This is not really a fair comparison given that the Phase 1 DFS is the initial small scale pilot (albeit commercial volumes) and therefore capital intensity and opex is much higher than what we would expect to see in the full scale Phase 2 DFS (which is only 2 months away and has Galan producing 20ktpa in 2026, not 2028).
In additional, there are a couple of other differences to be aware of:
1) ASN used a 7% discount rate whereas Galan used 8% which reduces the NPV by comparison to using 7%. Almost all lithium projects have been using 8% discounted rate in recent years with the exception of ESS who were trying to make their numbers look bad (using a 10% rate) and EUR who were trying to make their numbers look good (using a 6% rate). While we are on the subject, and because people have questioned the use of an 8% discount rate, I will say that I prefer all projects to use the same discount rate which then makes the numbers more comparable. Investors can then apply their own personal risk modifiers on top of the NPV and FCF numbers - I think that risk assessment is a very subjective element that should not be applied automatically on behalf of investors (by using different rates for different jurisdictions, for example). Therefore I think that using 8%, as a more recent standard, is appropriate. There may come a time where a new standard rate becomes appropriate, though hopefully rates are more likely to reduce in the future than continue to increase.
2) ASN will produce "up to 13,074tpa" in the 1st 10 years, but they reduce 7,723tpa for the next 7 years, and then down to 4,186tpa for the remaining 6 years giving a total 23 years Life of Mine. It is not clear how many years will actually yield 13,074tpa within that 1st 10 year period, given that it is stated as "up to". Also, from years 11 to 23 they will effectively be producing on average, 6,090tpa which is not far off our small scale phase 1 pilot. This means that ASN in its current form cannot leverage the potential upside in the lithium price to the same degree that Galan can - ASN simply does not currently have the resource (I'm not saying they won't in the future just that they don't currently have it).
3) When it comes to opex they have calculated US$4,368/t but this is based on the maximum output of 13,074tpa which is only relevant to less than half the mine life. It is unclear to me whether they have continued to use this max output opex figure throughout the entire life of the mine (i.e. in years 11 to 23 where the output is less than half the 13,074 name plate).
4) The ASN DFS is based on indicated resources not reserves (which is highly unusual). It seems they have since discovered that they will not be able to get funding unless they do the work to define the reserves so they have recently announced (on 19th of July 2023) that they are going to embark on this activity. According to the timeline in the DFS financing was supposed to be complete by the end of Q1 2023 but they are only now, in July 2023, doing the work to define reserves. Yes all developers, like Galan, are struggling with timelines, sequencing and delivery.
From the DFS:
Announcement on 19 July 2023:
Timeline from the DFS:
5) ASN used a lithium price based on the Benchmark Minerals Intelligence forecast curve. This curve has the lithium price at around $40k in 2023 reducing to around $16/17k from 2031 onwards. The DFS states that they use an average of around $19k over the 23 years however, make no mistake, they are taking advantage of the much higher prices on the curve during the early years of production when a much lower discount rate is applied and during the higher production output of the 1st 10 years. Using the lower numbers on the Benchmark curve beyond 2031 will not have a big negative impact on the NPV (due to the higher discount rate and much lower production volume during these later years) and allows them to quote a much lower average lithium price.
From the DFS:
The purpose of this post is not to start a GLN vs ASN debate. I am simply pointing out that there are a few other elements to consider other than just the headline numbers - and we weren't expecting a small scale DFS to complete with the full scale output of other companies (even though I think it does a pretty good job - looking at stats like Capex to NPV).
We will have to wait and see what the DFS Phase 2 numbers look like but there should be a good improvement in capital intensity and opex which will result in much higher NPV, FCF and IRR (relative to the increase in production output). We also have substantial latent upside in Phases 3 and 4 - and the resource is just sitting there. How many Lithium companies on the ASX would love to be in that position? There are quite a number of developers and producers who are still exploring to try get their mine life and/or production output up to more reasonable levels.
(20min delay)