WHEN WILL PLL GET THEIR 25% PROFIT FROM SYAQ? There are some questions that perhaps has been answered and I missed it or that the PLL/SYA discusions have noted. It seems assumed that the profit from sales of SC6 will be distributed in the manner of SYA 75% and PLL 25% immediately. This is where the fine print is so important and it would be good to have greater clarity. In a company, the board will decide whether profit will be reinvested or distributed to the holders- based on its overal strategic and longer term interests. What if SYAQ, the company, via its board - in particular SYA who has 75% voting power decides to reinvest any profit into the carbonate plant?IQ who has reserved veto rights will back this as it aligns with the " SYA and PLL HAS agreed to" objective of carbonate or hydroxide processing ASAP. Therefore will PLL or SYA for that matter get their 25% or 75% respectively straight away of the profit distribution from SC6 sales? Only if the decision is NOT to reinvest into a LC/LOH plant. And who has the 75% power in SYAQ to make that decision? I would say that profit reinvestment is likely to occur.PLL and SYA is unlikely to get their profit distribution just yet. Two more points to note: 1. Conditions precendent: Their latest announcement uses the word "IF" SYA and PLL agrees on lithium carbonate (LC) or hydroxide (LOH) plant. Yet the original announcement in 2021 NAL purchase uses the term (IQ stipulates this) "HAS agreed" - this would be "conditions precedent" So if one party later doesn't agree they break contract. - PLL in order to delay the plant would have to overcome this. - which presumably they cant - hence the announcement and joint acknowledgement to Carbonate PFS - which will be seen to align with the contract/IQ's intent.2. Timing and question of delaying tactics of PLL: - ie push out LC/LOH production to 2026/2027. a. This is a deadline. It does not mean SYAQ/IQ cannot push for earlier. As much as PLL can delay, they only have a 25% stake and voting power in decision making. b. If SYA goes it alone and even puts up the funding: they will have IQ, Canadian/Quebec govt on their side: More revenue to them in taxes ( not just, more jobs created, election promises kept, more votes. Quicker. Even more impetus for IQ to put up any funding shortfall. Taxes/revenue - to IQ/Quebec- from higher revenue LC/LOH and from the flow on effected and value add to the vertically integrated supply chain through to the manufactured finished product. IQ/Quebec government are not going to be satisfied with the penalties stipulated in the contract for delay- too much is at stake. Does not IQ hold a stake in SYAQ/SYA - would they be happier if the value of their holdings in SYA/SYAQ increases as its share price increases. Thats even if they are able to capture the value of the SC6 revenue that PLL on sells. Just don't think they will sit on their laurels and be content with the revenue from penalties whilst their objectives for NAL and for the region as a whole gets derailed/delayed by PLL's ambitions and their tax revenue value is more likely to be captured by the USA. Hence we see evidence of IQ facilitating Carbonate/LOH discussions- ie the Korean visits. The agreements being struck with VW and Mercedes. They want to strike whilst the iron's hot- primed for revenue with a hot market for things associated with lithium.As for the shortfall in 25% cost payment by PLL for investment if PLL is unable to for any reason: at worse for SYA is that they would have to stump up the funding upfront ( $300-400m odd to finish and upgrade the already half finished plant according to our esteemed SYAQ CEO Guy Lib.) They will just have to deduct that from the profit distribution, plus interest!You would have to ask the question of what sort of handshake under the table if IQ sided with PLL on this. c. If PLL claims that they did not agree to LC/LOH and therefore they should still get their 113k of SC6: - refer to point 1. Conditions precedent - SYA and PLL "has agreed" - its the basis of the contract. Will PLL be deemed to break contract if they claim they do not agree? If the a plant is completed before deadline- will it be looked upon unfavourably by the courts if the intent of the contract was understood from the outset and is met earlier? - SYA and IQ will argue that it runs counter to the intent, purpose/objective and understanding of contract if PLL stalls/delay: SC6 is intended for downstream processing into LC or LOH - to which PLL would be deemed to be well aware and "has agreed" - PLL could sue to halt progress or financially: but they will have to deal with not only SYA but IQ, Quebec government, their election promises and the people there whose economic and social benefits will be deprived/delayed. Will the courts grant an injunction to halt progress in these circumstances? Unlikely. Can PLL physically blockade the site? That would be ridiculous. SYA could countersue: they