Hi all, here's my notes. I'm still rushed for time, so I hope they make sense. Happy to clarify if anything isn't clear while memory is still fresh.
Cheers
Overview:
Small room at the Parmelia Hilton, but surprisingly well attended from my perspective. Must have been 40 shareholders or so at least, I think. When we arrived, the board were moving around the room, introducing themselves to shareholders and having a chat, which I thought was a nice touch.
Before it started, I had a chance to meet Joe, Gary and Tom. I didn’t get to speak to Joe much beforehand, but he did chat to us afterwards, which I will get to later.
I spoke to Gary about Alvarroes agreement, he said the negotiations were continuing, which is why the drilling has started again. He said they were happy with how things were going, but when trying to estimate a timeframe for finalising the agreement, all he said was “It’s Portugal….”. So the definitive agreement still isn’t in place, but their access is not in doubt and it is the finer details that are still being resolved. It’s not what I was hoping to hear, but they do need to get out there and drilling again if an ore reserve is going to be delivered on time for the feasibility study, so this remains something to keep an eye out for.
Then I spoke to Tom about Youanmi, XRF will be used to soil sample a lot of the area, drilling is only looking at where they know lepidolite sits, because it comes up to the surface. They can go back and have a better look around later, using the XRF to look for rubidium, and the rubidium being an indicator of pegmatities. Lithium is too light to show up in the x-rays. First they want to confirm the parts they have found already and see how big they are.
I asked whether Youanmi being 5m thick and 10% lepidolite, and shallow, is probably worth digging up. He said it is as long as it is flat. Ideally, as I've said before, they want to see it swell out and lie flat. If it goes vertical then it might be too expensive to mine. More drilling will give us a better picture.
Then Tom asked when I started buying
“September last year. Wish I’d bought more then, rather than over the last 6-8 months.”
“Still in profit?”
“Nope, 50% underwater”
“Don't worry, there's plenty happening that you'll hear about now”, and then the meeting was starting, so I couldn’t follow up on that. I did appreciate the gesture though.
Formal proceedings:
- In Gary’s speech, you’ll see a section where he emphasises the unique nature of lepidolite and the byproduct opportunities it presents. This is the only moment he went off script during the formal proceedings, as he really wanted to get that point across, which I found very interesting. The rest of the time he followed the page in front of him exactly. Make of that what you will
- The remuneration report was questioned, given the size and growth in the total figure put forward. I think I have mentioned this previously; last year's options being issued at 9.1c makes the remuneration report look gigantic, but it doesn’t reflect the actual cash cost to the company, and that the options mean the directors ultimately put money back into the company
- Brian Talbot’s absence when he was up for election to the board was questioned, and the answer was that something urgent had come up and he wasn’t able to attend. Galaxy/Brian had sent another representative who was present throughout the meeting, but I didn’t catch his name.
- The point of Brian’s options also came up, given that he was appointed by Galaxy but is being granted the options personally. The answer was that, while Galaxy put him on the board, Brian still does the work himself and is part of the team himself, and thus earns the options himself. I think we have discussed that previously as well?
- The 10% placement capacity was queried about why it was necessary, given they had just completed a capital raising. The answer was that the company is definitely going to need to raise more money to build P1, and this is one of the options they have available to doing so. Cynthia Thomas also jumped in at this point, the first time she had spoken, and said that for a company at this stage of development it would be irresponsible to not have this available as an option. She mentioned that during a GFC-style event, having avenues such as this can save the company. Having the facility doesn’t mean it will be used.
- I think the only other query during the formal proceedings was just asking what the strike price of the options would be, which was announced to the market yesterday as being 2.6c. The AGM agenda outlined they’re at a 50% premium to the 5-day VWAP.
Informal proceedings.
After the votes were done, Joe jumped up and gave his presentation and opened the floor to questions. He was a very different public speaker to what I was expecting. One of my concerns from the 121 presentations earlier in the year was that he might be a bit too dry and “engineer-like” in presenting, which makes it hard to sell your message. But he was engaging, passionate and knowledgeable, which was a pleasant surprise.
