Fantastic summary of the great portfolio of lithium assets that...

Fantastic summary of the great portfolio of lithium assets that Allkem has. A net present value of US$18.9b or a bit over A$29b!.

I think the money of mine poddies got it wrong when they relayed the view that Allkem released so many reports at the same time to distract from their rising capex and opex. As Stephan points out, Kroll, the Independent Expert, has yet to release their report. My guess is that this bulk release of ASX announcements is Allkem's way of providing the information to Kroll that it had asked Allkem for while not breaching the continuous disclosure rules.

In any case in my view the clearly expected jump in costs for Allkem is no biggy. There are very few lithium plays that belong in the club of current producers and for those few companies most of the capex is past tense. It is past tense for Olaroz 1 and 2 and for Mt Cattlin and they can more than provide the extra funding needed for Sal de Vida, James Bay and Cauchari. And when you have a couple of operations purring along at profit margins up near or over 80% you can easily ride out any cost rises. On top of that, Olaroz is one of the lowest cost lithium operations going.

For me, the real biggy is something that I've not seen raised on these threads yet (apologies if you have raised it already), and that is what prices were used in the NPV calculations. So, in that light, I rate this bit in a footnote to be crucial information: "2 NPV figures are from each project ASX release utilising Wood McKenzie pricing forecasts. ..."

I wont go through each of the project reports but in the James Bay report they actually provide the WMc forecast for spodumene: "Chemical grade spodumene concentrate prices areexpected to align with market imbalances, with a long-term price forecast between US$2,000 per tonneand US$3,000 per tonne (real US$ 2023 terms)."

That is quite a deal lower than current prices, which seem to bottom out around at US$3,000 a tonne.

But compared to a couple of wankabankas the prediction by WMc is optimistic.: "UBS is more circumspect. The Swiss bank is predicting Australian lithium spodumene concentrate will fetch an average of $US3750 a tonne in the six months to December 31.The broker expects spodumene concentrate with 6 per cent lithium will fetch $US3500 a tonne in 2024, $US3000 a tonne in 2025, and $US2500 a tonne in 2026 before dropping to $US1531 by 2030 and settling at a long-term price of $US1300 a tonne. Analysts at US investment bank JPMorgan predict spodumene will average $US3400 in 2024 and descend to $US1000 in the long term."

https://www.a fr.com/companies/mining/will-the-lithium-price-rout-kill-the-next-wave-of-australian-mines-20230802-p5dtee
(remove the space between "a" and "fr").

Personally I assume all investment bankers to be pox-addled swine and I'd much rather take guidance from the likes of Fastmarkets, Benchmark or maybe Wood McKenzie (though I have not come across WMc much at all and I'm not going to fork out US$10k for one of their reports). But the fact is that compared to forecasts from UBS and JPMorgan the WMc number is relatively high. One of the charts I expect Kroll will have in their Independent Expert's report will demonstrate how sensitive the NPV of each of Allkem's projects are to price fluctuations. I'm hoping that Allkem's projects are quite resilient to price variations: given the forecast opex of James Bay is US$407 per tonne there is quite a comfort zone there.

A quick other point: I am a bit surprised that the "Net Present Value (“NPV”) for Hard Rock assets[is] at 8% real discount rate. NPV for Brine assets [is] at 10% real discount rate". I would have thought that the brine assets with lower opex and much longer life would be considered inherently less risky than hard rock operations and as such would attract a lower discount rate. Just goes to show I don't know the guts of discounting and NPVs.