argue they are working in line with the intent/spirit of the contract. That PLL's delaying action have caused financial damage. That PLL have broken contract. That any penalties payable is borne by PLL because SYA have acted to comply and meet the terms and objectives of the contract- even exceed it. Can there be a reason IQ wont support this? - will the court see it just/right that whilst SYA pays 75% they get a significantly, disproportionately less profit? SYA will argue, that the market/price on which the contract was based has changed so significantly along with costs/inflation and ask the court to proportionately,reasonably apply current market pricing/costs to the "offtake". If production of LC or LOH is happening and are sold whilst legal battles are being fought: The return on investment sit with SYAQ or in trust/escrow awaiting the court's decision. Some questions: - where will PLL get the funds to fight the Quebec goverment/IQ and SYA? - that's assuming PLL are still around by this stage. Their best prospect for SC6 is from Ghana (which will not attract the IRA subsidies) and to a lesser extent North Carolina (timing wise). Their potential revenue stream would look shakey. Meanwhile funds from SYAQ that they need to see their aspirations come true would sit in trust awaiting a courts decision. Would they want to go the legal route or rather get access to the funds through profit sharing of LC/LOH sales with IQ and SYA? IQ/Quebec govt and SYA's interest are aligned in pushing for LC/LOH plant ASAP. I think this is the most significant thing that SYA has going for it strategically in this offtake deal. From a risk perspective ( financially from a political, social, legal,corporate/partnership cooperation/synergy and speed to production perspective) and therefore strategic perspective, I would argue that PLL's longer term interest and viability actually would be better served if they align with IQ and SYA's push to LC/LOH processing ASAP in Quebec. My contention is any delaying/stalling tactics cuts 3 ways: IQ, SYA PLL. All interested parties would want LC LOH asap:Let's say all parties go all out for LC/LOH production and maximise production capacity to say 40, 50kt pa .... by end of 2024 or earlier. What will the economics of that be? It also has to take into account the value uplift in their (PLL's) 14% holdings of SYA- parent company- and this is not to be understimated when SYA SP heads north of $1 and PLL's share price will also increase as a result of LC/LOH production. That is, they capture significant value as SYA shares increase in price through their 14% holding of the parent company. A positive multiplier effect to the increase in their own share price as greater positive sentiment towards their projects since they would be backed by greater security and easier access to further funding. Good for them! In gunning for LC/LOH All parties' interest will be aligned, not only financially but the outlook contractually, legally, politically, and more likely social-economically (think jobs, infrastruction, housing, quality of life, services - this is what the govt is aiming for in the vertically integrated supply chain and manufacturing hubs). Therefore you have a government onside. Destabilise these relationships and that's when risks are harder to foresee as they are more intangible and less quantifiable/predictable. Do you really want to rock that boat and face such risks for 113kt SC6 for an extra year or 2? PLL going for broke and hanging their hat on the 113k offtake, in my view is arguably more of a higher risk, short term, short sighted benefit to PLL in my opinion. Plays well to short term investors though. Plus, at what level of LC/LOH production and when, will the economics approach or better the 113kt of production at $900/t to on sell for that extra 1 or 2 years? Is it not better to have the greater stability of a higher value refined commodity that is at higher demand to end users? That is synergistic to and facilitates the goals of establishing a vertically integrated lithium based EV and later energy storage supply chain and manufactoring hub? So, the uplift in profit from SYAQ 25% plus 14% SYA parent company for PLL Vs the short term gains of 113kt and corporate relational strain and uncertain legal outlook with IQ and SYA, thereby putting greater risk to PLL's own ventureKP, being the business minded person would see this and more so but he has to play to his company's perceived immediate interest and its shareholders. He's having an each way bet in agreeing to the LC PFS. So when will PLL likely get their 25% profit distribution from SYAQ( and SYA 75% for that matter)? After the profits are made from LC/LOH production in my opinion. Phew, that was a long answer. Anyways, that is just my two cents worth.It forms part of the reasons why I hold SYA with a long term view.Of course IMO only and DYOR. This is not investment advice.GLTAH.
(20min delay)