Ann: Optimised Seymour Project PEA Highlights Robust Economics, page-7

You have probably seen the clarification that the pricing used was incorrectly stated. Clearly you weren't to know that GT1 made a typo.


Future pricing
The choice of what rate to use is incredibly difficult in the current environment because there is limited clarity as to what future rates will look like. The futures curve, particularly the CME longer-dated futures are massively upwards sloping. If prices remain where they are, multiple projects including the project previously owned by Latin are unlikely to progress (unless PLS has confidence in prices increasing and decides to be strategic).

An unfortunate element has emerged in lithium whereby super-high but potentially unrealistic PEA's are released. Investors then adopt the realistic view that anything stated needs to be scaled back. If someone were to produce a study with realistic assumptions across all attributes, it would likely compare poorly with the many inflated scoping studies around.

The best way to get high to exceptional IRR / payback periods is start with a price deck at a high level that decreases to lower level (the pricing situation that Latin and others were in when they released scoping studies). The current pricing forecasts by Fastmarkets start low and then increase although the shorter current mine life means the US$2,900/t SC6 estimates by Fastmarkets occur after the mine (on this plan) completes.

Based upon the mining volume graph below and the SC5.5 prices below, the 3.5 year payback is based of an average SC5.5 price of US$1,300/t. This lowers the payback and IRR figures. If US$1,851 were used for those early periods then eeek that would have been horrible payback. The C1 cost of ~US$753/t for SC5.5 is good. If a flat price deck of US$1,851/t were used its probable the payback period would have been half the 3.5 years quoted.



When Latin did their PEA they were fortunate enough to have their first revenue assumed at SC5.5 average of US$1,968/t. As the figure is quoted on monthly figures Latin probably started with what appears from the graph to be US$2,450/t declining to US$1,968/t. This assisted Latin to report an incredibly short 7 month payback, but most other projects using the same assumption would also have a payback not extending much past 1 year (GT1 included).


Re Pit shells - You appear to be using pit shell optimisation references as if they were average costs. They aren't. Pit shell optimisation work is saying if this block of ore costs more than this amount to get out of the ground and process, it says in the ground and the model won't attempt to retrieve it. The average cost of a project will be below the pit shell optimisation price. Some projects push the pit shell all the way up to the assumed revenue price which produces the maximum NPV possible but means the project needs at least minor redesign if prices fall even slightly. With GT1 using US$950/t for stage 1 of North Aubry, that pit shell is sensible if not conservative for any prices above US$950/t and if prices are below that its unlikely GT1's FID will be delayed. Typically companies including PLS are using pit shells above this level as their best guess is prices will be higher and it will make sense to retrieve ore that costs around US$1,100 to US$1,400/t of SC6 to recover.