No worries, if you go back to the post it talks about NPV and market realities as well from a valuation perspective. Now, the estimate I hypothesised is 2.6 mt per annum of 6% spodumene concentrate (assuming the ore grades 1.5% Li20 at 80% recovery so correct 13 mtpa feed) per year and the comparison is PLS with a 2 mtpa ore feed, grade 1.26% Li20 contenet and 77% recovery as per the feasibility study there for 314,000 tonnes per annum of 6% spodumene concentrate). I stated both output levels in the post as you would know. Obviously for AVZ a key would be how will production increase over time, as I doubt it could start at beyond 1 million tonnes per annum 6% spodumene concentrate in 2021 for example, but can it rise and how fast can it rise without sinking the spodumene price and hence affecting project economics assuming there is a commercial resource here? These are important questions if the hypothesis here, and assuming we have a JORC resource, is this will be taken over by the Chinese as I alluded to in that post you are commenting on.
Now the point of the post was the potential is possibly there if JORC is proven for AVZ, but can the market absorb that amount of output from AVZ (i.e. what would AVZ like to sell and what can it sell without adversely impacting the 6% spodumene price too much). The growth market for hard rock lithium plays is in part the lithium hydroxide market (where brine currently cannot currently appropriately compete because of its impurity issues but that might get resolved over time but SQM move into KDR puts a question mark over brine in the hydroxide market IMO).
Now size of the resource from a takeover valuation perspective, in part, becomes irrelevant for AVZ if the market cannot accomodate the increase supply to the level AVZ would like in a timely manner, but obviously if AVZ can access the tin credits, then even an ore feed of 5mtpa for 800,000 tonnnes of 6% spodumene concentrate is still fine but obviously for a longer period of selling time. So, if the market can't take 392 MT of ore feed over 30 years or even 60 years to produce 6% spod concentrate then whether AVZ has a 1 billion to 2 billion tonne ore feed resource is irrelevant IMO from a valuation perspective (if the intention is for the Chinese to takeover the company as discussed here). The Pilabara for example has 300 years supply of iron ore, and some non-producing tenements holding large swathes of ironore are not worth that much because the market cannot absorb that production.
I am not too worried about chemical plant size because plants adopt with tested configerations improving, and you only have to look at the LNG sector to see LNG trains moved in scope from initially 2 million tonnes per annum back in the 1980s to 5 million tonnes per annum configerations (and ability to add trains together) in the 2000s to see configeration issues in terms of millfeed can be resolved (especially when the Chinese are involved), and I would assume the same would happen in the lithium sector technology wise.
The question becomes is demand growth of 6% spodumene concentrate world-wide in demand sufficient to allow AVZ to achieve production at a 'high' level in light of and in comparison to other hard rock plays such as PLS coming into production, or is the anticipated AVZ production profile longer given you may not be able to produce what you would actually like to produce say in the first 20 - 30 years. Note also the longer the production profile and lower production outcomes in the first 10 years (i.e. you spread production over 60 years say instead of 30 years) then in a discounted cash flow model this reduces the NPV given the time value of money and hence takeover price.
In part my ramblings of last night were also designed to draw out debate whether market conditions are available to maximise your development potential for AVZ in a 30 year production window rather than a longer production window because thereafter income streams in a discounted cash flow (i.e. profit) model is pretty low on yearly basis on any profits post 20 years in a NPV sense. So size of resource, which people are debating here, IMO only matters when demand can accomodate the potential supply and this is something I haven't seen that discussed in this thread. That is if PLS is producing 314,000 tonnes of 6% spodumene concentrate (from 2mtpa ore feed) can the market accomodate a much larger 6% spodumene concentrate output from AVZ (meaning a higher ore feed). I suggest yes but I doubt it will be beyond 1 million tonnes per annum in the first few years, but other can decide.
IMO there is a lot of ramping going on on this forum, but first we need to establish a JORC and secondly the asset valuation (takeover price) is really dependent on the timeline the market will need to absorb that output (given an oversupply in the market will adversely impact price and a NPV calculation so it boils down to the strength of lithium (and in particular hydroxide) demand which then boils down to demand for batteries etc etc etc
Another way to say it is if AVZ's resource is 10 times that of PLS it doesn't matter from a valuation sense if the only viable production profile for AVZ is only slightly bigger than PLS's planned production profile. All IMO
Ramblings from an empty beer stubby.
All IMO
AVZ Price at posting:
12.5¢ Sentiment: None Disclosure: Held
