Morning all,
Hope everyone had a great weekend.
A somewhat delayed response but just wanted to say am very pleased with the update provided at last week's AGM, especially given the level of detail provided by management with respect to the Manono project itself, OTs, and also finance. IMO this info provides greater clarity on the company's immediate, medium, and long-term future.
My notes to the AGM presentation (with some opinion and complimentary analysis thrown in) are as follows, but also recommend that people read through the entire AGM presentation with a fine tooth comb.
Page 4. Corporate snapshot (and IMO significant change to the register moving forward):
Firstly, it's interesting to see 80% of key shareholders still classed as others i.e. made up of directors, fantastic and supportive retail shareholders
, sophs, profs etc. The remaining 20% are Chinese entities, all of which are non-controlling, without a board seat and in the case of Yibin and Huayou not linked or aligned other than being Chinese.
Thus, IMO the register is ripe for some serious on and off-market strategic investment from some deep international pockets including the EV battery supply chain (OEMs, cathode producers etc.) instos (smaller to begin with), specialised / boutique fund managers and finally ESG funds (ever growing in popularity and size).
As per the typical lifecycle of a true Tier 1 project with robust economics (see graph below), once OTs start rolling in (from this month it appears likely) and finance & FID is delivered in early 2021, then IMO this provides the green light for deep pockets who are waiting for assurances of imminent production and revenue.
View attachment 2679986
At that point the SP switches from NPV based calculations etc. (although note that at 8.6c AVZ is so heavily discounted that it is trading at a whopping 77% discount to first pass NPV, and at an 86% discount to peers on an EV/t basis) to a function of revenue and EPS.
It is then that we will very likely see IMO larger institutional investors scrambling for a slice of this magnificent and unique multi-decade project (a cross listing on one of either the London, Frankfurt, NYSE or TSX would also be beneficial at that point IMO), and then it's 'game-on' for the SP as major buying forces another re-rate and possibly back to its former high (37c) and beyond IMO - refer to Monthly Cup & Handle chart analysis near the bottom of this post.
In the meantime, it was again reiterated by management that the company remains WELL FUNDED to support current operations and early works with $10.8m in cash (equivalent to approximately 5 quarters of cash at the current burn rate).
Thus, any trash talk to the contrary - (especially from the usual non-holding alarmist social media chameleons and charlatans) eg. non-holding trolls seeking to cause confusion and create alarm bells among shareholders and potential s/holders alike, by suggesting that the 15% option to increase project share needs to be paid for in full before Sept.2021 (assuming no finance) and that no finance nor any OT pre-payments are likely to arrive within the next 6-9 months, - should of course be treated with the upmost suspicion IMO.
Page 5. BOD and Execs
Happy with the current makeup of the BOD and Execs and glad that a second strike was avoided. BOD with their performance shares in hand
now have even more incentive to deliver to market near- term deliverables including binding and favourable OTs, SEZ tax relief and Sovereign guarantees, pit optimisation and transport rate negotiations, all of which btw are extremely likely to add substantial improvement to the already first class but only first pass project economics - as outlined in the maiden DFS IMO.
Page 8 & 9. Major Milestones
View attachment 2680031
Note the significant fundamental improvements that have been made in the last 3 years. Impressive IMO.
Now let's compare market valuations from exactly 3 years ago (Nov 20th 2017 to be precise) and last Friday's close.
3 years ago the SP was 25c and there were 2,216,539,071 shares (fully diluted excluding performance rights) on issue valuing AVZ at $554m. Compare that to today where the SP is at 8.6c and there are 2,969,498,510 shares on issue (again fully diluted excl. perf. rights) valuing the company at $255m.
Takeout: AVZ was valued $300m higher in 2017 (more than double the current market valuation) than it is today. This is despite all the milestones that have been achieved to date and as per the above slide.
It's worth highlighting that in November 2017, there was no 30,000m drill campaign completed, no JORC resources, no positive 2mtpa & 5mtpa Scoping Studies, no drilling at CDL nor any confirmation of grades of up to 4.5% Li20 at CDL, no positive Met Tests, no updated Roche Dure resource to 400mt grading 1.65%, no Hydro Power MOU, no SEZ MOU, no Tin results showing 6.3% recovery at 64.1% SnO2, no artisanal Tin mining plans, no 93mt of JORC reserves (soon anticipated to be @120mt), no positive yet conservative DFS, no Rights to 75% Equity (in Nov 2017 it was still 60% Equity and that 60% hadn't yet been fully paid for) etc. etc.
