I knocked up this spreadsheet last night to compare the serious ASX listed lithium developer projects apples for apples. By only taking the raw annual concentrate production, reserve size, CAPEX and OPEX figures from feasibility studies & more relevant announcements, and keeping all other assumptions the same across the board, these inputs can be run through a basic DFC analysis. This allows us to compare the projects themselves on paper to see which projects have specific advantages and which offer the most compelling investment proposition.
Furthermore, NPV & IRR can be extrapolated as reserves are upgraded, allowing the implications of increased reserves to be modelled without having to wait for a revised feasibility study from the company.
All scenarios are modelled with the following assumptions:
• Cash costs are net of by-product credits
• Spodumene 6% contract price: $600/t
• Annual sustaining CAPEX of $1M
• Discount rate: 10%
• Forex USD/AUD: 0.75
• All assumptions are in USD except where stated
It has been a while since I have calculated the valuations when factoring in secondary processing (i.e. producing lithium carbonate/hydroxide onsite), but from memory, NPV’s more than double and that was using very conservative assumptions.
Obvious flaws with this model, that I’m sure will be pointed out are that most of these companies have publicly stated contract pricing for 2018/2019 at higher prices. Also, some will be producing sooner than others. However, the model still gives a good comparison of how the projects stand on paper, their limitations, and a view of which projects are the most sustainable over the long term.
Keep in mind that the figures in red are my speculation. Everything else has been taken from company feasibility studies and relevant announcements that have been released after feasibility studies that update/upgrade assumptions.
I have also calculated the equivalent market caps (fully diluted market capitalisations accounting for project ownership %) of each of the companies listed and determined the % of the NPV of the project that they are trading at.
Looking purely at these numbers, BGS is the most undervalued of the bunch, trading at ~8% of its ultimate NPV and TAW is the most overvalued, trading at ~88% of its ultimate NPV.
This isn’t a particularly fair comparison for TAW which is producing this year with locked in pricing @ $880/t for the next 2 years, but it does demonstrate the limitations of TAW (higher OPEX and smaller resource than peers).
The model particularly highlights how chronically undervalued BGS is and the amount of value that can potentially unlocked for shareholders over the next 6 months with the following catalysts:
• Exceptional MD appointment
• Confirmation of cost reductions with PFS2 & DFS
• Continued world class drill results resulting in >100Mt resource
• Environmental approvals & exploitation license granting
• Joint venture/offtake/financing progress • With BGS trading so cheaply, the company is readily becoming a takeover target which could occur any time with large Chinese corporations on the hunt for a large tonnage African lithium deposit that they can pick up for a steal
Cheers,
Ubi
BGS Price at posting:
66.5¢ Sentiment: Buy Disclosure: Held
(20min delay)