Interesting question, but remember they are now going for a DMS option, which reduces capex costs upfront, opex costs as well. Also whilst also reducing the level of output per tonne of feedstock the MET tests also show a higher grade than the 5.8% in the SS, so what they sell a key to. So best to look at what they may now be proposing to do. Transport costs are also likely to fall as well, given some of the more recent developments.
So best way to explain this hypothetically is to revisit Scenario 1 and 2 of this post: Post #:
42576697
I'll just take Scenario 1 and Scenario 2, and reduce price to US$600 per tonne but the key is what grade of product above 5.8% Li20 will be sold, noting the 5mtpa SS was based on 5.8% and the latest MET tests for DMS show higher grade than that, because I suspect by the time AVZ come onstream that is where prices will stabilise.
Ultimately, lower prices, as you see now, knock off high cost producers but as demand need for EVs grow, and because hydroxide is required in battery developments that always means a role for hard rock as explained in this post without repeating myself - Post #:
42448379
Don't forget the DMS option does reduce opex and capex which is explained in the embedded posts in the above post I have linked, but I'll keep transport costs constant. I have always said in the past that long term prices will never go back to the 2016 - 2018 levels but likely stabilise around here - been US$600 per tonne.
My estimates suggest Scenario 1 pre tax IRR at 50%, post tax IRR at 35% (assuming no concessions).
Scenario 2 pre tax IRR 61%, post tax 44% (no concessions).
Scenario 1
Scenario 2
Data above has another 15 years data - refer embedded posts - but for readability just putting down first 7 years (year 8 onwards in nominal terms like year 7).
Other matters
Obviously, longer term expect a floatation unit to be added, but also possibly some potential further processing in DRC to reduce transport costs. Also as transport systems improve, those costs also would reduce IMO etc etc
I guess we'll see how close this modelling is to the pin when AVZ releases its DFS, because a DMS option requires a reassessment of spodumene grade sold, opex costs and capax costs. Ultimately in terms of project finance see that coming from a combination of equity for Offtake Agreements and bank lending.
Ultimately, I expect the DFS to be different to the 5mtpa SS because price has fallen, but also the option itself reduces capex and opex costs. Obviously if they can get lower transport costs and recover tin/tantulum, which none of the modelling takes into account to date, then numbers also have upside potential.
At the end of the day been a large width, deep, high grade deposit with a very low strip ratio is what drives the viability here. It becomes just a question of transport costs IMO, assuming price is above US$500 per tonne.
It is a good discussion to have because things have changed for all hard rock plays on price since 2018, and for brines the key changes have been an industry move to hydroxide as well as water issues in Atacama likely to downplay growth there to. Also, it is clear over the last 8 months that AVZ intends dealing with current lower prices and funding matters by coming to market in a less capital intensive way (read DMS option with a refrofit of floatation later on).
The DFS will be an interesting read IMO.
All IMO
