what-is-battered-lithium-play-vulcan-really-worth/FYI
Guy on Rocks’ is a * series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director, and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
https://unauthorised investment advice/experts/guy-on-rocks-what-is-battered-lithium-play-vulcan-really-worth/A rough week for aspiring lithium producer Vulcan Energy Resources (ASX:VUL) (figure 6) that saw its share price belted from over $16 to close at $10.81 following a report from research house J Capital.VUL is claiming to be the world-first lithium hydroxide monohydrate chemical product with zero carbon footprint, from their geothermal lithium brine project in the Upper Rhine Valley, Germany.J Capital have arrived like a low flying bomber and are having a swing at a number of key assumptions (such as flow rates) with VUL responses being somewhat inconclusive if you believe the market reaction.The project boasts some impressive financial metrics such as a post-tax NPV of $3.4 billion, however I think one needs to be a little cautious about companies trading at enormous valuations ($1.4 billion market capitalisation) that are unfunded through to production and, more importantly, are yet to complete a definitive feasibility study (DFS).This is when we get a much better idea as to what the real costs and associated risks are likely to be.As a rule of thumb, I think it is possible to assign a value of 20% of the unrisked post-tax net present value of a project which sits in the medium risk range (as far as technical and market risk is concerned).I would place this in the higher risk category but, applying this approach, a market capitalisation in the range of say $700 million or could be justified.Assuming this is correct I would estimate a possible value around $5-6/share which leaves plenty of downside.Given the hefty CAPEX figures of €226m for the geothermal wells and plant, and €474m for Direct Lithium Extraction (DLE) plants and Central Lithium Plant (CLP), I am being a little generous on applying a 20% discount to NPV.As we have seen in the past (e.g. Quintis), once the sell recommendations start coming over the hill it can be hard to stop the momentum. This is particularly so when the research is correct, or even correct for the wrong reasons.
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