now, it's an irrelevant topic, it's sorted.
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iv) Lastly, we will actually be a producer by 1 July 2022, and a further 10,000 tpa targetted on top of the 2,000 tpa for 1 January 2024 with a process and strategy that will actually get us there. Other companies such as GLN are targetting a plant for 2025 with a large capex and not a staged process (i.e. 500 > 2000, 10,000) to get there. This puts a lot of risk on the funder, and has potential to be pushed back until 2026, 2027.

For AGY it is real and happening now.
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To conclude, our strength is not in the NPV based valuation.

Our strength will be in the PE based valuation (based on profits and actually being in production) as opposed speculation. This is what Jerko is going for. Once we are in production we will transition to PE based valuation and this is what the market has not priced in, and this is why we are better than the others.

Others have shot for large risk but big production.
We have shot for low risk and medium production.

As the reddit user has established, in a boom the market does not appropriately take into account risk.

Thank you for reading this far, and for observing an objective evidence-based post.