Hi E-Loui,I don't know if this post will be a good idea on my...

Hi E-Loui,

I don't know if this post will be a good idea on my part, but hopefully you are up for some discussion on your post and the AGM as I read it a few times and at times it seems I must have been watching and listening to a different AGM at times (agree you can't get the "atmosphere" unless you're in the arena). Apologies in advance for the length of post - but as you know - the devil is in the details.

Anything in italics is quoted. Anything in blue is E-Loui.

I'm going to split it into PLL and not-PLL related because for a SYA AGM it certainly was as much about PLL as it was about SYA (absent the mgmt related concerns of BoD). And of course I am approaching from the confirmation bias I have of PLL overall and PLL as SYQ's (not SYA) JV partner AND major customer. This is counter to your own confirmation bias of approaching from SYA overall and as SYQ's majority equity owner.

I wont highlight the areas of agreement (which are many), just where where we diverge or totally disagree/dispute. In no parrticular order

1. "Extremely worrying. FIRST 113,000 from 2024 confirmed for Piedmont, and any left over for us and the JV. And I don't think I have heard or seen such alignment with them..... ever"
Channeling John McEnroe here ... "you can't be serious" ... even discounting the too many to count times it has been referenced on HC. Perhaps its the first time that SYA has been so specific in its communications ... its not the first time that this OTA has been communicated to the market (so yes by PLL ... a publicly traded company on the NASDAQ for whom SEC regulations apply). I don't understand why (especially given SYA's history of disclosure on this OTA ... who remembers 2022 AGM and "doing my head in") the message has been discounted. Plus the reputational risk of getting the US equity capital markets offside would be company crushing if PLL were "fibbing" about the OTA. Any number of interviews to choose from during Sep - Nov (2023) from PLL interviews by KP

"We were looking to acquire spodumene concentrate for our downstream plans in the US so we came together, we signed an off-take agreement and essentially we get the greater of 113,000 tons a year or half of production at market prices subject to floors and ceilings. 2023 is a startup year, so we agreed to treat this as a half year. So for 2023, we expect to ship 56,500 tons, and again, we'll buy that material at market prices subject to floors and ceilings."

What I am highlighting here is the special treatment given to 2023 ... a "half year" and 56,500 tons being simply half the minimum amount of 113,000. And that (obviously) aligns with PLL presentations, but also IMO with SYA's updates (esp say the Noosa Mining Preso) which looked liked ~55Kt in the Jun Qtr '24. Along comes SYA with a guidance downgrade due to equipment & needed upgrades. Reducing production was always the operational risk for the JV when you give a minimum tonnage under the agreement (which is the greater of the 2 numbers).

As JB said "the offtake agreement is pretty clear. I'm not sure it's messaging is exactly. Where I think it is - I know it to be - the offtake agreement is for 113,000 tons per annum or 50% of production - the higher of the two - you can do the maths if we don't"

Well they didn't do the maths for their shareholders ... but you could have done it.


2. "Very interesting that Brown refused to say Piedmont, or PLL. He only referred to it as the JV or our partner"
Sorry but that's not accurate. I count at at least 3 times (not looking that closely) where JB says Piedmont
* "we already supply vicariously LG Chem with Piedmont so obviously ..."
* "Without the support from Piedmont ..."
* "In short, without Piedmont's support we wouldn't have NAL ..."
but of course when its related to SYQ he does correctly couch it as the JV partner (as SYA is to SYQ also ... don't forget that).
e.g. "to that offtake agreement to the joint venture itself, because remembering that both Partners - we're working to the overriding philosophy that cash doesn't get tipped in at NAL"

3. "Red Flag #1 - the soft Quebec penalty for not going downstream by June 2026"
I think you/we should all know this "penalty" for what it is by now - and it is a "soft penalty" in the scheme of things. We are all agreed that IQ will not want to see NAL fail again. And we should be all in agreement that Canada/Quebec trail the USA in the incentives being given to critical mineral producer - and lets be clear - spodumene is not a critical mineral. Spodumene does not go into batteries. Lithium salts and an input to Cathode Active Material that goes into LiBs. Quebec isn't going to penalize SYQ for not rushing into downstream - especially now - with the magnitude of cost blowouts in downstream facilities. Quebec needs to provide incentives ... not just talk about them. There is a massive difference between the US DoE programs and Canada. That said the common ground is both countries require huge amounts of ground work to qualify for funding and then to actually get it.

