If you read the AVZ, LTR, CXO and many other Lithium stock threads - holders all think they’re undervalued. Let’s face it, there is no point in holding a share if you think it’s fairly or over valued.
We can compare Resource sizes, planned production, production costs, capex, NPVs, IRRs etc etc. End of the day, the proof of the pudding will be the profitability once in production. Then these companies will be much easier to compare, as we have done in the past with Pilbara Minerals, Orocobre, Galaxy, (before the merger). Mineral Resources is hard to throw into that mix because of it’s iron ore. In the same way we are (were?) hard to compare because of our gold.
As we get closer to production, EBITDA or planned EBITDA will be the important figure markets look at to value companies like Leo. Obviously expansion plans etc will be important in assigning the price to earnings ratio the market assigns. We tick boxes there too, already have stage 2 planned & recent commentary is about looking for acquisitions. Remember too our CEO is the ex Galaxy CEO, GXY went from a single mine in WA, to owning James Bay in Canada & Sal De Vida in Argentina.
Profitability leading to free cash flow is the ultimate reason we own any share. It either leads to dividends and/or expansion of the company - hence increased share holder value. We have a relatively low capex and a payback period of less than a year. Leo will be a cash cow. What are they going to do with the cash?
In the interim, IMO one of the most important metrics to value these companies is a simple question.
Who has the best chance of executing their plans and getting into production?
CXO is up there, but is a very small project, sitting at #2 would have to be Leo. We have a fairly simple conventional plan. It’s very straight forward with few hurdles. Very achievable, and underway.
We are starting to generate buyer interest because of the impending demerger. I’d suggest most of the recent buying is for Leo. Those that want both the gold + the lithium would already be holders, for those that only want the Gold side, I’d suggest the best time to buy FFX would be after it goes Ex - then grab a bargain. Lithium buyers know the value of Leo, what affects the price they’re willing to pay is the price they think they can offload FFX for after the demerger.
They don’t like having their money tied up (FFX/gold component) so IMO once we get the Notice of Meeting, they’ll have a concrete timetable to work on. If for example the NoM was announced tomorrow, they’d only have their money tied up for about 5 weeks before they could sell FFX. I suppose they have to weigh up that 5 weeks as opposed to probably paying more for the shares closer to the Record date.
