At 42,500tpa with a current realized price of $13,653 – Sales revenue upon completion of stage 2 will be ~$580mln. At a gross cash margin of $9,853/tonne: ~$418mln gross profit. At a PE of 12 that is a market cap of ~5bln. This is equivalent to an SP of ~$19 (or ~4.2times the current SP). Obviously, stage 2 will likely see teething problems as seen in stage 1 and thus I think a more conservative SP target of $12 is in order, still, that is significant upside.
On a positive: There will likely a reduction in costs thus increasing profit margin, the potential for higher lithium price and PE valuation of 12 is conservative. Furthermore, this basic analysis is not considering the hydroxide plant and advantage lithium joint venture. The company has a strong balance sheet with $316mln in cash. I believe the market is yet to price in the Stage 2 expansion and is still worried about the company’s ability to reach full production capacity.
I personally will likely take a position over the coming weeks and at current prices will feel comfortable holding long-term. There is much upside potential in this company. It is profitable and has a pipeline of potential projects that will add significant shareholder value over the coming years.
ORE Price at posting:
$4.54 Sentiment: Buy Disclosure: Not Held
