I constantly scour the market for undervalued stocks. Although I look at most sectors, I tend to fall back to the Resource sector which is booming. Within that sector Battery material stocks seem to do the best. Then when I look at the NPV or expected EBITDA of various projects, Lithium seems to give the best return.
IMO there is no doubt current Lithium prices are not fully reflected in late stage projects such as ours. It takes 5-7 years minimum to develop a mine so I can’t see the forecast demand being filled, so prices aren’t coming down any time soon.
IMO FFX presents a unique buying opportunity for several reasons.
Firstly, it does not trade at it’s proper value because it has 2 very different businesses in the one shell. Gold investors seldom want to own Lithium & Lithium investors seldom want to own gold. Especially within the same company. It’s much easier to just pick another pure Li/Au stock to invest in.
Ok that’s being addressed with the demerger, however even if they give notice of meeting today, the demerger is still a minimum 2 months away which could possibly run into the next Financial Year. Most institutions have FY targets etc, many would not want to own LLL at June 30 if it hasn’t listed yet - it would then be valued at the discounted prospectus price.
Then there is the African aspect. We’ve had tax disputes, 2 coups and now the sanctions. Many will invest in other African countries avoiding Mali, personally I’m happy with the Mali situation, is hasn’t affected our operations, we’ve had our fair share of late, hopefully we’ll get some calm water over the next few years. No African country is immune from this sort of thing, all part of Africa. IMO Australia & other Western countries have just as much, if not more risk with the environmental red tape etc etc.
If you look at our 2 businesses, they are both exceptional with rapid growth ahead.
The gold, guidance is for 10 - 11.5k oz this Q, but then 100k for 2022. That is an outstanding production growth in the last 3 Qs of this year. Everything has gone to plan so far, so I am very confident we’ll achieve that goal. Compare to similar African producers & we are way undervalued. TIE for example has a market cap of $432m a $200m loan so an EV of $632m. You’d have to deduct about $100m off whatever de-merged market cap you think FFX will have to compare EV’s. TIE is still building it’s plant, plans to average 188k oz pa over 1st 6 years. Personally I think FFX’s EV would have to be north of their $632m, especially considering we’ll own 20% of Leo.
And the Lithium, I don’t think I need to go into how big a cash cow LLL will be. World class partner, tier 1 resource which is open, fully licensed & financed. The best bit - it’s under construction.
Yes I’m slightly annoyed there hasn’t been any update on the now out of date demerger timetable. My main concern though, would be that both projects stay on or ahead of schedule.
