Matt Bohlsen Follow(1,195 followers)
Investment advisor, portfolio strategy, growth at reasonable price
Summary
Altura's spodumene lithium resource is in a good location with further exploration potential upside, and a very low CapEx to get to production.
Near term producer with production forecast to commence in Q3 2017, strong off take partner already in place.
Two very strong near term catalysts due Q3 2016, and valuation is currently more than 50% below analysts estimates.
Altura Mining Ltd "Altura" (ASX:AJM) (OTC:ALTAF) - Price = AUD 0.15, USD 0.135 AJM 1 year stock price chart Source
Altura Mining is an advanced Australian lithium mining junior.
Their flagship project is the Pilgangoora spodumene lithium project in the Pilbara region of Western Australia, near to Plibara Mining (ASXLS). Altura have owned this asset since 2001, and began developing it in 2010. Currently they are quite well advanced and absolutely racing towards a production start in Q3 2017. This may likely make them the only new lithium project to come online globally in 2017 (given Neometals and Galaxy are new producers in 2016, and Pilbara Minerals should start in 2018). Altura Mining lithium project and resource details
The Pilgangoora lithium project has a resource of 36 million tonnes of spodumene at 1.05% Li2O, and a reserve of 18.5 million tonnes at 1.07% Li2O, with no tantalite.
Further the company stated that they have "an extensive tenement holding in Pilgangoora and believes there is considerable upside for the project. The Company has recently commenced a new drilling program at Pilgangoora with the immediate focus to deliver additional spodumene ore feedstock for additional metallurgical testing and geotechnical assessment to support the mine." The Pilgangoora tenement package consists of 11,569 hectares.
Summary of the global spodumene resource sizes Source
Based on their Feasibility Study (FS) in Q1 2016, it showed an estimated Net Present Value (NPV) of AUD 382 million over an initial 12+ year mine life, an attractive CapEx estimate of only AUD 129 million (based on a 1.4 mtpa operation) including deferred capital and a payback period of a mere 1.7 years. Note that the NPV may well be improved in their upcoming Definitive Feasibility Study (DFS) due out very soon (in Q3, 2016).
Cost of production was estimated at AUD 298 (USD 223) per tonne of spodumene concentrate for the life of the mine. Altura's Pilgangoora project hard rock spodumene lithium deposit Source Off-take agreements
Altura has a binding off-take partner agreement with Lionenergy (also a shareholder of Altura) for 100ktpa of spodumene (~16ktpa LCE) initially for 5 years, which is around half of Altura's expected peak production. Note this agreement is subject to Altura securing project financing within 6 months of the signing, and starting production within 2 years. I would expect the 6 months to be extended if necessary.
Altura also has a also has a non-binding MOU for 100ktpa (to 150ktpa) off-take with Optimum Nano Battery Co, that is likely to become binding very soon, once the DFS is completed. Optimum Nano has 26% market share of EV lithium batteries in the Chinese domestic market. Production plans
Altura are currently focused on completing their Definitive Feasibility Study (DFS) in Q3 2016. The company has already achieved their native title agreement, and their mining lease. They are now processing the mining proposal which covers the proposed mining operations, processing and power plants, mine site infrastructure, environmental assessments, hydrogeology studies and the mine rehabilitation plan. The company expects this to be passed successfully by December 2016, which will then allow the construction of the mine to begin.
Mining would be mostly open pit, and has a low strip ratio of 2.7:1. As mentioned earlier mine start up costs were estimated to be AUD 129m.
The mine location is excellent with infrastructure nearby and road access to Port Headland. Altura have also agreed with their neighbor Pilbara Minerals to co-operate and "unlock logistical, operational and strategic synergies with the potential to deliver benefits to both companies." Production is forecast to commence in Q3 2017. I have modeled 2018 production to reach 150,000 tpa of spodumene and 2019 to reach capacity at 200,000 tpa. Other investments
Altura states that they have "an investment in Lithium Corporation (OTCQB:LTUM), an exploration company based in Nevada USA devoted to exploration for new lithium and graphite resources in North America.
The investment provides Altura with a strategic alliance and possible exposure to alternate lithium and potash product supply from brine deposits."
Altura also have an interest in some Indonesian coal assets which they plan to divest. There is currently not a lot of value in these assets at current coal prices. Valuation
Altura Mining is not yet producing, so has no earnings or P/E yet. They have AUD 8m in net cash.
Altura currently has a market capitalization of AUD 185m or USD 138m. By comparison to their neighbor Pilbara Minerals market cap is AUD 604m, or USD 445m. Meaning Altura is only valued at 30% the value of Pilbara Minerals. The main reason for this is Pilbara Minerals has a slightly higher lithium grade, a much larger (huge) resource, and more hype. Conversely, Altura is more advanced.
Broker analyst valuation
Analysts Beer and Co 1 year target price for August 2017 is AUD 0.32, with a strong buy, high risk recommendation.
Analysts Hartley's 1 year target price for May 2017 is AUD 0.35, with a speculative buy recommendation.
The above analyst targets present 113-133% upsides. The high risk is due to project financing not yet in place. This will most likley require the completed DFS and finalizing of off-take agreements. My earnings multiple valuation
It appears to me that Altura Mining does not get the same hype and promotion as Pilbara Minerals and others, and therefore its stock price has not risen as spectacularly thus far.
