There are several approaches to define the extent of revaluation required.Normally, I create an NPV calculation. I don't currently have the time for this, and secondly, I don't have the CAPEX information, which is particularly tricky here, as this is a resource expansion of an existing operation.
Appetizer CAPEX will be much lower here than in the virgin construction of a new project, since significant investments in infrastructure (buildings, machinery, roads, power-water supply, warehouses, etc.) are eliminated or lower.Due to the fact that PLS is already one of the world's best producers and benchmark in many areas, this would have to be included in comparisons, but this is difficult with pure numerical comparisons. For example, often only the resource size is compared, but not the following factors
- Proven conventional process or new process(DLE).
- Innovation potential(Midstream "Calix", FID done last week)
- customer base- Downstream capacities(POSCO)
- Organic expansion opportunities(further drilling program planned in 2024)
- Organic growth through productivity increase(currently 64% y/y)Excellent increase in resource cutoff grade(thanks new COO)
- Inorganic growth(JV / M&A)
- Financials(AUD 3.3 trillion cash)
- Market position(currently 8% global market share- watch out for oligopoly! P 1000 second largest producing hard rock lithium mine in the world)- Strategy(P 580, P 680, P 1000, ....)
- mine life
- diversification
In almost all areas (except diversification) PLS is one of the market leaders!Almost everyone (or is it everyone?), regardless of whether they are explorers/developers or even producers, would immediately swap places with PLS! That was the appetizer. Just to show on what basis today's message about resource expansion is based! It is neither a Canadian, Brazilian nor a new Australian explorer who has reported a resource update!
Main course ("billion message") Resource size previously 305 MT Expansion 109 MT corresponds to 36% Total(measured) 414 MT The current P/E ratio (according to Marketscreener) is 6.49On Friday the 04.08. the MC was 9.8 billion US dollars.Today's resource expansion is 36%. Based on today's MC, this means an increase of 3.5 billion US dollars or converted share prices of 6.78 AUD or 4.45 US $.
Purely preventive, before now "mimimi comments" come, like: "...you can't calculate like that, the production is still years away...".
- There is no other lithium company that has made it from developer to tier-one producer within the record time of 4 years
- The current production expansion to P680 is unparalleled.
- P1000 (45% more) is targeted for spring 2025.
- The current valuation is based on a sales price of 3256 US Dollar for 5.3 SC.
What comes next? P 1500 in 2027 or even P 2000 in 2030?
Pilgangoora is, by the way, as of today, the only producing mine that can show a "400" in the resource statement(larger than "Greenbushes", "Wodgina" suspended).
In terms of opex (CIF 673 US $ last quarter) PLS is by default in the upper (= best, because lowest cost) quartile. A comparison to future miners located in the jungle (Brazil), underwater (Canada), underground and/or far away from a port (Liontown) can be made.
For the resource size maybe another value. The mine life. The definition for Tier 1 deposits is ... "They are large, long life and low cost. Using long run commodity prices it generates >$300-600m pa of revenue for >20 years and is in the bottom quartile of the cost curve." Pilbara with today's announcement has an unmatched mine life of 65 years at a future annual production P 1000 ktpa, has generated AUD 628 million revenue in the last quarter (not year) alone.
Downstream 1- the commissioning of the plant(POSCO) in South Korea is scheduled for Q2 2024. Downstream 2- there are over 70 interested parties for P 1000 production expansion volumes.
Dale has said that he is looking for partners(maybe Europe/North America/Japan?) that can add value to him in the downstream area, meaning on the one hand subsidizing plant construction + expertise in conversion. There is no other Ceo in the lithium industry who makes similar confident statements. Except for the CEO of Albemarle, but they also have most of their converter capacity in China. That's another story.
As I said, an NPV calculation, would certainly be fun due to the low CAPEX, payback period maybe a month? But makes no sense without concrete figures such as output and CAPEX.
Dessert (this will be a surprise) Many are currently wondering what PLS actually plans to do with all that cash, besides divi and back taxes? I speculate on M&A before the end of this year.
Only downer Unfortunate timing for Dale to announce at the Digger & Dealers Conference. Guess who has to pay for the drinks at the bar tonight(that is right now).
DYOR Smith71
PLS Price at posting:
$5.18 Sentiment: Buy Disclosure: Held
(20min delay)