Day to day discussions on S/P, page-5174

Regarding$15 - $20 sp forecasts, I believe these peeps are looking out long term, 5 years......, and I will 'never saynever', but a lot of things would have to fall into place for this tohappen, so agree more than a bit of a stretch atm. Thosethings that would need to fall ito place are as follows;

1. Thereare a lot of Li projects listed on global exchanges, however, many wont get aticket to mine due to economics, and thus, expect only            about 15 to 20 projects (which I have revised up from 12 to 15earlier this year, due to demand I see coming) to dominate the sector. This              being the case, PLS is likely to be #3globally (more on this below). Those less advanced projects/deposits withreasonable economics will be        TO or JV targets for the said 15, allowing those 15 to grow / maintain market share viaaquisition.

2. As above, PLS will likely be #3 once at nameplate on stage 2 (mid 2020 calendar year). At stage 2 nameplate, PLS will be producing 100ktpa       of LCE. If you compare this to SQM current production of circa 50ktpa (trying to expand to 70ktpa), SQM have a current enterprise value of just     under $12 bill. If this valuation is resonably correct, what value do you put on PLS with double the production of LCE units. If we assume that all     PLS offtake partners stick to their word and we JV on downstream hydroxide, lets say on a 30/70 basis (30ktpa LCE), there will be two product     lines, 840ktpa of spod and 30ktpa of hydroxide. That being the case and using US$800 pt for spod and US$16k pt for hydroxide (cost for spod       US$250 pt and US$9,800 pt for Hydroxide) you arrive at EBITA of US$648 mill (AUD $881 mill).

   A few weeks back, Deutsche Bank valued SQM, ALB, LTHM on 10 to 11 x EBITA. So if we use 10 on the above PLS numbers, you arrive at a       valuation of AUD $8.81 billion. $8.81 bill / 1.74 bill shares on issue, thus an sp of $5.06. However, if PLS continue to grow their resources at           Pilly, Frisco and future aquisitions, its possible they could develop their own hrydroxide capacity, feeding that plant at a combined cost (spod         mining and processing cost) at US $5,125, thus margin of US$10,875 pt (AUD $14,790) x say 30ktpa = additional AUD$444 mill in EBITA x 10       = valuation of $4.44 bill / 1.74 bill shares = $2.55 per share, thus sp total of $7.61, which is half way to $15 forecast.

3. The infamous MS research note in Feb this year, had demand at approx $560ktpa and supply at 700 ktpa by 2025. For example, MS were            expecting 185ktpa from SQM & ALB for 2019 f/year, we are now almost half way through the 2019 year and those numbers will likely be only        90 ktpa if all goes well for SQM, given ALB has postponed their expansion in Chile.

   

    So supply continues to surprise on the downside and demand to the upside, with recent forcecast from UBS with demand of 1,015ktpa and            supply between 700 to 800 kt by 2025. So its obvious that the market will remain very tight, with demand outstripping supply and thus Li prices      remain high at current or higher levels. While everything is easy in retrospect, dont underestimate the S curve, given we are only at the start          of the EV and ESS S curve, and if history is any indication, mass adoption could be on its way sooner than you may think.Therefore, demand        could significantly outstrip supply, which could slow the pace of adoption, but certainly keep Li prices elevated.

    I understand kikker stating (not estimating) the potential of spod prices in the range of US$2,500 pt when the S curve kicks in. Thats roughly         163% higher than current prices (i.e.$950), so lets pair those back to say US$1,500 pt, thus an increase of 58% and same for hydroxide to              US$25,280 pt, roughly same as March 2018 China prices, so not out of the question. Using these spod and hydroxide prices, stage 2              production including 30% hydroxide JV's would see EBITA at US$1.44 bill x 10 = US14.4 bill valuation (AUD 19.58 bill) / 1.74 bill shares =              AUD $11.25 per share.

    Now lets add our own 30ktpa hydroxide plant numbers, at a margin of US$20,155 pt (AUD $27,411). AUD $27,411 x 30kt = EBITA of $822 mil        x 10 = $8.22 bill / 1.74 bill shares = $4.72. 

    Thus total share price of $15.97, which is inline with Kikkers numbers.

Note that the margins on our own hydroxide plant are as follows;

- 8.5 tonnes of spod to make 1 tonne of Hydroxide at a cost of US$250 pt (AUD $340), thus AUD $2,890 (from mine straight to hydroxide)

- US $3,000 pt to process (AUD $4,080)

Note that I haven't included any capex in the numbers either, which at said Li prices would see a reasonably quick payback period, say all done and dusted in 5 years from now.

Therefore Kikkers 5 year outlook of $15 to $20 p/share is not impossible. But once again, many things would have to fall into place, particularly downstream hydroxide strategies. Further, many things are out of the companies control both possitive and negative outcomes, but the key driver will be demand as the current tech and sector matures over the next 3 to 5 years. 

IMO, the li prices I have used above are not out of the question, and my numbers are a mix of company provided forecasts in terms of tonnage and cost pt, analyst reports and public available information, whereas the PLS 100% owned 30ktpa hydroxide plant is just a wish from my perspective, but I do expect management to be under pressure to execute on the downstream front, given that's the way everybody is going (i.e. SQM/KDR, ALB/MIN, Greenbushes/ALB/Tainqu etc).

Thus, AIMO, not advice, DYOR, Dream of what could be, and enjoy your weekend.