Comparison, page-125

Barwood provided a good comparison between PLS and EMH costs and revenues. Imo it showed that the Mcap of the two companies should not be as starkly different as they are.


Your response to Barwood’s comparison sought to talk down the value of EMH by making two points:

1. Firstly, you point out that PLS is an indicated reserve and EMH is inferred reserve. Imo this is a valid point. A company with an inferred rather than an indicated resource under the JORC Code will have a lower value.

1. Secondly you suggest that the 514Mt number doesn't include a tin component so nearly half the revenue (94million/233million) would be lost. This comment seems to assume that managers of the company haven’t got a clue what they’re doing in publishing the revenue estimate of $233m. If they’d made an elementary mistake like this they would be a laughing stock and it would have been pointed out long ago, rather than first coming to light via your comment on HC.

There is no doubt that:

• 99% pure Lithium Carbonate can be derived from Zinnwaldite;
• A tonne of Lithium Carbonate derived from Zinnwaldite will have about the same value of a tonne derived from any other source;
• The costs of producing a tonne of Lithium Carbonate will vary significantly from mine to mine, particularly where the source material varies from brines to pegmatite to other materials;
• The company has provided estimates of the costs of production from its resource and while they may not be accurate, there is no reason to conclude they are incompetent;
• The company has stated that it expects the net costs of production of Lithium Carbonate to be low in comparison to other existing mines.

So what do we have to explain the huge difference between the Mcap of PLS and EMH? It seems to me that the most important factors are:

• PLS is further along the path towards production and as a result has fewer uncertainties which may throw up negative surprises. PLS is aiming at commissioning in Dec 2017 and EMH has targeted production in 2018;
• For the same reason the PLS estimates of production and other costs may be more reliable;
• PLS has offtake MOU’s. EMH of course has the Tesla connection through its largest shareholder REM.
• The size of the resource is in EMH’s favour, but I agree that what the market will value is pretty much what is likely to be extracted in 20 years or so.

While these differences point to a higher current value for PLS, the extent of the difference is surprising and makes EMH imo look attractive by comparison at current values. That said, these are resource stocks with a way to go before production so there are real risks. If all goes even reasonably well they could be matched by real rewards.