Hi all,
FYI - I have sent the following tranche proposals to AVZ's remuneration committee.
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Please feel free to let management know if you agree with any or all of the above proposed amendments (or you may have other suggestions that you believe reward and align the interests of both shareholders and directors).
As it stands, AVZ's recent performance rights proposal is completely inadequate for ordinary shareholders IMO, especially given that no timeframes for delivery are attached (other than their standard expiry). Taking into account the current director remuneration packages plus last year's performance rights (17m PRs), it’s evident that our directors are already being adequately (& indeed handsomely) compensated for their efforts IMO, particularly given where AVZ is at in its lifecycle i.e., still an explorer and developer. But if the directors/remuneration committee are wanting a an additional 31.75m PRs to be approved, then IMO they should at least be prepared to adopt the above proposals as fair compensation / reasonable trade-off for shareholders.
2021 Directors Report.
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+2020 AGM Performance Rights (approved)
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+ 2021 AGM Performance Rights (proposal)
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2021 AGM Total Remuneration (proposal)
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To recap, the proposed 31.75m in Performance Rights is a substantial increase vs 2020 (17m), and therefore the any proposed hurdles should also reflect the large increase in remuneration IMO. The current hurdles proposal falls short of that IMO.
In evaluating all of the above, IMO directors and shareholders should also be mindful that the company is yet to earn a single cent in profit. The alternative tranche proposals (top of post) are designed to ensure that the building blocks required for the company to execute their profit strategy by 2025 are in place, on schedule and aligned with appropriate incentives. From 2022, I'd expect the next set of performance rights to include incentives that are achievable by 2025. eg. tranches tied to company EBITDA, 10mtpa plant at CDL, Hydroxide plant construction/commissioning/nameplate etc.
To be clear, I have no issue rewarding directors for overachieving on key deliverables, and indeed simply achieving the MAIN deliverables. However, bonuses should not be approved for simply doing one’s job IMHO. Awarding an EPC contract is an example of doing one’s job IMO. Directors and shareholders should also be aware that,
a) the huge uplift in demand for SC6 & Lithium chemicals, Tin, Li-ion batteries & EVs over the last nine months or so has provided MASSIVE tailwinds for the company to finally realise its goals. As the saying goes, a rising tide lifts all boats, and our directors should feel very fortunate that they have been able to conclude offtakes and a secure cornerstone investor under such conditions. Hopefully, they are able to conclude the next set of deliverables soon. But in any case, external market & sector conditions including an insatiable demand for both Lithium & Tin, have made their job that much easier IMO.
b) Directors / employees of the company have each been awarded the opportunity to be a part of something truly special. i.e., to bring Manono (nature’s gift to the Lithium and EV thematic) into production with its new technical & financial partner CATH and with the support of the DRC Govt.
Large profits are anticipated in the coming years, but until then, IMO it is both opportunistic and irresponsible for directors to be asking for millions of dollars each when the company is yet to generate a single cent in profit. Many shareholders (it seems) are also naturally reluctant to over-compensate directors when heavily discounted CRs and missing self-imposed timelines have been (let’s be honest) par for the course over the last three or so years.
The time will come for our directors to claim their millions in bonuses, and honestly I would be more than happy to see that transpire i.e., once AVZ delivers outstanding profits to its shareholders. But until then, performance rights should (IMO) be largely tied to bringing Manono into production on time and within budget. If they can execute the plan (with CATH) accordingly, then IMO the SP will take care of itself.
In summary, it’s a fortunate situation that our directors currently find themselves in. Yes, they have worked hard and have eventually delivered on offtakes and a reasonable deal with CATH (kudos to them for achieving some well deserved outcomes).
However, due to three long years of ongoing delays and several heavily discounted CRs over that timeframe, the SP has underperformed and to this day continues to lag the performance of hard rock development peers IMO.
AVZ’s Lithium resource value, for example, is currently trading at a staggering 85% discount on an EV/t basis vs peer average (see below). 30-40% I could understand and live with for the time being - given the sheer size of resource and also being in the DRC - but 85% IMO is the result of missed opportunities, ongoing delays & poor planning around capital management (eg. last minute & heavily discounted CRs) and poor shareholder communication at times IMO. Shareholders have had to endure AVZ's relative poor performance vs inferior peers, while the directors continue to collect and propose new bonuses.
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Hence, why I believe that AVZ’s recent Tranche 5 proposal (A$2b M/Cap) for example, is completely inadequate for all shareholders, and especially those who know the company’s history, have done their homework and understand the true value of Manono (yet to be realised), in addition to understanding the sector, its nuances and competitor / peer developer valuations (comparing their inferior product, inferior scale etc.)
GLTA and IMO don't be afraid to speak up and stand up for what you believe in.
May your voices be loud, and may your votes be counted this year.
Cheers
Elpha
(20min delay)