What did JB say?

"We've got a perfect opportunity at North American Lithium which we 100% support. It's a no-brainer to go down to downstream to carbonate – it needs to have a funding package which is really supportive of the shareholder base here. These projects are expensive. You've seen the initial capital there at $555M Canadian. Experience tells us that some of these numbers are growth numbers - they can blow out. We want to make sure it does not and that gives us an intrinsic opportunity to partner with someone, particularly at NAL."

You can interpret that a lot of different ways. It may well be a no-brainer from the existing equipment and processing PoV (but Carbonate from Brine is way less expensive and Chile can out produce NAL at a fraction of the cost). Yay, NAL produced some carbonate in the past ... "capacity constrained ... some of it is more pilot scale than commercial scale" is how JB called it. That wont cut it ... and you've already seen what outdated equipment and production control systems (SCADA etc.) no redundancy etc have at concentrate operations.

It is the funding package that is holding NAL downstream back in my opinion - and you can't get a funding package together with a very well defined DFS or even BFS. I'll go further a suggest (as its only my opinion/conclusion) that funding NAL isn't all that different to PLL funding TLP. PLL have/had a DoE grant (the old free money) but apparently there are now strings attached that were not before which makes it difficult to get finance. So exit grant and enter DoE LPO ATVM loan. And that's a process. It helps to understand some of the requirements ... so here is KP from Q3 Earnings call



What you/we should take away is
a. Gov't support is necessary ... if it does not flow I can't see downstream proceeding - fine or no fine
b. To get Gov't support - they are going to want to see binding offtake agreement for Carbonate (or Hydroxide if that's the case) with a Tier 1 counterparty.
c. To reduce risk, and I can't see any way around it, an operational "knowledge partner" (so LG Chem for example), is going to have to be invited to participate in the equity component of the downstream refinery. That will get a little complicated. I anticipate that the downstream refinery will go into a SPV type arrangement that in non-recourse to SYQ (and obviously SYA and PLL) with Gov't loan Debt at say 67% and equity at 33%. If I assume $750M CAD (allowing for simplicity of math and inflation etc) that's $500M debt (Gov't loan) and $250M in equity required. Again for simplicity say we are partnered with LG - and SYQ (not SYA) sell them 50% equity for $150M (downstream only ... SYQ guarantees SC and Market Price less discount). That leaves $100M for SYA/PLL at $75/$25M. Lots of levers to muck around with. Most important though ... tonnage of SC from NAL.

4. "Red Flag #2 - During discussion of the hydroxide/ carbonate trade off study, Brown stated that part of this study was to align with the strategic obligations of our partners offtakes. WTF? Since when are Piedmont's downstream aspirations of hydroxide ever aligned with a carbonate plant at NAL?"

OK then. Rethink that in light of what I just wrote in (3) above. PLL does not have an OTA for Hydroxide at this time - only SC to T1 counterparties (TSLA and LG). Clearly LG is in pole position for a cornerstone position in TLP and an OTA for Hydroxide in support of PLL's DoE loan. But so what. This has little to do with SYQ and even less with SYA. I can see how you can arrive at that conclusion given what was said ... which was

"The review - or let's say the trade-off study - was based on a request. Obviously, when your partner’s contracts - which are derivatives of hydroxide - and we're producing carbonate - how do we work that out? Now that's an add-on. People have been converting carbonate to hydroxide for years in China particularly. So that didn't really change the timeline we've been pushing, and I think from our perspective - cognizant of some of the requests – and these are more administrative more than let's say strategic."

So more "administrative" than "strategic". But nonetheless PLL does not have a OTA for Hydroxide (yet).

HOWEVER, say LG was the partner for NAL Carbonate. LG wants both Carbonate and Hydroxide globally and in NA. Why dismiss LG. If LG was a partner with SYQ in NAL downstream ... and they wanted a Hydroxide circuit added ... who you refuse them? Does that not fit into the statement made by JB?

"Just my opinion, and it may just be my cynicism toward PLL bubbling to the surface"
Agreed.

Happy to dialogue this further ... its a challenge though as source material is all over the shop.

House of pain today!