In Nov 2017, externally there were no mass Volume EVs (i.e. Model 3 & Y, ID3 etc.) disrupting the ICE landscape, no traditional OEM plans to switch their entire fleet to EVs, no 12% market penetration in Europe, no European Battery Alliance, no 174 x Megafactories in the pipeline (only 20MFs were planned), no batteries at $100 per kWh, and no countries declaring bans on ICEs by 2025, 2030 etc. (refer below tweet and what the recent UK announcement alone means for Lithium demand)
View attachment 2680163
So, the next time someone mentions AVZ's lack of progress, or that AVZ has been diluted to kingdom come over the last 3 years (which as you can see just isn't true) and /or the SP is going to 1c and has no hope of getting back to 25c let alone its former high of 37c, or that the Lithium / EV thematic is dead or the demand for Tier 1 EV Lithium chemicals just isn't there, then please feel free to highlight the above Major Milestones slide along with the additional commentary underneath.
IMO the BG Lithium / EV disruption will prove to be one of the great transformative events of our lifetime and certainly this decade, and AVZ's Manono, being the undisputed giant of all Lithium Hardrock projects, will NEED to be mined ASAP.
The market will eventually wake up to this necessity i.e. that there is no substitute for AVZ's superior GRADE, SCALE, QUALITY and CONSISTENCY, and realise that any logistical challenges can be overcome. The project might be a considerable distance from port, but the infrastructure is largely there and the logistics are relatively straight forward for a Tier 1 Lithium project that is
'the equivalent of a 20 million ounce gold deposit' (or should that quote from Nigel be upgraded to
the equivalent of a 60m oz gold deposit, given that management are very confident that resources at Manono can easily be trebled?).
Certainly, it's not as though roads and rail from Manono need to be built from scratch and in places that humans have never been before, nor are there the logistical challenges of deep, thick, mountainous jungle projects like a Grasberg or Ertsberg (despite what the non-holding trolls would have you believe).
Furthermore, country risk and other challenges haven't stopped numerous well known mining companies like Glencore, AngloGold Ashanti, Ivanhoe, Freeport-McMoRan etc. and little guys like Alphamin Resources (who operate a Tin mine in the 'dangerous' province of North Kivu) from developing, producing, transporting and prospering in the DRC.
As the saying goes...
View attachment 2680040
By the way, if you want to know what difficult looks like, then watch this video below.
Getting back to my AGM notes, also note some of the very recent progress including;
a) Tender packages to a value of $400m tendered and adjudicated
b) ESIA for the the Hydro plant (HEPP) has recently been approved.
c) ESIA application has been submitted.
Engineering Presentation by Michael Hughes
Key points i.e. further to what is already described on Pages 11-19 of the presentation:
1. Despite significant project delays due to Covid-19, the current Schedule to Mining (refer page 12) illustrates that Construction and Commissioning for the Manono project has only been delayed by 3 months (i.e. since their Nov 2019 schedule to mining update) and is expected to commence from April next year. Therefore, IMO it is entirely feasible that the FCOS (first concentrate on ship) date stays as Q4 2022.
[ sidenote: Therefore,
@Scarpa I have to respectfully disagree with your assumptions that AVZ is unlikely to supply the market until 2023/24 for two main reasons (although I'd concede that Q1 2023 is still a possibility for SC6 if there are any further delays due to unforeseen circumstances that are beyond the control of the DRC government and / or AVZ).
Reason 1. Keep in mind that President Tshisikedi has reportedly told AVZ that he wants Manono in production by the time he goes to the next election (scheduled for December 2023). My understanding is that once Tshisikedi hits the re-election campaign trail in early 2023, then his ability to assist AVZ in bringing Manono into production ASAP is greatly diminished. And Tshisikedi knows that AVZ in production provides prosperity to an impoverished region, and this in itself will IMO be seen as a great political achievement that will likely contribute to bolstering his chances of re-election.
Thus, it is in both AVZ's and the DRC government's interest to get the ball rolling without further delays, so I don't foresee any long periods whereby AVZ is waiting to hear from the government re: Mining License and other approvals including SEZ etc. In fact, I think these these things will be fast tracked as quickly as possible.
Reason 2. As for your thoughts supply and demand issues potentially delaying the project, I've already covered the current state of play in post
48916751 , and all the evidence IMO suggests a speedy 2021 recovery for SC6 and BG Hydroxide. Also, it could be NOW that the initial stages of an overall price recovery for Lithium have begun. Refer
49045777
courtesy of
@Deepp
And so, I suspect that by the time AVZ enters production in 2022/23, the price of SC6 will be a fair way north of where it currently sits. As far as AVZ's production split between China and Europe goes, IMO it'll likely be 100% SC6 OT to China initially (547,000 tonnes) and then potentially a mix of nationalities taking the 45.4kt of PLS from Q1 2023 ]
My AGM notes continued;
2. Awarded contracts for SC6 & PLS process plants and the HEPP refurbishment will be immediate as the contracts will be ready for signature at that point in time. All contracts start at the same time and run parallel to one another.