- Joe started his presentation by introducing the team and sharing their contributions, which was a nice touch.
- Gavin Becker was present, he has been doing business development along with a former Rio executive in Japan. Joe later commented that the team spend a lot more time in Japan than in China, and the reason had to do with the quality of the product. Chinese battery makers can be too willing to substitute out supplies with no regard for quality, and the company aren’t interested in doing business with people who don’t value quality.
- CPS broker Michael Soucik was present, sitting amongst the shareholders. I couldn’t see if he had been voting, but I think so? Perhaps one of the other HotCopperites noticed if he was a shareholder? (@Beton2?). I thought it was interesting that he was there, at least.
- Joe stressed that getting to free cashflow as fast as possible is their aim, and that P1 has to strike a balance between being big enough to prove the concept and make money for the company, but small enough that they can pull it together themselves. I don’t think this was a new message.
- Lithium spot prices in China are only 5-10% of the market, but drive equity markets, which is something I’m sure I’ve mentioned before. Those prices in China have bottomed out recently and may be starting to rise (it's hard to tell because there isn’t much data).
- Vendor testwork delayed the whole feasibility study by 6 months. The vendors would only provide a range of capacity for each item, which made it impossible to find a definitive design, so they had to do all of the testwork to figure out the size.
- Amorphous silica is lower risk than silicate, as sodium silicate is a speciality chemical and their focus is on getting to lithium production first. Trying to make both sodium silicate and lithium carbonate from startup in the same plant was too risky, so they started looking for alternatives to sodium silicate that could get them to production quicker. That’s where S-Max and the amorphous silica came in.
- The plant could later be retrofitted to do lithium hydroxide, but they're focused on carbonate right now. Similarly, they may decide to go back to sodium silicate in the future, but for now amorphous silica is an easier and cheaper way of getting to production, with focus being on optimising the lithium production. Optimising byproducts will come to the fore with the luxury of cashflow
- Interesting to note Cynthia Thomas chimed in here to help answer the question. It is one thing to know independent directors have been brought in to manage risk, but it is good to see she has clearly had direct input into such a major derisk
- As a result of this, don’t expect C1 cash costs to be $0 off the bat, as a new plant starting up, they have to ensure the lithium quality is there first, and the result is that the early margins from byproducts will suffer.
- Amorphous silica is a simpler, but lower quality and lower volume product, so the profit from byproducts is reduced. This point is needs to be considered with the one above.
- They are still confident they can get P1 to $0 cash costs in time, and P2 even lower, but there will be learnings along the way.
- Importantly, someone asked if it will still be competitive, to which Joe said yes, especially when you consider that a lot of the brine operations are only so cheap because they were built a long time ago, and no longer have depreciation/amortisation in their C3 costs. New brine and hard rock expansions aren’t coming online that cheap either.
- This lines up with Gavin Becker’s recent presentation where he said brines were >$2000/t, hard rock is >$4000/t, and P1 should be comfortably under $5000/t on a C3 basis.
- (MY INPUT, NOT A STATEMENT FROM THE COMPANY) From my perspective, even if P1 starts out costing $4000/t (all-in costs) to operate, it will still be generating a healthy amount of free cash flow, and then they can get onto optimisation. This is no different to a mine that doesn’t reach average profitability for 2 or 3 years after starting production, which is entirely normal.
- Quite a bit of talk about P2 of at least 20ktpa being the optimal size to bring economies of scale, and get way downt he cost curve.
- Debottlenecking wouldn't cost much at all, but it is too far out for Joe to be able to say how quickly they would move into it. As quickly as they can, pretty much is what he wants, but there are too many other steps in the way at the moment.
- Pilot plant was a contingency. They thought they could get over the line without pilot plant. The process is done at atmospheric pressure, low temperature etc, should be straightforward. But it wasn't to be. Now it is a matter of making the most of the money spent.
- The R&D from it may be invaluable, and they plan to make the most of the products it will produce for these reasons.
- Pilot Plant will be broken down after a month and moved elsewhere, probably Sudbury as a training/R&D tool.
