AVZ - Future World No.1 lowest cost SC6 Producer

Happy New Year all,

Hope everyone had a fantastic and relaxing Xmas break. Santa certainly delivered AVZ holders something quite special at the end of 2020 in the form of a binding OT with Ganfeng.
   
Along with a couple of other proactive shareholders (and a big thanks to @Royal_Viking btw for some truly excellent work behind the scenes) I had been busy lobbying specialist Lithium analysts far & abroad to show them the logic in recognising the significance of this new AVZ Ganfeng deal, and I guess asking them to give AVZ, the DRC and Africa (as a major Lithium hub) some love and respect that each entity deserves.

For too long, AVZ has either been avoided or disregarded in most of the Lithium stock discussions, comparisons & conversations had among many analysts, but thanks to AVZ's first binding OT (with Ganfeng!) and some proactive lobbying from shareholders, I suspect that this will no longer be the case moving forward.

Benchmark Minerals, in particular have now committed to providing coverage of AVZ from early this year and SD Moores privately acknowledged that 'AVZ has gone under our radar until now really. I had a reference point maybe 3 years ago but feels like AVZ is different now. Thanks for your help on this.'   



Howard Klein from RK Equity also chimed in after the above tweet, and although it appears he chose to ignore some sound words of wisdom (circled in red in my reply) I do thank him for the free publicity - albeit predictably he couldn't help himself  by using the opportunity to mock AVZ & portray the stock & myself as a Gorilla (LOL), not to mention taking a swipe at AVZ's highly professional & motivated management team by portraying them as Wild Dogs in a 'Bungle In the Jungle' African crusade, instead of actually interviewing them.




Understandably, Howard's rather immature commentary (and lack of professionalism on this occasion) raised quite a few eyebrows in the Lithium community, particularly among those who know and have followed AVZ closely. In the end however (and he can't say that I didn't warn him ), he has done his reputation (i.e. as a serious Lithium analyst) no favours whatsoever IMO, given that much of his commentary was clearly 'one-eyed'. An example of this was burdening a $3000 carbonate price on AVZ to suit his theatrical spin & biased, americanised view on life... and obviously seeking to make his own investments (eg. PLL, EMH etc.) and RK Equity business interests look more appealing by having a set of higher no.s reserved for so called 'Triple A Sovereign risk' jurisdictions like the United States.

The below image and stories are two examples of what 'Triple A Sovereign risk' can look like in the US.



I suppose I could have rebuked Howard's message in detail, and quite frankly torn his article to shreds with counter evidence. However, I thought @Scarpa (post 49911604 ), @BlueSkies1711 (post 49903299 ) and other knowledgeable commentators did a splendid job highlighting the weaknesses and inconsistencies in Howard's argument against AVZ, so there's probably no need for me to elaborate any further.

To Howard's credit though, the one thing he did acknowledge in his Linked in article dedicated to AVZ was; 'But if AVZ pulls it off with a well-financed European partner, it could be a lithium industry game-changer' and afterwards privately re-iterated that 'If AVZ can pull debt off with development banks and equity from credible Europeans they have a chance. Would be a great irony if AVZ SC6 makes its way to North Carolina for Piedmont to process for Tesla' (dumping the waste in Lowry's backyard LOL).

To summarise the above, the international exposure and free publicity for AVZ (good, bad or indifferent) was at the end of the day, worth the trouble and is great PR for AVZ.  

In general, am always happy to keep the discussion real and dispel or challenge the main concerns and myths (from holders and non-holders alike) in a hopefully thoughtful and non-provoking manner. Inevitably there are (and will always be) non-AVZ Lithium stock holders who are clearly not happy about AVZ's recent success and so I understand the temptation for holders to bait or bite back.

BUT despite a few of the notorious trolls on social media still lingering, I expect that these individuals will either
a) grow tired & become less of a distraction on these threads as the year rolls on or
b) they will finally see the light - as I am sure our good friend Howard will too someday in the not too distant future i.e. when AVZ is ready to 'show him the money!'.  
  
Moving on, congratulations to all the holders who held through the dark times (the 2.5 year Valley of disappointment - refer to post 49636103 for illustration in a previous AVZ monthly chart) and IMO every holder should be encouraged and possibly a little excited by what's happening now (see charts, tables and commentary below also involving the title of this thread) and more importantly what is still to come - refer to the ten or so potential short term catalysts below.





Ten or so potential early 2021 catalysts for the SP:

* Coverage from 'respected' specialist Lithium commodity/chemical analysts.
* Further coverage soon to be initiated by prominent/general 'commodity' analysts IMHO
* Tin OT (current Tin price is US$10,642/t above DFS LOM price estimate = additional US$770m in Gross Profit. As by-product credit, drastically reduces OPEX of SC6 production - see below)
* Canadian Sulfate Testwork results and update on potential OT suitors* Completion of Pit floor drilling (1.5 holes remaining last time I checked) and confirmation of drill core samples being sent to Perth.
* General onsite & early works update.
* Project Finance update - indicated by NF to be 'early in the New Year'   
*  2nd and possibly 3rd Lithium OTs
* SEZ update (post recent ministerial reshuffle etc.)
* Left field announcement? (my spidey senses are tingling again, and come to think of it I do wonder if any of JC's connections - one specifically mentioned in posts 43621057 & 43614193 earlier in the year - have either started or are close to completing their due diligence via AVZ's data room?)


