Some interesting changes in strategy were indicated in the BMO presentation this last week.
The following is an extract from the presentation slide 3:
- 100% of volumes uncommitted after year 5 under 3Mtpa base case, and 4Mtpa expansion capacity has potential to underpin the downstream conversion strategy
- 4Mtpa expansion capacity built-in to key circuits of next generation process plant upfront
- Reviewing expansion timing to preserve capital, while retaining optionality to accelerate when market conditions improve
- In parallel, the Company is exploring long-term funding alternatives to provide balance sheet flexibility to deliver the next phase of growth
- Advancing on range of funding options to support ramp-up to 3Mtpa steady-state, while preserving growth optionality. Will provide update to the market by end of March 2024 quarter
It was always the case that the expansion case might underpin the downstream, but now there is a subtle difference I think, insofar as the interim step of selling the extra Spod concentrate until we are ready to go downstream has been removed. Now it seems very likely that we won't expand mining until it coincides with the downstream capability and slide 13 explains this further.
Slide 13:
- Liontown’s strategic review: capture a sustainable margin, even when prices are low
- Progressing joint feasibility study with Sumitomo into options for Australia-Japan lithium supply chain processing
- Site selection influenced by highly attractive incentives to build in Japan
It sounds like the BoD wants to insulate us as much as possible from the volatility in lower value commodity pricing like what has just been experienced and move to take advantage of our pure non-China supply chain while also capturing the incentives available to go downstream more quickly. It is logical to use any newly available mining capacity to stage the downstream buildup starting with maybe 1 or 2 trains, and then move to expand that as offtakes expire. Also very likely to be on a JV basis with Japanese partners in Japan where their subsidies cover a substantial part of the capital costhttps://www.mining.com/japan-to-subsidize-half-the-costs-of-lithium-critical-minerals-projects-report/
Over time our business would become a lot less exposed to the Chinese raw material manipulation as we would eventually be producing mostly finished goods for direct sale to western markets. We would be competing with only a small number of complying suppliers if the likely mandated source of origin requirements are applied by governments. This would enhance the desirability of our shares as volatility of returns would theoretically be less. There are the obvious obstacles of the downstream being more specialised and therefore risky, but as a second mover we will again be learning from others' mistakes and if there's a JV structure, our financial risk is also less while also benefiting from Japanese subsidies to reduce funding requirements. I'm not sure whether or how this might suit Hancock's desire to provide lithium to India, but it still might be ok, and I assume we would probably still have some offtake capacity by the time India needs loads of lithium.
Regards
DF
(20min delay)