3. Longest lead time items are power plant turbines and generators, the calcining kilns, the transformers and the HPGRs and tertiary crushing unit.
4. Camp Colline - 250 rooms being built
5. Tailings Dam (TSF) - will be built within the waste rock dump for stability (known as an integrated waste landfall). This is the safest form of TSF other than input tailings which they cannot do as the other existing pits have not been drilled for sterilisation, but they are looking at that in future which would likely further reduce tailings/OPEX costs.
6. 20MW battery backup Solar array - for potential future development (not included in the DFS but has been included in the EISA application to cover off future requirements).
7. Geotechnical survey holes currently being executed onsite to finalise geotechnical requirements for plant design. Seismic hazard assessments are also almost completed, hydrogeology underway with 9 x 100m deep piezometer holes having been drilled and now being equipped with casings to allow for water level monitoring with appropriate instrumentation.
8. Power Source (refer Page 15)
Additional notes:
a) Turbines designed for 10.3MW each, but after friction losses in the wtaer feed systems etc. this reduces the guaranteed output power to @9.3MW per turbine. Power line losses of 3-5% bring the total power to site 27MW total, which is more than the total installed process of the plants and facilities of @24MW.
In addition, there is another turbine hall that can be refurbished to allow another 12.3MW of guaranteed power. This maybe be pursued in the future to facilitate either a second PLS train or for the production of hydrogen from electrolysis to run all plant and equipment trucks road freight trucks on fuel cells.
b) Hydro power won't help with running the kiln on diesel, but can assist with oxygen production to improve the combustion of diesel in the kiln. Could also add 12% of diesel volume (as hydrogen) to improve the combustion efficiency of that mechanism.
c) Logistics / transport
i) excellent cooperation with CFB (Angolan railway). AVZ has a very clear understanding of their capability, willingness and readiness to get started. Have had several 'fruitful' meetings with their senior executive managers over the last few months. Port of Lobito have confirmed that their dry loose bulk-handling terminal is 'desperate for an anchor tenant' and they are very keen to work with AVZ.
ii) Very good working relationship with TAZARA railway management team, discussions ongoing about the construction of the Intermodal Staging Station (ISS) & high level haulage discussions are also underway. The ISS has been tendered and indicative design will be refined before execution begins. Also diesel for Manono plant will be supplied via train from Lubumbashi to the ISS in Kabongo Dianda (KD), stored in holding tanks and then trucked to Manono. Solar power with battery will be installed to power the ISS and river crossing facilities.
iii) SNCC relationship has been challenging in the past but now that they see Manono as progressing towards production they are taking the project seriously and good progress is finally being made in terms of tabling a commercial agreement.
iiii) Road river crossing and ISS EISAs have been submitted to the relevant agencies for approval.
v) The Dar Es Salaam ISS will be located on TAZARA Rail land. No ISS is required at Lobito as the port already has all the functionality required to receive bottom discharge bulk wagons in its automated bulk handling system.
vi) trucks delivering product from Manono to KD the road is interrupted by the Lualaba River adjacent to the town of Mulongo. The 200m wide crossing requires a facility for ferry access as per page 19 of the presentation. AVZ will procure two purpose built ferries for this crossing. Local community is very excited about the opportunities to see socioeconomic uplift in this area.
vii) AVZ are looking at 50-70t tipper trucks to reduce the aggravation of articulated trucks on unsealed roads and bad weather conditions. Bigger payload per truck means less trucks and less drivers required, all of which assists with CAPEX & OPEX reduction.
Technical update by Graeme Johnston
a) Roche Dure pit floor drilling progress.
4 out of 10 holes being drilled have been completed. 5th hole commenced a few days ago. Drilling to be completed by middle of next month with sample preparation completed by EOY. Assays results expected to be available in January and will be incorporated into mine design work.
Refer to Page 23 of the presentation as to the substantial benefits of AVZ doing this now and before the mine plan is executed.
[Sidenote it's worth reiterating three the key Return On Investment (ROI) benefits by drilling the Pit Floor now.
1) lowering the already ultra low Strip Ratio (SR) at 0.48:1 even further to 0.3:1 means next to no waste ore to be moved. Folks, this is an absolutely phenomenal SR in the world of mining and the benefits cannot be understated.