AVZ the future No.1 lowest cost SC6 producer (and yes it's all about the Tin credits)



Fun fact: an albeit still underexplored Manono (in terms of total Tin resources and reserves) currently contains 288,000 tonnes of Tin resources (~5% of total global resources - more than AVZ's Tin specialist & DRC neighbour - TSX listed AFM) and 92,000t of Tin reserves (~6% of global reserves). Some impressive standalone stats for a 'side project' contained within and around the world's largest spodumene deposit.

Thus, the significance and importance of AVZ's two large positions within two relatively small commodity markets (Tin & Lithium) cannot be understated and with Tin currently at ~US$21,135t (update: over $US21,300 as at the time stamp of this post), the current impact on AVZ's potential profitability is profound, and in itself a fabulous Christmas & New Year's gift for shareholders IMO, albeit an unrealised one at this stage of the game.

To put the current price of Tin into perspective, a US$11,180 per tonne increase on the April 2020 DFS assumption (US$9955 over LOM) generates an additional US$813 million in Gross Profit. To put it another way, I ran a quick calculation based on forecasted SC6 production for LOM and it turns out that Tin (as a $21,135/t credit) reduces Manono's MAIDEN DFS cost of SC6 from US$371/t to US$270/t, confirming AVZ's potential to be THE WORLD's N0.1 LOWEST COST SC6 producer, ahead of Greenbushes at US $291/t.



Here are the US$270/t calculations (figures as per AVZ's DFS or where not available, my cost assumptions as indicated):

Tin production and revenue
Roche Dure Tin production over 20-year LOM: 62,699 t
Artisanal Tin production over 20-year LOM:  12,659 t
Total Tin production: 75,358 t x US$21,135 /t = US$1.593 billion in revenue (Tin credits)

Artisanal Tin processing costs  = US$76 million over 20-year LOM (refer to table 3, Page 6 of 20 of DFS Summary). $76 million / 12,659 t = US$6000 /t  
Roche Dure Tin processing cost est. (assuming same cost/t as Artisanal Tin cost/t here as Tin processing costs at RD are integrated into overall OPEX & therefore not available as a standalone OPEX estimate)
= US$6000 /t x 62,699 t = US$ 376.19 million over 20-year LOM.
Total Tin processing cost est. over LOM: US$452.19 million   

SC6 only costs over LOM: US$4.208 billion (refer below table)
US$4.208 billion / 11,354,174 t (SC6 production over 20-year LOM)  = US$371/t (also below)




SC6 costs per tonne after Tin credits:
US$4.208 billion (total SC6 only costs over LOM as per the above DFS table)
+
US$452.19 million (total Tin processing cost est. over LOM based on US6000/t):
-
US$1.593 billion (total Tin credits over LOM based on US$21,135/t Tin price)

= US$3.067 billion

US$3.067 billion / 11,354,174 t (total SC6 production over 20-year LOM) = US$270/t = World's lowest cost SC6 producer.
  
What more could a serious Lithium investor want?

Well as it turns out,  Lithium's jewel in the crown (aka Manono) has potentially much more to give. Importantly, the US$270/t cost (of SC6 production less tin credits) DOES NOT INCLUDE FOUR other likely improvements (IMO) to AVZ's final cost per tonne estimate prior to construction, commissioning and production. These potentially very significant cost savings are IMO likely to come from;

1. Pit optimisation (following completion of current drill campaign and assay results due Q1),

2. Transport (potentially a halving of the standard transport rate cards - currently US$252/t avg.)

3. Processing efficiencies - AVZ conducting ore sorting study aimed at providing further efficiencies, and looking very encouraging last time I spoke to NF about this a couple of months ago).

4. Throughput - an increase via targeting a higher grade feed into into HPGR provides potential for a 10-15% increase in throughput, further lowering the cost of SC6 production on a per tonne basis.

So, as you can see from the above initiatives and potential outcomes, AVZ is on track to easily become THE NO.1 LOWEST COST SPODUMENE PRODUCER ON THE PLANET (IMO) - producing one of the cleanest / purest products on the market.

Therefore, if Greenbushes is currently valued at US$5.6 billion by IGO (~US$4.2billion valuation without the Hydroxide plant) then what should AVZ (potentially becoming the lowest cost SC6 producer and owning 75% of Manono) be valued at by the time Manono enters production in 2022/2023 with a Sulfate plant in tow?

IMO, certainly a whole lot more than 75% of Manono's current US$500 million valuation - which btw is less than a paltry 12% of Greenbushes 'mine only' valuation (i.e. excluding any value attributed to their Hydroxide plant).

Tin Reverse H&S pattern: Short term target of ~US$23,400 playing out nicely thus far and as predicted in 2020.



As for Tin itself, the future is looking extremely bright IMO. But don't take my word for it - check out this December 2020 video presentation from the International Tin Association - describing Tin's current and future applications and the likely impact on demand growth in the years ahead (hint: supply deficit coming, hence the current LME price re-rate).

