Ann: Live investor briefing, page-62

I was asked a question on this in LTR and posted the following on the deal itself, noting I realise there is a debt component here (the payment is US$130 million plus debt funding of US$64 million) but that debt will be paid back from project cashflows, so in a way the Ganfeng commitment seems to align with the capex need in the October 2020 Ann. From that post:

""""""""""""""""""""""""""The following is IMO IMO. To understand the deal you need to refer back to the FFX DFS dated 20 October 2020.

1. The FFX resource is 108 mt, grading 1.45% Li20, but that resource includes Inferred. Proven Resrves are 52mt at 1.51% Li20
2. Capex configuration around 2.3mtpa, mine life 23 years producing 436,000 tpa 6% grade Li20.
3. Here is the crunch - capex cost estimated at US$194 million. In other words, Ganfeng is funding full capex and FFX free rides with its 50% stake, assuming capex cost comes in on budget.
4. Like yourselves FFX proposes WOF, but crush size after ball milling smaller than yourselves btw. Ganfeng I think wll make WOF work IMO a I suspect will be the operator for the project (hence for them might help in ensuring DFS variables as pertain to cost and output (via the recovery rate) come in scope. Time will tell there though.
5. Project NPV was estimated at US$1.234 billion, so the question is has Ganfeng underpaid? Who knows, but if you work on SP value at where they are at (say equivalent to 40% of NPV, then the answer is no). But if take full NPV on the basis of had options, well then the answer is yes hae underpaid, but FFX are going mining (and free carried capex spend wise if capex spend comes in on budget). Likely FFX product will end up in Europe as if I recall Ganfeng minght be building facilities there? This is a question for avoidance of doubt.
6. Now going back to their DFS they are citing nominal cash flow of US$160 million per year - US$180 million per year. Half that profit now becomes FFX, so the question is when you put this into a EPS and P/E ratio assuming the variables come in, could be good for FFX, albeit doesn't answer the hurdle question of whether FFX undersold the 50% stake. If Ganfeng operates the mine, then need to also take that benefit into consideration though.
7. As per signature pad sitting on fence.

All IMO.""""""""""""

However, might go one step further from here. If you go to the stake SQM bought in the former KDR that was also çheaply priced. The value here is meeting the DFS variables in production for FFX holders, and I see JVs very different to TO. In a TO you would seek a price as close to the NPV as possible, and I think many are confusing a TO type price with a JV type price. In a JV arrangement you may give up something to achieve an alternate benefit like project experience and/or getting to production. If you look at LNG developments, the JVs operate on the basis of sharing capital costs based on their share in the JV (as against the holder of a tenement seeking JV participants working out NPV benefits of a project and then making their payment equal to whatever proportion of that NPV is).

It is a very mixed message from management here as well as to what was the driver - sovereign risk and only willing player to take it up - or whether it is something else.

As a final point, I am mindful that many of the WA projects - the greenfields one I am talking about - are also targeting China for supply, so too me if they were to JV maybe they would also end up with a Chinese suitor anyway. I am not surprised it is a Chinese suitor here - why, well the Chinese are long term players and the problem with European and American suitors is they are always late to any prospective facility. China has a different 'rate of return perspective' to what Europe/USA like and that is why you always see the Chinese at the forefront of virtually new technologies of late with everyone else playing catch up. A case in point - where are most of the world's downstream lithium chemical plants and gigafactories located - answer is China.

All IMO.