Discussing valuation

This has been a bad stock not a bad company or bad management. It takes a great deal over many years to get a mineral resource into production, not least in a fledgling industry in a complex jurisdiction, . They are into production in a market that whilst uncertain in the short term has great long term fundamentals to be met with a huge long life mine supply. 

What was wrong, simply, was the stock valuation. But this was totally typical of the exploration phase and the hype surrounding it. Not management’s fault.

At a current market cap of $551m with a projected $100m plus cash after expected cash burn this quarter, the Enterprise Value is circa $451m. For a super long life, sector leading, low cost mine serving a growth industry and with optionality in value-add battery production plus vanadium, I reckon the valuation is now way too cheap. They should be earning ebitda of $75million plus in a couple of years. Generating large free cash, coz tax relief and no interest burden. That is a massive projected free cash flow yield. The elephant in the room is the Chinese. What they would give to secure a long life low cost graphite resource given their projected supply constraints is the interesting bit. If the asset was on the market now, and the disappointment and valuation make it vulnerable, then a bid would start at $1 billion I believe which, adjusting for the cash would be at over the $3.50 share price. So, in my view risk reward clearly favours it now. Reminds me of Lynas 18 months ago as it ramped up production. Plenty of risks to fuel the short selling but then as production ramped up and optimised, the share price tripled in the subsequent 15 months