AVZ (ASX) Ann: Operations Update

Originally posted by Scarpa: ↑

All things been equal, the difference in value would only then be the difference in the discount rate chosen, but there are other things going on that explain the SP difference IMO, further dealt with below IMO. For Australian projects the discount rate is 10%, whereas for projects in the DRC suspect they would be looking at projects around the 13% - 15% mark. Using a 13% discount rate reduces the NPV in AVZ's 2018 Scoping Study, for example, by $400 million, which I went through in this post and the embedded posts therein. Where the current SP is at goes beyond discount rate issues in project assessments IMO. Refer Post #: 37893885

Too me the main difference, and it is not discount rate based, between Wodgina and Earl Grey and AVZ, is the former two are probably further down the assessment process, infact one (KDR) is close to mining/production. Secondly, the former two have likely clear and distinct transport routes to port already in play which they can use in project assessments, and I suspect the market is factoring in them entering production before 2021/22 for KDR especially, and probably before 2025 for Wodgina. (In terms of Wodgina be mindful that Albermale is building hydroxide facilities in WA - at Kemerton I think for its Greenbushes ore - so will be interesting whether Wodgina is part of such plans as well, and I suspect for Wodgina they would be building hydroxide facilities, if they go that way around Port Hedland given there is an existing gas pipeline from Dampier to port Hedland itself- https://www.copyright link/business/energy/albemarle-vows-to-switch-off-wodgina-if-lithium-demand-is-soft-20190510-p51m36 (noting WA has access to gas/power for producing hydroxide, readily available, whereas the power requirements of producing hydroxide in the DRC are still undeveloped, albeit more than likely I think if it did happen in the DRC it would be at a regional centre - I posted power requirements for producing hydroxide in Post #: 34114641 ). Wodgina, IMO probably is the surprise investment because not sure why Albermale fell in love with that deposit to be frank, unless it is expecting to expedite it to production or produce hydroxide, but KDR is certainly down the almost at mine path.

The fact KDR and Wodgina have higher waste to ore ratios and lower Li20 content than AVZ suggests, if anything, the key for AVZ is actually the transport plan for showing that AVZ can indeed be in production by 2022 - 2025. At the actual minesite, AVZ's costs of production will be far far better than all other hard rock plays IMO, i.e. transport costs are a post minesite cost btw, purely given the very very good ore to waste ratio for AVZ and much higher Li20 grades and tin/tantulum credits which I posted previously about, compared to other hard rock plays (and probably on par to Greenbushes given Greenbushes has a higher ore to waste ratio than AVZ but better grade etc) .

That has been the problem all along for AVZ, because the difference in SP cannot be explained purely by sovereign risk as that is dealt with in the discount rate - too me the difference is around the transport route and a market view IMO that AVZ cannot get to production this side of 2025, which I believe AVZ will prove them wrong and then the rerate will happen fast IMO IMO. It was the initial reason for me starting the "Understanding Lithium Demand" thread, because IMO the growth in demand for spodumene will not be met by existing players (including their expansions) and new emerging entrants and therefore IMO there is scope for AVZ to enter the market before 2025. If AVZ sign some Offtakes after the transport route is evident, the SP will look after itself IMO.

Obviously delays and missed timelines have not helped the (adverse) sentiment and therefore AVZ SP here over the last year. But over the last month, suspect sentiment is shifting slightly here with a view emerging that AVZ is seriously considering taking this to mining (refer last Ann for example), but getting these MET tests done a key, as is the DFS. Getting s an Offtake will certainly be the catalyst for the rerate here IMO.

All IMO

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Speaking of Gas supplies, we had our Executive VP from Shell Australia present to us a couple of weeks back and she spoke mostly around Shell's transitioning into renewable resources.

One thing i found interesting is that Shell also plans to invest $1 billion (Most likely through onshore Coal Seam Gas) into Africa as they see it as an untapped market. Their plan is to work towards moving African nations out of 3rd world poverty into middle class citizens where they would create jobs and and transition the massive population to become energy consumers as they would afford to own typical houshold appliances and white goods.

An interesting development but we might see CSG pop up in the next few years as a potential power supply at Manono...