- They hope the Pilot Plant will provide learnings that can be applied to P1 when it comes to assembly, ramp-up and debottlenecking.
- There were quite a few questions about the Pilot Plant, particularly where it is going to be built, but Joe wouldn’t give out the details as they don’t want the team being interrupted by visitors yet.
- Amorphous silica gives carbon credits back when substituted into cement, so there is a monetary advantage to it as well as the compressive strength advantage. This is one of their selling points for it. But, amorphous silica is a lower volume and lower quality product, so it won’t be as profitable to begin with, as discussed above.
- It also still has future R&D that can be applied to it, for the manufacture of higher-value products.
- Design of P1 has shrunk from 8500 to 6300sqm. No mention of if this would save costs
- Final investment engineering likely released late Dec/early Jan
- Joe seems to suggest they were looking for other deposits right now, especially while everything is cheap, and that by next year's AGM, they hoped to have a much bigger global footprint to show
- I asked about the confidentiality agreements, he said that the counterparties have their own reasons for requesting them, while LPD use them to protect their IP, so confidentiality goes both ways.
- The confidential testing was only mentioned so that shareholders know it is happening. Whether anything comes from it remains to be seen, but he said “you can be certain that if they have lithium micas or phosphates, we have spoken to them about”
- Licensing out tech once P1 is built may become a viable business. P1 will demonstrate it works.
- An example was provided of Sumitomo that have a site that produces both sulphuric acid and batteries. Sumitomo, being a large multinational, would be unlikely to let LPD build a plant there, but under license they might….
- Consolidation not on the cards until earnings are coming in as they will get punished by the market for doing so. What the fascination is with the number of shares on issue I don’t know, but people seem to bring it up. Anyway, Joe was very clear that history shows companies who do it are punished by the market, and they have no interest in following those footsteps. I believe that was mentioned last year as well.
- Alvarroes will feed all of P1. The concentrator will need to be slightly bigger, but overall they will just utilise the plant more, as it had spare capacity
- So there will not be a second feed source required for P1
- 15 month build time, commisioning would take 3 months, so you're talking about commercial production at the very end of 2020 assuming FID by the middle of 2019.
- Hopefully straight into debottlenecking straight after that, but too soon to say, as mentioned above.
- Joe was very excited about the caesium. He said it had very compelling economics to add it in, as long as they can deliver a saleable product. No specifics were provided.
- Further testing with Mt Cattlin isn't currently scheduled, but remains a possibility for early next year once the optimisation has been done. Seemed to be a case of waiting for GXY to be ready and having Mt Cattlin bedded down.
- Which makes sense to me, because if Alvarroes is fully supplying P1, then Mt Cattlin is R&D
- Youanmi has not had amenability testwork. Didn't get to follow up on if there is a risk there
- They're looking for a downstream strategic investor who will come on board with equity and offtake.
- Distinction from Galaxy is they're upstream (so more looking for someone to sell mica to, which LPD aren't in a position for yet).
- LPD need a strategic investor who wants their product, which is something I’ve been worried about for awhile
- Some good points raised by another HotCopperite about the change from last year's AGM, where everything was apparently blue sky, to this year's which was for far more nitty gritty and down to earth
- I asked Joe at the end about whether 5000tpa would be limiting in terms of finding an offtake partner, given that cathode makers don't want to switch between feed sources as they will get different batteries each time.
- Answer was that 2500t probably would have been, 5000t isn't, and the reason is the manufacturers make lots of different types of batteries. So they could dedicated LPD feed to one particular battery, and 5000t should be enough.
- I would guess it is still somewhat limiting, it's just less limiting than at 2500t. I would think a P2 at 20,000t would have the potential to discuss with carmakers etc, as they're looking for big supplies.
Didn’t get a chance to speak to Joe about the quarterlies/their decisions on making announcements. Will have to try and put that into an email in the next few days.
Great to meet some other posters, glad you were there to get some questions in because I was a bit overwhelmed trying to keep on the ball. Thanks all!
(20min delay)