Full disclosure I'm not a holder but was sitting on the fence...

Full disclosure I'm not a holder but was sitting on the fence with AVZ.

I have read some posters in this forum raise valid concerns over the geographical risk of investing within the DRC, which to some extent has been shot down as down ramping by others. Whilst this post is not intended to be negative or perceived as down ramping, it is just my thoughts that I hope spurs an interesting conversation.

The NPV of the project was calculated with a discount rate (DR) of 10%, which can be a common rate to use as did PLS with their Pilgangoora DFS (which estimated a rather large NPV which most now know will never eventuate). I find it interesting that the management team believe their WACC will be that low considering the apparent risks involved when investing in the DRC, especially if they believe the project can be financed entirely by debt. The risk that the financiers will bear will with out a doubt come at a significant cost to AVZ that will significantly constrain the projects economic merits. Figure 5 on page 14 details the sensitivity of the project and gives investors a good indication of what the projects value is at a higher DR, for practical purposes a DR of 15% values the NPV at 500 million or 300 million to AVZ, which is not entirely bad but when the DFS forecasts a higher price than what the current market is offering raises an eyebrow or two. Bear in mind as well, institutional investors will demand a higher return for the undeniable risks involved within this project. I hold shares in and follow other companies that operate in Africa that have an extremely low P/E and conversely a high yield through dividends which is the simplest example that I can share of investors requiring a higher return in high risk regions.

A second possible scenario is a large equity raise or a corner stone strategic partner is brought in to raise capital for the project and reduce the gearing exposure. However, with such a large amount of shares already on issue, any significant equity raise will dilute the buggery out of existing shareholders. Any possibility of forward selling can almost be written off considering the current state of the Lithium market and the amount of mines that are currently idling, waiting for an increase in demand.

My personal opinion, and this by all means is not financial advice, is that the opportunity cost is to high for the project due to a number of reasons. I would be surprised to see this project get off the ground in the immediate future, and if it does it may well come at the cost of a large discounted equity raise. People suggesting this company should have a share price over $1, implying a market cap of $2 billion dollars is a concerning assertion.