If clarity is emerging that HPMSM in Louisiana is going to be...

If clarity is emerging that HPMSM in Louisiana is going to be possible without eye-watering capital raising and dilution, its possible to start thinking about forward values (if the project delivers to its forecasts) and applying various time/risk discounts to that figure.

The HPMSM cost structure from Apr 2023 (page 8) and EBITDA at full production E25 would appear to be using an average price assumption of around US$2,560/t ($2.56/kg). The simplified full HPMSM production P&L would be 130kt * $2,560 = $332.8m revenue with production costs of $154.4m for EBITDA of $178.4m. Its presumably $23m of interest that lowers EBITDA "down" to US$155m of pre-tax cash flow at full production.

If this grant has altered the HPMSM funding structure expectations, there may now be less debt and therefore less interest in the funding structure so that $178 to $155m gap may be narrower. This is possible upside but I'm not counting on it yet.

The Apr 2023 case doesn't provide the single train EBITDA or HPMSM price estimate but there is enough information to guess it (if the revenue assumption of US$2,560/t is correct). A single train EBITDA would be ~US$82m [65kt * $2,560 - $84,081] per year (At least on Apr 2023 numbers).



This provides a forward looking EBITDA figure from which to start doing back-of-hand valuations. US$82m EBITDA is A$117m of EBITDA @ 0.70. A typical mining and specialty chemical EBITDA is 7.3x. The one-train EV estimate is therefore ~A$854m. This is however a 2-3 year forward valuation estimate that needs both time discounting and risk discounting back to present day values. If a time discount of 30% were applied, the value drops to A$598m. If a further 30% risk construction/implementation risk discount were also applied this figure drops to A$419m. Normally a construction risk discount may be higher than this but E25 have had GM, Stellantis and the US government review the case in depth and decide to invest in it so that lowers the likely risks.

With 219.9m shares that would put E25 at A$1.91. Others may think higher or lower discounts are applicable but its a starting point for discussion. They may also want to factor in value to Train 2 HPMSM, a possible 3rd train with Nissan and Butcherbird operations but all of those would take valuations well past $2/share and first of all the value has to get to even $1/share.

A key point around this EBITDA multiple view is that the US Government grant not only adds significant net asset value but in making a HPMSM plant look likely, it becomes applicable to start considering what earnings multiple would be applicable to the earnings E25 thinks this project may generate in the future. Those values are massively higher than 21.5c/share. It will be interesting to see what the market decides.


Trading halt ending thoughts
It was slightly odd that E25 didn't come out of its trading halt yesterday as I'd have thought there was sufficient information to write a 1-2 pager about what had been proposed for E25 and the implications.

• Do we get the trading halt ending via the time period end date stated?
• Do we get that basic ASX release today to end the trading halt?
• Is there another deal that E25 is working on and simply kept the trading halt while working on that deal?

Overall its likely something will be released today.