Today i decided to look one more time further into the details and numbers of NPV calculations of GLN's HMW project and LKEs Kachi project and it
reveals amazingly contrast and interesting figures which help me make very important investment decisions and become even more confident that GLN is a very compelling case.
LKE's previous NPV = USD $1.05 billion, based on:- Extraction method = DLE technology- Annual production = 25500 tons of lithium carbonate
- Resource utilization rate = 90% (of the JORC Indicated Resources of 1.01mil ton LCE)- Average grade = 289mg/L Li- Recovery rate = 83.2%- Selling price = USD $11000/ton
- LOM (life-of-mine) = 25 years- CAPEX = USD $544mil (including contingency budget of $91mil, 16.7% of total CAPEX)
- OPEX = USD $4178/ton
LKE's new updated NPV = USD $1.6bil based on average long term USD $15500/ton. All other key factors remain unchanged.
GLN's NPV = USD $1.01bil, based on:
- For its HMW project only (Candelas project not used for this NPV)
- Extraction method: evaporation ponds
- Annual production: 20000 tons
- Resource utilization rate for NPV = 60% (of the JORC Indicated Resources of 2.267mil ton LCE)
- Average grade = 946mg/L Li
- Recovery rate = 58.5%
- Selling price = USD $11687/ton LCE
- LOM = 40 years
- CAPEX = $439mil (including contingency budget of $101mil, 30% of total CAPEX)
- OPEX= USD $3518/ton
- Del Condor and Pucara tenements were not included in the last PEA. They have been purchased and completed and will be included in the next NPV update. My rough estimate is an increase of 10% to the resource used for PEA from these 2 tenements.
There are some very major differences that draw my attention and help me realize that GLN is far more superior than LKE.
Annual production: GLN 20000 tons while LKE's NPV is based on 25500 tons per year. If GLN was to increase its annual production capacity to 25 tons (without reducing it LOM of 40 years, but through other means eg. higher recovery, higher utilization rate,..), then its NPV would at least increase by 25% or more (the reason i say more is because when you increases production volume, you will be able to reduce your unit production cost further)
Utilization rate: GLN utilized only 60% of its JORC Indicated Resources for its NPV calculation while LKE applied 90% rate to its Indicated Resources. If GLN was to apply 90% utilization rate, it would produce 50% more lithium each year for 40 years.
Recovery rate: LKE applied 83.2% recovery rate, using DLE technology. This means if GLN uses DLE technology from Lilac Solutions, it can also apply 83.2% recovery rate. That is 42% higher recovery of lithium (83.2 / 58.5 = 42%). Note: Lithium South Development announced a few days ago that it has achieved a 99% recovery rate using DLE technology from Lilac Solutions Inc.
GLN reserves a contigency budget of 30% to the total CAPEX while LKE puts only 16.7% of the total CAPEX aside for contigency.
JP is a humble and honest man and he does not seem to promote GLN or push GLN to the audience too much. He seems to let the market discover and learn about it by itself. Since LKE updated its NPV to USD $1.6bil using the new price of USD $15500/ton LCE, he can simply update GLN's NPV to around USD $1.6bil too, using new price of USD $15500/ton and inclusion of Del Condor and Pucara tenements.
So, let get into the figures:
- If applying 90% utilization rate of the JORC Indicated Resources, total production per year over 40 years will increase 50%
- if using DLE technology from Lilac Solutions like LKE does, then increase recovery rate from 58.5% to 83.2%, that is 42% more production
- Add the inclusion of the aboved mention tenements, production volume will be roughly 10% higher.
This is unbelievable change to the production volume from the same quantity of brine feed in the original PEA, meaning LOM is still 40 years:
20000 tons (original annual production)*1.5*1.42*1.1 = 46860 tons of LCE per years.
At that much quantity of 46860 tons of LCE compared to original 20000 tons, the total cost will increase but the unit cost (production cost per ton) will reduce very significantly. Original unit cost was USD $3518/ton, in this case scenario, i expect unit cost will be easily under USD $3000/ton.
So, how much extra money will be generated under this new scenario compared to original NPV? My rough calculation is:
46860 tons *( $15500-$3000) - 20000 tons *(11687-3518) = USD $422mil extra free cashflow on top of USD $117mil free cashflow in original PEA. That is total annual free cashflow of = USD $539mil versus $117mil.
$117mil free cashflow per year for 40 years was applied at 8% discount to generate USD $1.01BIL NPV in the previous PEA.
$539mil free cashflow per year for 40 years at 8% discount to generate how much NPV?
I show my calculation here to prove my previous statement that i believed GLN must be and will be valued at more than double the MC of LKE. Why? Simple answer here: LKE's NPV calculation was stretched to the best of the best scenario while JP was happy to set GLN's NPV under the worst of the worst scenario. There are of course some variances missing in the calculation above.
How could HMW project with 2.267mil tons LCE, at grade of 946mg/L Li be valued at less than another project with 1.01mil ton LCE at grade of 289mg/L Li?
GLN is far more superior than LKE in all aspects. It is stunningly better than LKE.
Ps;
The latest announcement of Lithium Chloride concentrate grade jumped 25% from 4.8% to 6% will help reducing many OPEX items including chemical reactives and re-agents which are the single biggest cost item, $33mil out of total OPEX of $66.9mil per year.
GLN's will no doubt be at least more than double the MC of LKE. And the latest research reports put LKE at a MC of $750mil with 12-month share price target of 73c. So, what should it put GLN's MC at?
(20min delay)