A high grade open pit orebody can support a high SR, but a high grade orebody with an ultra low SR is truly unique, and even more so amongst Lithium projects. As an example, the SR at the world class Greenbushes mine in WA is (or at least used to be) 5.6:1.
2) AVZ's payback period expected to be brought forward to < 2 years Post-tax (currently 2.25 years) and closer to 1 year Pre-tax (currently 1.5 years). Simply put, this is a project financier's wet dream about to get even wetter.]
3) LOM revenue could increase by up to 43% (at current forward looking price estimates)
b) Possible Alluvial Tin & Tantalum Mineral Sources - refer Page 25 of presentation and note that AVZ are looking to generate a modern JORC resource from Lukushi blocks A & B.
Manono - The Road To Production presentation by Nigel Ferguson
Page 27. AVZ Snapshot
PLS test work results from Canadian laboratories completed. Awaiting final report.
Page 28. Summary Forecast for Battery Growth to 2029.
Big focus on Europe evident.
Declining dominance of Brine vs Hardrock supply expected in 2030 from (B:H) 50:50 to (B:H) 30:70 expected to 2030 and they're expecting the same for BG Carbonate vs Hydroxide (30:70 by 2030).
[note: these forecasts are consistent with my own analysis and forecasted split as per below table - also refer to recent post
48916751 for more info) and remembering that Hardrock is the quickest and most efficient way to produce BG Hydroxide and Hardrock projects are generally faster to bring into production.]
View attachment 2680070
Page 29 & 30 Lithium Ion Battery Capacity in Europe + AVZ and the Lithium supply Chain & European Battery Expansion plans
Northvolt and Freyr are two of the companies that AVZ has been in discussions with
Bottom slides on Page 30 are what AVZ is looking for longer term. i.e. once project is up and running and in production. Initial discussion ongoing re: setting up a Hydroxide business in Europe, possibly in partnership with one of the German or European companies.
AVZ can supply sufficient Sulfate to supply a 25kt Hydroxide plant without any issues, and then expand that operation up to 100ktpa. With a German or European partner, the idea is that the partnership would be marketing AVZ's product to the European Megafactories as shown on Page 29.
AVZ's 100% licences look very prospective for the longer term, albeit there is lower hanging fruit at Tempete & Mpete pegmatities (along strike at Roche Dure). However AVZ has decided to leave these for the time being as initial drilling has shown that they are 'only 40 - 60m' thick.
CDL has the potential to double the size of RD as it stands at the moment and AVZ is convinced its resource size could EASILY BE TREBLED with further exploration. This translates into a significant increase of the world's known spodumene resources and for AVZ means very large expandability in project terms.
So whilst AVZ are in no way lacking in the ability to increase resources if need be, the idea for the time being is to find & incorporate a higher grade feed (that we know already exists at CDL) that can ultimately reduce costs even further and produce an even better product.
Nigel reiterated the potential economic benefits of 'the wedge' (pit floor) as shown on Page 31, and thinks that shareholders will be very pleased with results once announced to the market. They will be re-running the financial model and re-running the mine designs and processing model.
Page 32. Project implementation
a) Completion of SEZ agreement.
All looking very positive after meetings with the DRC Government, Dept of Industry and associated SEZ related agencies. This included 5 days of conference calls and 3 days of internal pre-meetings in preparation for the 2 day SEZ in-country workshop.
A recent cabinet shuffle has resulted in a 2-3 week delay (before any further progress on the SEZ agreement can be made) however AVZ are working towards having the SEZ agreement finalised by EOY or early next year at the latest.
b) Award of a Sovereign Guarantee
Provides a further incentive and benefit to financiers. SEZ also provides certainty regarding the awarding of and implementation of tax relief in future years.
c) Execution Of Offtake Agreements
As of last Thursday, one entity was very advanced in discussions. Management were hoping to have something (which I would opine translates to a Binding OT) before the AGM however 'one or two finer points' are still being finalised. So, by the sounds of things AVZ's first SC6 OT agreement appears to be a bees d*ck away from being agreed and signed, and IMO an announcement could be inked as early as this week.
Furthermore, any potential OT partners and financiers now know that the BOD and shareholders are fully aligned, given that all AGM motions were carried. So, from this perspective there is no more wait and see and certainly no further opportunity for any vultures that may have been circling.
Re: Lithium Sulfate OTs, there are several interested parties awaiting the results of PLS testwork to be completed in Vancouver. As of last Thursday, the testwork has been completed and results were 'expected in the next week or so', so we'll probably see an announcement sometime this week all going well.
d) Application and award of Mining Licence.
