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Ann: Commercial Urea Production Contract Awarded, page-122

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Willowbanker

490 Posts.

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12/07/21

20:46

Post #: 54452666
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Originally posted by Jenkstar: ↑

Interesting position we find ourselves in.

in May we had a SP in mid-20s and MC circa $230m. PFS released in Nov 2020 indicated that our project had a NPV of $3.4 bn and a CAPEX reqt of $2.3bn which we could pay off in just the first 4 years of a 30year commercial life.

A month on after an announcement to say we are getting on with turning this into a reality our SP has tanked it to the mid-teens and we seem to questioning where we are heading.

My take is :

1. At this point our MC is just $125m or just under 4% of the NPV. If we assume as some do that MC of a promising project should be 15% of NPV before delivering their BFS and move to 30% or more after BFS our MC should be circa $400-450m now and jump up to to around $1bn after a robust BFS. Of course we need offtake agreements and funding but they are the mgt teams tasks along with everything else between now and the Stage 2 FID. So LCK is well undervalued at the moment.

2. Current arrangements are heading down a path where our shareholding is going to get diluted. The fact that we only have MC of $125-200m but a CAPEX bill of $2.3bn means we need more equity otherwise we will end up with this great project which we can’t get off the ground because we can’t afford it. I for one only have so much equity to put into this project so I want some dilution if it brings in enough to help us fund this and get it up and running. I want the right balance as I want the rewards for backing the project to this point but not too much if it stops the project being funded.

3. Stage 1 is off and running. Regardless of whatever happens with Stage 2, we will have something from Stage 1. That value is dwarfed by stage 2 and probably isn’t properly reflected in the current MC. We should be seeking the BOD publise the value we are creating there and what revenue stream that will potentially generate if we wanted to help offset some of our stage 2 costs. Do we know what that is?

I like LCK. It is a solid project but very capital intensive. We need to be realistic and understand our companies real challenges here. We will be competing with our projects for investment dollars and need to make our project / company the most attractive to get it going.

Time to sit back, watch and accumulate if you want at cheap prices. I am playing a 1-2 year game here and if I get it right it will return a nice return over 20-30years.

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I really appreciate that you have taken the time to explain your statements. It was a good read. But using NPV and current market cap to assess investment at the moment in this early stage of development that is unfinanced etc does not have much meaning and can be a really deceiving figure. You will find plenty of literature on this. I can tell this is not lost on you though and that dilution is mentioned.

LCK Price at posting: 14.5¢ Sentiment: None Disclosure: Held
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