You are spot on. My assessment of value for the company given this offtake and funding now in place is a value around $ 3.00 per share just for DFS Stage 2 being completed . Go to the later stages of 3 & 4, and valuation is well beyond $ 7 dollars per share particularly now as JP has showed by today's announcement a significant proportion of this required funding could realistically come from prepayments, which will keep our Shares on Issue to a much lower number by the time we hit production at serious scale in another 3 years. Contrast Liontown and Pilbara ( of which I think we are both investors in those 2) who both got there with well over 2 billion shares on Issue. We will get there for DFS by my estimates now at under 500 M shares. That has huge flow on implications for valuations down the line once we get to year on year cashflows. Interestingly with our current mkt today, we will be making by full ramp up of Stage 2 of production based on today's pricing for carbonate, about the same per year compared to what our current market cap is today. You piece all of this together and the market is completely irrational if it doesn't start to reprice us.
I am assuming smart heads will come to fore also in the Catamarca Provincial government and they will realise too its a win win for everybody to let Galan export the chloride directly and I am sure pressure will also come from a number of larger American multinationals ( without giving away names away but one comes to mind who was spurred just recently on a certain takeover attempt of spod mine whose office is just around the corner from here) who will want this raw material fed into processing works Stateside or maybe even into Europe will also be very doable. Remember the beauty of chloride in solution is you can go either way to carbonate or hydroxide giving you much more flexibility in regards end users ( auto oems or chemical companies) . It's also more marketable than spodumene both in terms of chemical purity and ease to process as well as channels for the end user output it can be pushed into.
That its Glencore too as an offtaker too is huge news that the market should not discount lightly. As an unbashed coal investor too as I am, that its the worlds 2nd biggest coal miner being the offtaker, I a, absolutely loving the irony here . Glencore is also the largest commodity trader too in the world and this fact basically validates that the chloride only approach is both a sound one and eminently "fundable" , hence its binding nature as opposed to the plethora of non binding agreements we have seen from many others lithium start ups over the years. That it is binding should hopefully cause all the doubters here who have berated the chloride approach to have a bit of a re-think in their skepticism. Anyone who had spent the time to study and understand what drives cost and risk in lithium start ups would understand it was always a very smart move, playing to your strengths and minimizing your weaknesses. JP has been vindicated today on this strategy.
I have said it here a number of times over the years and will say it again, brine particularly delivered as a chloride intermediate will absolutely kill hard rock (at a $ 12-15 K price for carbonate , which I don't think will get back there we would still be significantly profitable) in terms of Cost of production. This is why as a mining investor you should always be on the lookout for opportunities that generally can deliver a project on the left hand side of the industry cost curve as this will.
Bit of very simple maths highlights the competitive advantage brine has. It takes 8-8.5 tonnes of spodumene at circa 5.5 % Lithium oxide concentration to produce 1 tonne of carbonate and then add circa $ 4,000 USD to convert that hard rock to chemical Battery grade. So assuming Lithium carbonate price is around $ 21 K ( circa current price), then that implies Hard rock price over time, ceteris paribus, will head towards ($21-4 K to process divide by 8.5) circa ~ $ 2,000 USD for spodumene conc. A spod producer in Oz has CIF Costs China approaching $1000 USD to produce and deliver, implying even on today's depressed prices relative to 18 months ago, it is still making circa $ 1,000 per tonne USD as operating margin. Small reality check for all those who think there is an oversupply hence hence why ltihium prices are dropping. No the price had to drop because it had to return to something sustainable for both miner and processor. If there was an general oversupply too the price would be far far lower , much closer to the Opx Cost of larger producers like Pilbara, but its not near that level with Pilbara still running at operating margin of circa 50 % of revenue or 100 % of Costs.
Contrast that position with where we will be cost wise in producing Chloride. JP at the AGM meeting today confirmed to me the pricing mentioned in the announcement today ,being a carbonate price index less discounts, does accord with the 72 % figure previously referenced in DFS 2 and other announcements. So at today's price of circa $21,000 USD that should Yield us a price of around $ 15 K USD for chloride and leave us with an Operating margin of around $ 11.5 K USD per tonne from an Opex Cost base of $ 3.50 K. So our operating margin should be circa ~ 75 % of revenue or + 300 % higher than Cost. This favourable differential to hardrock highlights the huge cost advantage Brine has.
This much higher Operating margin insulates us to a great degree on the future vagaries of supply and demand and how that effects pricing. Personally I can still see pricing averaging somewhere around $ 25-30 K over most of the coming years while EV's adoption continues to increase by greater than 20 % CAGR globally, simply because the supply chains can't keep up unless they stock huge inventories but inventories eventually unwind. Whilst we remain in this phase I can't see price of spodumene , which will continue be the major source of additional lithium units added into the global supply chain, being anything under $ 1500 USD per Ton. Beneath that level , the returns will simply be insufficient to bring new spod projects online when you look at their cost base and capex requirements to bring any mine of scale ( say greater than 200,000 Kgs conc + per annum) online .
Working up from that level of spod pricing ~ 1500 USD per tonne, using the rough formula above and your at a long run carbonate price of around $ 16 K and a price to Gln for chloride of $ 12 K, which would still see us with an Operating margin over 200% on Cost. Why such good margins ? Again the reason is simple. Because when you look at all of Industry Cost curve with both Brine, Hard rock and Lepidolite included, brine is on the very left hand side. The marginal production to feed this growth phase comes from the higher cost sources now of spodumene and the even higher cost sources of lepidolite. So being on the left hand side of the curve should guarantee us a healthy margin over the longer term pricing cycle.
The other key point to understand here is back pre 2019, South American Brine dominated supply, so the marginal production came from these very cheap sources such as the Atacama. This is why we saw prices down around $5-6K. But the volume required (demanded) then was very tiny so there was no need for other higher cost sources. That was the operating paradigm for the industry back then but that is all gone now and we aint going back to that situation ever. To keep supply up to EV's growing at 20% CAGR, much more hard rock supply has to be incentivised to come online and even then its not keeping up and you need even higher prices again to also keep the leipidolite suppliers hanging in there . This is the operating paradigm now driving prices and I cant see it changing anytime soon. This in essence but of the competitive advantage that has brine sourced lithium has, but the market still hasn't clued in because it is myopically obsessed with hard rock. As Joe Lowry has also mentioned of late to the Money of Mine guys, the market will eventually work it out, just how big an advantage brine has cost wise. That point was a bit lost on them as it is with most of your average punters aussie investing in lithium but I suspect with such compelling economics coming from DFS 2 and now someone like Glencore vouching for the concept of chloride through this binding offtake, the message might start getting through to a lot more investors including Fundies , who have being shy away from Brine.
GLN Price at posting:
75.0¢ Sentiment: Buy Disclosure: Held
. Glencore is also the largest commodity trader too in the world and this fact basically validates that the chloride only approach is both a sound one and eminently "fundable" , hence its binding nature as opposed to the plethora of non binding agreements we have seen from many others lithium start ups over the years. That it is binding should hopefully cause all the doubters here who have berated the chloride approach to have a bit of a re-think in their skepticism. Anyone who had spent the time to study and understand what drives cost and risk in lithium start ups would understand it was always a very smart move, playing to your strengths and minimizing your weaknesses. JP has been vindicated today on this strategy.
(20min delay)