Financiers are looking for OTs to be in place and the Mining Licence to be awarded. Therefore, these two items will more than likely form conditions precedent to any agreement that AVZ puts in place with regards to project financing.
In terms of the Mining Licence itself, AVZ has some hydrology that needs to be included in the ESIA, then this is added into the Mining convention that will be applied through the Govt. to get the Mining License awarded and executed by the Govt and then AVZ can officially proceed to the mining stage.
e) Completion of Early Works
Commenced earlier in the year and is ongoing
f) Plant Construction & Commissioning
following FID
Page 33. Other Opportunities
Point 3. Lower rates from railway companies.
Angolans, Congolese and Tanzanians are all ready to come to the table and and have a three-way discussion with regards to rates. According to Nigel, AVZ should be able to improve rates substantially, and I agree given the distances required and likely volume of business that AVZ intends to provide for these companies over many, many years is likely to result in a substantial savings to OPEX.
Point 7. Lithium Hydroxide Plant
Final part of a staged approach to Manono Lithium & Tin development (refer to Page 11 of presentation).
Stage 2. Adding 20ktpa LCE PLS trains (to the 45.4ktpa PLS production as outlined in the DFS) is NEW, further improves overall margins to the project and also provides additional feed required for a larger Lithium Hydroxide plant to be built in Germany or Europe.
Alternative methods to treat SC6 for battery products.
Technically savvy chemists have approached AVZ to show how they can produce a different product that would be viable for Battery products. Watch this space IMO and if it is what I think it could be, then it's likely to mean even better margins for AVZ.
Page 34. In summary
Additional notes:
Tin OT update.
One party in advanced due diligence and offering to finance an artisanal plant onsite for AVZ. Not a lot of money in the scheme of things, currently with their investment committee but they've been taking their time to approve. They have made queries with regards to traceability that needs to be put into place, but given the advanced stage that AVZ are at with International Standard agreements, AVZ hopes to have Tin OT in place soon and announced to the market.
Project funding.
Pan African Development Fund Institutions (DFIs) and various other groups have been in AVZ's data room for 6-7 months. Verbal funding commitments and indications (with favourable terms and conditions) have been received, and a consortium has started to develop between the DFIs with current commitments and indications of somewhere between US$300-325m, plus a couple of others who are finalising their due diligence before committing to somewhere between US$100-150m.
If you then add potential pre-payments for OTs, then IMO it looks as though AVZ are well on track to secure the full $545m financing for Manono, of which most I think will be debt based. If so, then this is great news for shareholders, as direct equity funding should be kept to a minimum, and worst case any significant equity stake to help fund the project can be more than offset by the additional project % increase that AVZ has secured the rights to in recent times, not to mention the possibility of AVZ further increasing its Equity in the project via ongoing discussions with Comminiere.
End of my AGM notes and note that this is only my recollection of what was said and therefore should not be considered as advice of any kind.
Lastly, below is my interpretation of the
Monthly, Daily and AVZ vs peers and LIT charts as they stand. I've also added the
Tin chart as a breakout from the US$18000 range looks like it might be on the cards.
Considering the above AGM notes, in conjunction with further internal and external analysis (refer previous post
48916751 ), then I do think that the overall odds are in favour of AVZ continuing to make its way to back to a fairer market valuation, and that would be between 12-18c per share in the short term IMO. Further musings about the probability of a re-rate exist in the charts below.
1. Daily candlestick chart as at Nov 19, 2020
View attachment 2680076
2. Monthly candlestick chart as at Nov 16, 2020.
View attachment 2680088
3. AVZ vs Global X LIT ETF (Lithium and supply chain barometer) - 3 year performance comparison (closing basis). Note: Red lines are of equal length and represent the record gap set in July, which has since continued to widen. Thus, 17c on a closing basis is now the target i.e. to narrow the gap back to the the former record.
View attachment 2680103
4. AVZ vs LIT ETF vs 47 other Global Lithium stocks
View attachment 2680157
5. Tin Futures (weekly chart)
Note: Every $500 that the Tin price rises adds ~US$37.5m in gross profit to the Manono project's bottom line. Current short term target is ~US$23,300, which represents a US$13,300 p/t increase vs the DFS, or an additional ~US$1 billion to the bottom line over current LOM (not including the potential to double or trebling artisanal Tin production which is not considered in the maiden DFS).
View attachment 2680253
GLTA and note that the above should not be considered as advice of any kind. Please DYOR
Cheers
Elpha