My earnings model for Altura comes to the following forecasts.
Column 1
Column 2
Column 3
Column 4
Column 5
0
Spodumene production est.
Net earnings (m) (AUD)
Sock price forecast
Times higher current price
1
End 2018
150,000
38
0.35
2.31
2
End 2019
200,000
52
0.47
3.15
NB: Based on 100% ownership, spodumene sold at USD 600/t, production cost USD 223/t, PE of 15. AUD 65m equity raising, AUD 65m debt. AUD at 0.75 to 1USD. Near-term catalysts
Upcoming catalysts include:
Q3 2016 - Drilling results at Pilgangoora.
Q3 2016 - Release of a Definitive Feasibility Study (DFS)
Q3 2016 - Non-binding MOU with OptimumNano to reach binding agreement and secure off-take close to 100% of planned production.
Q4 2016 - Project financing, construction of the mine planned to start.
Q3 2017 - Production is forecast to commence. Competitors
The other producing lithium miners, and soon to be producers. I have discussed these previously in detail here, here and here. Needless to say, the top 3 producers are non-pure plays (SQM (NYSE:SQM), Albermarle (NYSE:ALB), and FMC Corp. (NYSE:FMC)). The top pure play currently producing miners are Orocobre (ASX:ORE) (OTCPK:OROCF), Mineral Resources [ASX:MIN], Galaxy Resources (ASX:GXY) (OTCPK:GALXF), and Neometals [ASX:NMT] (OTC:RRSSF). The near-term producers include Pilbara Minerals [ASXLS], Critical Elements (TSXV:CRE) (OTCQX:CRECF), Nemaska Lithium (OTCQX:NMKEF) [TSX:NMX], Lithium Americas (OTCQX:LACDF) [TSX:LAC], Lithium X (OTC:ROCEF) (TSXV:LIX), and Bacanora Minerals (OTC:BCRMF) [TSXV:BCN].
A key here is that it takes usually 3-5 years to bring on a mine (land acquisition, drilling, feasibility studies, permits, licenses, construction etc.), and demand is growing very strongly thanks to electric vehicles. I think all the above miners will have plenty of demand, as you can read here where I analyze future demand versus supply in the lithium market. Risks
Altura may not be able to raise the AUD 129m to fund the mine and plant. Seems unlikely given the low CapEx and strong 100ktpa off-take partner (Lion Energy). Note the risk off the off-take agreement expiring after 6 months if no CapEx finance, assuming this is not extended.
Optimum Nano Battery Co may not convert the non-binding 100-150ktpa off-take agreement to become binding.
Altura may not get the mining proposal approved. Seems very unlikely given they already has the mining lease permit.
Lithium price falls back sharply due to oversupply. Unlikely for some time as demand is rising faster than supply. Altura is not a low cost producer, so this is their greatest risk in the longer term. This is partially offset by the binding off-take partner.
Lithium replaced by other chemistries. Unlikely, as no other technology is as compelling as lithium. Plus, lithium itself is only 2-5% of the cost of manufacturing lithium batteries. You can view the battery cost breakuphere.
EV adoption to stop or slow considerably. Possible, but unlikely as lithium battery and EV prices are dropping.
Political risk - low being based in Australia.
Liquidity risk for those investors buying on the US exchange. Better to buy on the ASX, as there's higher liquidity.
Conclusion
Altura Mining is comparable to Pilbara Minerals, but has a smaller resource, but lower start up CapEx and will most likely beat them to production start up.
I like Altura Mining for the following reasons:
Good size resource with upside potential.
Strong existing off take partner in Lion Energy, albeit some risk still there.
Very small AUD 129m start up CapEx, easily achievable with minimal dilution (say 65m equity, 65m debt).
Likely producer in around 1 year from now in Q3, 2017. This may well make them the only new producer of lithium globally in 2017.
They are currently very undervalued on several measures. One year analyst targets present 113-133% upsides at AUD 0.32 and 0.35 respectively, and my earnings model presents 2.31x upside to 0.35 by end 2018, or 3.15x to 0.47 by end 2019.
They have two large and imminent catalysts - a DFS due this month with a possible upgrade on the FS, and thereafter a strong chance to convert the Memorandum Of Understanding (MOU) with OptimumNano, to a binding off take agreement, thereby securing off-takes for 100% of planned production.
Currently, I have Altura Mining ranked as number 4, in my "top five lithium miners to consider", the only reason they are not ranked higher is they are a spodumene producer, so cost of production is their weak point. This is partially offset by a strong off-take partner.
Investors should start a position now before the stock re-rates higher on this bargain opportunity.
I am not an employed analyst but have the academic training, and investors should do their own due diligence and modeling.
AJM Price at posting:
15.0¢ Sentiment: Buy Disclosure: Held
LS). Altura have owned this asset since 2001, and began developing it in 2010. Currently they are quite well advanced and absolutely racing towards a production start in Q3 2017. This may likely make them the only new lithium project to come online globally in 2017 (given Neometals and Galaxy are new producers in 2016, and Pilbara Minerals should start in 2018).
