The significance of a 47% fall in 69 days is partly moderated by the dire state of current world markets and the fact lots of companies have falls of this size. If falls this size were uncommon it clearly points to poor management. With large falls being fairly common it points towards risk-off market valuations and the lack of clarity on E25's performance is causing risk-off selling.
In the lithium space declines of circa 50% are common over the last two months. These falls are across the board and include large falls for companies within in the ASX200/ASX300. For example, LTR was $2.12 on the 4th of April. They are now $1.12 for a fall of 47%. The table below was part of a post by
@dc1234 in the ESS thread. 13 companies have 50%+ falls over the last two months.
![https://hotcopper.com.au/data/attachments/4426/4426246-8d38122b2d97e0f8d1215b58e2476d37.jpg](https://hotcopper.com.au/data/attachments/4426/4426246-8d38122b2d97e0f8d1215b58e2476d37.jpg)
"i also don't understand why company not making money when ASIC cost is half the cost of Mn Ore current price?"
Its a good point and multiple factors contribute to this:
- E25 are yet to consistently reach nameplate so costs/unit have a reduced denominator creating higher cost per unit of production
- Manganese Prices are quoted CIF so shipping needs to captured to get back to FoB pricing. At somewhere around 3,000 on the Baltic dry, E25 shipping costs are thought to be about US$1/dmtu (low $30/t) although the PFS used a lot less. The Baltic dry is coming back down from the Shanghi lockdown spike. Its currently 2,320 so current shipping should be under $30/t.
- There is a grade discount that is hard to confirm on existing reporting. It appears to be something over US$1/dmtu excluding possible high silica credits
- It would appear none of the reported shipping has collected even US$5.80 prices. The shipment this quarter may have got just over US$8.00 with a possibility of silica credits beyond this total.
- The Petra report indicated E25 weren't delivering 32-33% grades in the first half and noted 30.5% for the half year to Dec 2021. Its unclear if the Dec fixes improved this situation, whether its fixed now or still needs resolution.
Across Q1 to Q3, 128kt has been shipped for only A$15.1m in revenue. Noting that the first two shipments had a horrific shipping cost, one permutation that delivers this Australian revenue number is: US$5.36/dmtu as the average price (see end of post) at an average grade of 30.5%. The grade discount is $1.22/dmtu. In this calculation I've used a blended average shipping is $40/t and an exchange rate of 0.731:
[((5.36 - 1.22 - 40/30.5)*100*0.305*128088/1000)/0.731 = A$15,116]. Clearly A$15.1m does not provide enough revenue to cover three quarters costs, hence the cash losses which have been commented on heaps.
- If this same formula is used with US$7.50/dmtu substituted in, the Australian dollar revenue increases A$26.3m
- If inefficient earlier shipping is revised to $30/t then the revenue increases to A$28.3m
- If the grade increases to 32% then the calculation increases to $30.0m
- If at nameplate, a quarter's production is about 90kt (not 128kt) this would lower this $30.0m figure to $21.0m
- Exchange rates are currently also favourable to 0.73 but who knows what will happen there.
So far E25 hasn't managed to spend more than $10.6m/qtr but higher than this is likely to occur nameplate is achieved. If the cost structure is a bit over PFS at around US$3/dmtu then 90kt of production would have a quarterly cost of A$11.8m. If revenue of A$21m/qtr were to occur with costs of A$11.8m then the quarterly profit would be $9.2m ($36.8m per year). While only 35kt has so far been shipped this quarter, the formula above indicates A$9m of revenue from this shipment. A 2nd shipment is likely to be needed for a positive cashflow quarter.
Yet more if's:
If the production upgrade is implemented, quarterly volumes change to 180kt or 270kt. There should also be a modest reduction in the cost structure as fixed cost elements of the cost structure are spread over a larger base. If US$7.50/dmtu were to exist for a full year of 3x upgrade production, E25 could be looking at cash profits in excess of $100m/yr. What's the current market cap? A$88m. Clearly the market either believes this capacity increase won't occur or that current prices won't stay high. Given past performance and current communications I can understand why the market isn't believing E25 will hit nameplate and implement a capacity while Mn prices stay high.
Extra notes:
Why have I used US$5.36? If prices are set around a month in advance, or a little more in instances when shipments spend ages in Australian waters the first two shipments may have collected $4.72 (pricing re 29 May 2021) and $5.14 (31 Jul 2021). The third shipment could have been $5.78 (6 Nov 2021). The 4th shipment could have been $5.46 (5 Feb 2022). A weighted blend of these prices is $5.36.
128kt = The December half-year noting 93,991 shipped. The March quarter shipment appears to be 34,097 (8,973+51,288-26,164)
If the average starting price is higher than $5.36 or the grade was higher than 30.5% then an grade adjustment higher than 1.22 is required.