Tin for the Future - London Tin Seminar 2020 - YouTube

One interesting learning is from this above video is that the average ICE vehicle uses ~400g. However, EVs are expected to use 4 - 5 x the amount of Tin that an ICE uses per vehicle.



Thus, 50-60 million EVs annually by 2030 (80% of all vehicle sales IMO - refer to post 48916751 for more information) using 1.6 - 2kg Tin per EV = 80,000 - 120,000 tonnes of additional Tin demand just for EVs (80-90% of which is not factored in ITA's growth forecast below)




AVZ vs selected Spodumene development peers:

A little over 3 years ago the SP was 25c (Nov 2017 average) and there were 2,216,539,071 shares (fully diluted excluding performance rights) on issue valuing AVZ at A$554m (though at one stage in January 2018 the company was valued at a record ~A$800m).

In the below table I've added an 'AVZ 2017' column to compare the 'then vs now', with the main differences being the no. of shares on issue and AVZ's share (%) of the Manono project. Interestingly, the negative/dilutionary effect of a higher no. of shares on issue (approx. 750m higher vs 2017) is almost completely negated /offset by the addition of a 15% increase in the Manono project (option to acquire from Dathomir).

For the purpose of the exercise, I've also assumed that AVZ had a JORC resource & DFS in 2017 so as to compare apples with apples on an NPV and EV/t valuation basis, though in reality AVZ didn't yet have a 2mtpa PFS (let alone a DFS) nor had it begun it's extremely successful 30,000m drill campaign which then paved the way for a mammoth JORC resource of 400mt at 1.65%. And of course, back in 2017 AVZ didn't have a game-changing binding OT with Ganfeng.

Nevertheless, and keeping the above facts in mind, a 25c SP in 2017 terms equals 24c in today's terms when comparing values such as project EV/Resource tonne and attributable premium/discount to project NPV. And yet, clearly the market has only just begun factoring these comparisons into AVZ's current market valuation of A$504m fully diluted (exc. perf. rights), or 17c per share which represents a significant discount of ~30% vs AVZ in 2017,

The other points to make with regards to the below table is that even at 24c per share, AVZ would STILL be trading a 32% discount to attributable NPV and a whopping 72% discount to ASX hard rock development peers on an EV/t basis, or a 57% discount after a 15% country risk discount is applied. Furthermore, looking at the market caps of LAC (A$1.85 billion), LTR (~A$800m) and PLL (A$575m), and its clear to see that AVZ can, in the short term, easily justify a re-rate to 20 - 30c per share (A$600 - $900m fully diluted) on a main peer vs peer basis.



AVZ vs Global Sample of Spodumene Projects ( x 9) in Development.

The above table also shows the current EV/t peer average for Spodumene developers at A$504 /t Li20 (as highlighted in yellow).

Below is a comparison of spodumene rock development projects on an EV/t basis as at 15th Dec. 2020. note: ASX listed FFX not shown but included in both peer average calculations to provide a more representative global average.



So what's changed in just 20 days?

Besides AVZ securing its first binding SC6 OT with Ganfeng , the spodumene development peer average on an EV/t Li20 basis has risen from A$357 to A$506. That's a group increase of ~A$150/t Li20. By contrast, AVZ has only risen A$47 (from A$51/t to $A98/t Li20). Therefore, at 17 cents per share, AVZ is trading at a whopping A$408/t Li20 (81% discount) under its peers.  Even at 30c per share, AVZ would still be 14% below its NPV and would be trading at a 61% discount to its peers (average) on an EV/t basis, so plenty of upside here IMHO.   

Two great Lithium companies:  Ganfeng vs AVZ chart - $0.80 SP target for AVZ, assuming it were to eventually match Ganfeng's 792% performance to date i.e. since it began trading on the HK stock exchange back in late 2018 and AVZ was trading at 9 cents.



Global X LIT ETF vs AVZ chart Note: The red lines in the below AVZ vs LIT ETF chart (used as a sector proxy) are of equal length and help illustrate AVZ's previous record gap (July 2020 & new sector uptrend confirmed) and AVZ's under performance ever since. Note the short term SP target (revised to 30 - 31c) just to maintain (not bridge!!) the July 2020 gap and still ~15% below it's all time high set back in early 2018.


That's all from me for the time being.

GLTA, Happy New Year again and very much looking forward to a prosperous and exciting 2021.

After all the Roaring Twenties aka 'Clean disruption of energy and transportation' (with just 11 million or so EVs sold out of a possible / market wide 1.4 billion cars and trucks currently on the road) has only just begun.





And don't forget:



PRESENTS

AVZ $1 Dance Party
Hosted by: @elphamale, @Royal_Viking and other LT holders if so interested)
Dress / Theme: Roaring Twenties - refer to The Great Gatsby party scene (link below) for costume ideas
Refreshments: Cocktails, VBs & Africa's finest (Amarula)



Music by: @qball (requests being taken prior).
Date: by 2023 IMO
Location/s: TBC (Australia &/or South East Asia)

The Great Gatsby Party Scene - YouTube

Cheers
Elpha