ASX Today, page-35910

I’m tired of seeing so much down ramping on this thread. Here is where I see LTR, as an investment. I’m happy to hear disagreements, but please do not just throw out insults and stupidity if you disagree; explain your position(s), and I will respect any disagreements. You may change my opinion, or we can respectfully agree to disagree.

Once we get to nameplate, we’ll be at 500,000 tonnes per annum of production (Ktpa). As per the Kathleen Valley Project description on the LTR website, this should increase to 700,000 Ktpa. My guess is that with commissioning by the end of FY24, and allowing a year for ramp-up, I’m estimating we will produce 150Ktpa in FY24 and by CY25, we should be at or near 500Ktpa (511 Ktpa, to be precise). As per the AGM Presentation, by full Year 3 (FY27), production should increase to 700Ktpa (actually 658 Ktpa).

I believe that the spod price for SC6 this fiscal year will likely be an average of U$1,600 per Kt for this year, based on my OPINION that I believe we are close or even at the bottom of the current swing, and by the end of the (fiscal) year we will be back over U$2,000 (in fairness, I was estimating $1,700 until about a week ago). I further anticipate an average price of approximately $2,000 per Kt in FY25 and $2,500 per Kt in FY26.

Please note that I am not a clown who thinks he’s Nostradamus, and base my estimates on conservative estimates of increased Lithium usage versus what I believe to be ACTUAL supply increases, the fact that we are a cyclical industry which is at or near the end of a down cycle, and the fact that if prices stay low for long, inefficient producers will cease producing and new supply will see large increases in capital costs, if they can raise at all, killing some projects and slowing others. Maybe it turns-out that this year’s average price will be $1,200, but then it will probably be $2,500 in FY25 and more than $3,000 in FY26, because so much less supply will come on in the next few years and so many fewer explorers will be at work for supply ten years down the road, while current producers will be getting fat.

As for costs, data from the October 2023 Capital Raise Presentation, we know that:

Average cost per dwt (dry weight tonne) for ten years will be A$651 (FOB), plus sustaining CAPEX and royalties. That number DOES include an approximately A$60 per dwt credit for Tantalum production.

Average OPEX per dwt will be $171, taking cost up to A$822, but the presentation doesn’t seem to discuss royalty numbers.

The basic assumptions indicated on Slide 28 of the DFS and updated Downstream DFS Presentation in November of 2021 indicates an estimated average royalty of A$145 per dwt, leaving us with an estimated all-in cost of A$967. With unforeseen inefficiencies and for ease of math, I’ll use A$1,000 for AISC.

At U$1,600 per tonne for SC6 in FY24, which LTR should actually be producing, and only anticipating approximately 150,000 tonnes of production this fiscal year (FY24), I believe that will bring in U$240M, translating to A$360M of revenue (at today’s exchange rate of 1.50 AUD per USD). With an all-in cost for the year around A$150M (in theory), that should yield a profit in the neighborhood of A$90M. I will conservatively say that with ongoing ramp-up costs, FY24 profit will probably be lower, and more in the A$40-50M range. It could be zero, and any profit will probably be utilized to pay interest and pay down debt, so we’ll call it a wash.

I can’t really find a fair metric to value CURRENT share price against such a small profit, but I do believe that LTR will turn a small profit for FY24, even in this market, and even at break-even, we will have completed commissioning, moved six months into ramp-up, and we have SEVERAL advantages over the Aussie Lithium miners that have started production in the past few years (I’ll discuss just a few, below).

For FY25, at an estimated U$2,000 per tonne for SC6, which LTR should actually be producing, 511,000 tonnes per annum will bring in U$1.02B, translating to A$1.53B of revenue (at today’s exchange rate of 1.50 AUD per USD). With an all-in cost for the year around A$511M, that should yield a profit in the neighborhood of A$1B. I will conservatively say that with lingering ramp-up costs, FY25 profit will probably be lower, and more in the A$800M range.

With approximately 2.4B shares outstanding, that profit works out to EPS of approximately A$0.33. As of today (source: Simply Wall Street), the average P/E for the Mining Industry is actually 24.1. The three year average for the industry is 19.5x.

Using that three year average, to stay conservative, a P/E of 19.5 applied to earnings of A$0.33 yields a fair target share price of approximately A$6.44 in FY25. Based on this opinion, I would expect that the SP by the end of this FY will be in the neighborhood of A$3.22. That is NOT based on current activity, but instead is based on forward-looking data. If I’m correct about FY25, that means a SP at the end of FY 24 (30 June 2024) would allow a 100% gain in FY25.

BTW, there are SEVERAL items that appear to be overlooked in LTR SP discussions, including:

On Slide 14 of the presentation for the summary of the DFR, found on the LTR website (dated November 2021), based on the mining plan compared to known deposit qualities, during the first two years, while commissioning and ramp-up will be taking place, we will be mining 1.2% ore the first year and 1.4% ore in the second year. By the third year of mining, we should be mining 1.6% ore, which should last for three years. That would be FY26, FY27 and FY28. That means that for these years, we can expect that we will either have improved revenues, producing something North of SC6 or we can expect to continue producing SC6 at lower costs (because we will need to process less ore to get to SC6).

LTR has already indicated that we are currently paying more in CAPEX to ensure the 500 ktpa at start-up, and that it will only take two years to push up to 700 ktpa (to be precise, 658 ktpa), so to be conservative, I will push that added production to FY27, though FY26 is POSSIBLE.

LTR already has OTAs that address 90% of our initial production. Furthermore, there is the ongoing negotiation with Sumitomo about partnering for mid- and downstream. At present, it looks like the most likely deal involves LTR producing SC6 (or better), converting it to Li2SO4 at or near the mine site and then shipping the Li2SO4 to a Sumitomo facility in Japan for conversion to LIOH.

Back to analysis, by FY26, I anticipate 511 KT of production at U$2,500 per tonne to generate U$1.28B (an estimated A$1.92B) of revenue, still with an estimated cost of A$511M, yielding a profit of A$1.4B, or A$0.58 per share. At 19.5x, that would yield a target SP of A$11.31. In addition, unlike the profit for FY25, which I expect will be utilized to pay down debt, we can expect approximately 30% of that profit to become first dividends, to the tune of approximately A$0.17 per share.

Finally, for FY27, I expect that we will be up to production of 658 ktpa. Assuming that, on average, Lithium prices have not skyrocketed due to shortages, and are still at the U$2,500 per tonne range, we should see revenues in the range of U$1.65B, or A$2.27B, costs will have increased to approximately A$658M, which will yield a profit of A$1.61B, or A$0.67 per share. That should yield a SP of A$13.07 and a dividend (again, based on a 30% payout) of approximately A$0.20 per share.

I appreciate that there is a fair bit of estimation involved in this, but based on the data that is available and market AVERAGES, this is what I am basing MY investment decisions on. I could be woefully overestimating things, but if the SC6 price were to hit U$8,000, as it has done, recently, LTR could make enough profit to meet my estimates in ONE YEAR, instead of three, and I could be drowning my sorrows for being so far off in champagne!

Best regards to all, and have a nice weekend.