If Andover turns out to be a monster lithium deposit rivaling...

If Andover turns out to be a monster lithium deposit rivaling PLS 305mt monster then the dilution will probably be less than we expect. Large deposits tend to be highly profitable and much more profitable than smaller deposits (eg 25mt to 50mt) and I am not suggesting those smaller deposits will not be profitable.

Bigger deposits will also be more likely to be developed.

One significant advantage of monster deposits and their higher profitability is the ability to fund the development by more debt or similar mechanisms (eg from car markers who provide cash upfront for guarantee access to lithium).

As an example assume it costs AZS $150m to FID and assuming it will be a monster deposit. AZS currently have enough funds to say October for drilling and of the SP gets to $3 or a total project value of about $2b a little less than PMT now (remember it will be obvious that it will be a monster by then if it is) then the dilution in SOI is only 13% fully funded by AZS (ie additional 50m shares). And it is possible some end users of lithium may inject cash into AZS for guarantee of lithium supply reducing the equity raising but let’s ignore that.

Assume at the FID the SP is $5 (ie 100% of project is valued at $3.66b) and the development cost is $1.5b (I have assumed a bigger mine than LTR and inflation). Assume 50% debt and assume Creasy funds his 40%. AZS has to raise equity of $450 by issuing 90m shares bringing the total SOI to 530m. That is the number of SOI will be 36% higher than current 390m not a huge dilution.

Are my $3 and $5 prices realistic? If we look at the broker assessments one has a price target of about $1.55 assuming a 60mt resource (or about $2.50 for 100mt) and another has a $2.25 target for 100mt. Based on these figures if the resource looks like 200mt (it could be more) then the broker targets may be $4.5 to $5 These targets would most likely increase closer to FID. So if Andover is a monster then these prices may end up being conservative.

If companies wanting offtakes and inject money into AZS then the equity funding needed may be even less.