Ann: 2.5x Increase in HMW Resource - Now 5.8Mt LCE @ 866 mg/l Li, page-111

1st of all... WOW... What an update! I must say I was expecting resources to move from indicated to measured with very little increase to tonnage. I was expecting the big expansion of the resource to come in the next MRE update early next year. So I'm totally caught off guard here - like many others - but probably more so.

Sure! I can update my numbers for 30ktpa.

Lithium Carbonate Approach
The first is the Lithium Carbonate approach which will have a higher capex than the fast to market Chloride approach. To calculate capex I have used the capex from the HMW PEA and then adjusted it to get us from 20ktpa to 30ktpa. In doing this I have assumed a 50% more efficient capital intensity on the increase, to reflect economies of scale in going from 20ktpa to 30ktpa (i.e. 439m + ((439m / 20000) * 10000 * 0.5). This gives me a capex of $762m AUD and in this case I have continued to use the $23,609 US/t lithium pricing assumption that LPI used in their DFS (although I agree with paul that by the time the DFS comes out, and given the current spot market trajectory, we could see long term pricing closer to $25,000 US/t). But for this valuation I will be more conservative and stick with $23,609 US/t. While capex increases to get us to 30ktpa the benefit here is that post tax NPV increases to $4.176 billion from $2.7 billion. This should give us a share price closer to $4 at the point of finance so we could actually have less dilution than the lower capex 20ktpa operation (compare the increase in SOI highlighted in green below). Remember I use the target share price at "DFS/BFS+OT" (i.e. DFS plus Offtake) stage to infer what the share price is likely to be at the point of finance - which is $4 for 30ktpa and $2.50 for 20ktpa.



Here is the 20ktpa valuation for reference:


Lithium Chloride Approach
Here is the valuation based on the fast to market Lithium Chloride path. I have used the same approach to capex, except that it is reduced by 40% to reflect the fact that we don't have to build a Carbonate plant (as indicated by JP but yet to be confirmed). In this valuation I have used a $30,000 US/t Chloride price which is 40% of the current spot price and is in-line with the expectation of industry experts for the next 5 years. However, I doubt we will see this figure in a DFS as long term forecast pricing is ultra conservative and slow moving (the fact that they have been constantly updating long term forecasts means they are wrong, wrong, wrong). So this valuation is more aggressive than the one above but perhaps is more realistic especially if the fast to market approach means we can get into production in 2024 while prices are at nose bleed levels. I have downgraded my PE ratios for this one to reflect a lower investment premium for a simpler, easier to achieve, less niche, chemical product (in line with the discussion I had with Paul the other day).



Here is the 25ktpa lithium chloride valuation I posted the other day for reference. So if we can squeeze out another 5ktpa it will add another $120m in post tax free cash flow per year or another $1.2 billion AUD in shareholder value (assuming a PE of 10).


I would love it if JP started hinting at 30ktpa soon.

ALL IMO DYOR