IMHO... the US$1500/t spod-con price is fair (as per my earlier posts few days back
https://hotcopper.com.au/posts/66070610/single)
The capex is double what I originally guessed. Not surprised it was a lot higher than extrapolations from CORE 2021 open pit only DFS, but it's wayyyy higher. I was hoping with ore from surface (no pre-strip like Finnis, Kath Valley) and location near Hwy between Kal and Esperance mobilisation etc wouldn't be such a killer despite WA inflation. Core DFS from 2021 has a capex intensity approx 1/3 ESS on similar annual spod-con production. I'm actually shocked for a relatively small, simple open-pit and processing operation things have come to this...
Opex same story. UG is more expensive mining than open pit, but ESS is running at mining costs 3 times Finnis 2021. I know it's not near darwin and not 2021... but seriously, shocking opex inflation happening if true. At 13.3 strip, that mining cost is running @ A$4.70/t when I thought it cost about $2.50 to dig and move a tonne of rock. I'm getting too old to keep up...
So where does this shocking SS leave holders? The $1500/t spod con still delivers a $367M NPV10% post tax. 10% discount is usual for a SS, but considering the premium for a lithium deposit, good grade, from surface, in one of WA's safe lithium triangles (don;t mention AVZ
) seems a bit harsh. Assumiung they couldn't heap any higher costs onto Nth Dome in the PFS, say the NPV8% is $400M. Tianqi paying 50c a share is picking that up for ~$150M fully diluted after expenses... so still a pretty good $250M NPV8% post-tax profit.
Keep in mind companies usually spruik the pre-tax NPV because it's substantially higher. Fair enough, in Oz you get tax franking credits and investors have different tax rates payable, pre-tax NPV is equivalent to a 'grossed up' fully franked return. Anyway, just adds to my suspicion management arn't trying very hard to sell the go-it-alone upside alternative (god forbid they have to hand around for years, complete studies, build a mine and all before they can sell out and sail off...).
Anyway, that's not going to happen as we know. The kicker for any bidder like Min Res with a plant nearby is they get to save about $250M capex by running a simple DSO dig and truck operation up to Mt Marion. Take $400M NPV, add back $250M capex saved, less $50M LOM extra haulage costs (ie approx $100M discounted at 10% to 2023 real) and it's worth $600M to Min Res. Pay ESS holders half FFS (ie $1/share and keep $300M for yourselves plus lithium price upside). That's probably not going to happen, but they could only pay ESS 75c/share and pocket $375M plus upside etc.
A few takeaways for me, including cost inflation for any other developers in WA. Companies with mines already built are seeing their plants appreciate, not depreciate, the tax man wants to get onto that lol. Also, if cost inflation is so rampant, no wonder analysts are rising their 'incentive' lithium price decks. Without higher prices no way enough new lithium deposits will be developed...
GLTAH
