Here's something interesting... while we wait for the shorts to work out whether that gap is going to be filled...
I have updated my resource comparison to include a series of columns for Measured & Indicated resources only (i.e. it excludes Inferred resources which have a lower confidence level and cannot be converted into Mineral Reserves or used in a feasibility study). The block of columns on the left shows the full "Mineral Resource" numbers that I posted the other day. The block of columns on the right show the M&I resources with the same EV/Resource and GLN SP calculations but for M&I resources only.
Note: This comparison uses the share prices from Tuesday for consistency with my previous post.A couple of interesting observations:
1) Galan's EV/Resource increases slightly to $75.71 per M&I tone of LCE making it 2nd cheapest resource (behind only EMH & JRL).
2) VUL's resource reduces substantially from 15.85 to 3.61 Mt LCE, thereby increasing the Galan equivalent share price to $4.70.
3) LPI only has M&I resource (no Inferred) so their EV/LCE is unchanged at $123.26 which means that the Galan equivalent share price is reduced to $2.34.
4) AGY only has Indicated resources (no Inferred) so the Galan equivalent share price is reduced from $68.34 to $60.53. However, this also means that if we were to do the comparison based on Measure resource AGY wouldn't have a result.
5) GL1 only has Inferred resources... wait... what??? Yes... market cap of
over half a billion dollars and it only has inferred resources! So I can't actually calculate M&I EV/Resource or equivalent share price.
6) ESS's EV/Resource almost doubles from $451.64 to $877.03 or Galan equivalent share price moves up to $15.64. It's a similar story with AZL.
7) PLS's M&I is 6.08 compared to Galan's 5.78. PLS has market cap of over $16 billion which puts our share price at $45.68 on a resource equivalent basis. Yes... they are already in production and they have 3 times our production capacity but as a result their LOM is 17 years compared to 40 for HMW. Also, they have converted 4.74 Mt to Ore Reserves. However, there is a good chance that when all is said and done we will have more than that sitting in reserves.
8) And the real winner in this list, CXO, wins even more moving from $4,161 to $5,560 per ton of M&I LCE.
How is it possible that the CXO LCE is worth twice PLS on an M&I basis (or Mineral Resource for that matter) or 2.5 times PLS on an Mineral Reserve basis (figures not shown below)? The answer is production volume (probably among others). CXO is planning 175ktpa SC6 compared to 800ktpa for PLS which is 22% of PLSs planned output. Therefore you could argue that CXO is worth 22% of $16b which is $3.5b - so CXO is undervalued on that metric. The problem that CXO has is that its resource is so small that it's LOM is only 10 years. It becomes very difficult to apply PE multiples over 10 when you LOM is only 10 years - I would argue that something like a PE of 7-8 is more appropriate.
Bringing this back to GLN at 39ktpa LCE output that would be equivalent of 262ktpa of SC6 (6% spodumene concentrate) which is 32% of PLS's planned production which puts a valuation on GLN of $5.1 billion once in production (i.e. 32% of PLSs $16 billion). This is where you can see that if the resource upgrade allows a significant increase in production output, a further 5 or 10ktpa, that this should lead to an even more significant increase in valuation.
Hmmm... perhaps I should do one of these comparisons for LCE production output.
ALL IMO DYOR
(20min delay)