A good DFS 2 result and certainly encouraging for this long term investor. For me the most encouraging slides in the entire dfs slide deck were these ;
This sensitivity shows the downside in the 3 key operating variables,
capex ( largely insensitive),
Opex ( more sensitive) and
Price ( very sensitive). Much has been made of concerns around the
"payability" of chloride and whether something circa
~70 % of LCE prices can be achieved. That table should assuage some of those concerns particularly to near term funders , which is the step we have now arrrived at. It indicates the price could be 30 % lower than they have modelled and your NPV8 ( remember that is a post tax number too and your actual cashflows to service any debt finance come from pretax cashflows ) is still
$1.15 BN USD or
$1.80 BN AUD. The whole point of doing these studies is to facilitate funding support from capital markets and many resource projects never get past the step we have now arrived at.
However with a DFS showing that even with a much lower price than modelled by
-30% , we still have an NPV approaching nearly $2.0 BN Aussie. That is on any measure a staggering result and full credit to JP and his team on the ground in Argentina. One is still, even at this lower price scenario circa ~
2.70 X NPV/ Capex ratio which is well above "marginal" funding territory where getting capital markets to step up becomes a real effort.
Our baseline number of NPV/Capex is approaching
5 X , way above the level you see in other resource areas like Gold, or Oil/Gas . Take Chalice as another example, their recent scoping study had a
Capex cost estimate of $1.60 BN AUD and an NPV for their first stage of $ 2.80 BN AUD and they used a discount rate of
6.50 %. So they end up with a capex/npv ratio of ~ 1.75 times and while this annoucement pulled their mkt cap back significantly they still are trading at circa
$ 900 M mkt cap. That is a highly complex vms suphide ore body that requires a lot more complexity in processing then our very simple chloride (liquid spodumene) strategy. Country risk is obviously higher than with an Australian based project like Chalice's but the level of returns here with Gln's project are of such a scale without much technical risk that this project will definitely be funded, its now a matter of at how much dilution for shareholders ?
The sensitivities on both price and Opex costs showing you can move price much lower and Opex from its baseline number much higher and you still have a very fundable project. This should also underscore the point that brine projects ultimately will always be the lowest quartile cost producers for getting lithium to market either to hydroxide or carbonate. Longer term prices will be driven by the higher cost Chinese lepidolite producers and following them integrated /non integrated spodumene producers. Even with the current fall in carbonate prices I cant see the price of spodumene falling much below $ 1500 USD per tonne. Beneath that level there is unlikely sufficient incentive to bring online new spod production and without that marginal new production there simply wont be enough new lithia units to support the growth of EV's in coming years particularly when China's own domestic lepidolite industry can barely supply 15 % now of their needs now and even if they find more of it ,it will still be high cost given the low recoveries and high energy costs to liberate lithia units from lepidolite ores.
A $ 1500 USD price for spod translates into carbonate price of circa ~
$ 16K USD per tonne which is close to the low end sensitivity scenario tabled above. On that bearish scenario but this project still makes a fantastic return of
$1.80 BN AUD highlighting the markets ongoing pre-occupation with hard rock projects completely ignores the importance of cost curves and where you sit on them and ultimately this is the only thing that drives superior long run returns to resource investors.
The other charts that jumped out at me were these ones on
Page 9 &11 ;
There has been from time time much made on this forum over the years from the odd clown or two that has popped in over that time to suggest that because there will be a few of us in the future operating at HMW, that ultimately the brine will just up and move or disappear from our tenements or some other form of silliness. The RHS graph on page 9 highlights a very tight fit between the observed and the simulated outcomes in their pumping tests where they have been calibrating their data around brine extraction capacity. That in turn then feeds into the predictive model we see above with the output being quite stable over a 40 year period and only a very small reduction in that time to modelled outcomes. This gives me confidence that such scenarios of said brine not being there in the future or disappearing remain the hysterical musings of some on here in the past who don't have a clue about hydrology.
General MeetingMr Bear attended the General meeting this morning as it was only a small spring walk down the road to the local CWA office here in West Perth where it was held . There was circa 7-8 people in attendance. Pretty uneventful and all resolutions passed with like 99.8 % of those attending voting yes . It was nice to hear JP speak directly in person and both him and Richard Homsany spoke at length that there has been a number of confidential agreements now struck with various parties as they go over the Galan figures with a view to offtake and funding for Stage 1&2. While JP wouldn't commit on a precise timeline for this being finalised, the general vibe is we are getting close.
JP stressed to us at present his priority was working hard to prevent as much dilution of existing shareholders as possible in the upcoming funding arrangements for Stg 1&2 ( which was nice to hear as most CEO/Mgrs/ Directors of junior developers honestly don't give a F*ck on the ASX as long as their job continues ) and he and Daniel were working in their negotiations to try and create "competitive tension" between some of the bidders. He also stressed that a prepayment of some sort was very high on their aspirational list of things that want to achieve with the funding and while he did'nt make any promises one was left feeling confident that he at least felt confident they could pull this off. They also used the words
"strategic investor" quite a bit which I liked to hear and as others like ResourceEagle on this forum have posted previously, a true cornerstone " strategic" investor is one of the remaining pieces of puzzle that is vital to really get the share price out of its Lassonde-curve inspired slump this year. Worth attending to hear JP talk in person and also gave me an opportunity to thank him personally for his efforts over the last year which if we are honest has been a pretty hard year for many in the junior lithium development space.
(20min delay)