The way to look at spot pricing is that it provides a guide as to whether your long term contract prices increase or decrease. Where spot prices are above your long term contract prices you expect to get a higher price for your long term spodumene sales (particularly if your hydroxide and carbonate prices are rising). You need sustained increases in hydroxide prices and carbonate prices to get higher spodumene prices - take lithium hydroxide monohydrate, it needs 6.5 tonnes of spodumene to produce it before we talk about the plus US$3500 per tonne processing cost and other costs thereafter -
Post #: 55299282 And vice versa where spot prices are below long term contract prices.
Now, when you have spot sales, it means you have product to sell in excess of your long term contracts, or another way to say it your long term contracts are not 100% of name plate capacity. Even PLS is selling the bulk of its product under long term contracts, and doing so by way of negotiation taking into account movements in hydroxide and carbonate prices - i.e. its contract prices are not fixed.
Now this is the point - for greenfields projects requiring capex funding to meet its mining plans, well financiers do not give money if you do not have long term contracts in place so that too me is the key as to how initial pricing say for the 2.5 mtpa facility might work. And first buyers of product know that too so will not be negotiating prices at today's spot sale. Furthermore, maybe for expansions funded from cash flow you might decide to not sell all that expansion product under long term contracts but some under spot sales, but LTR is not there as it needs access to capital markets - saying using cash flow to fund expansion increase like what the DFS seems to be proposing. But after entering production and if all goes good, certainly selling some product on spot to take advantage of any price mismatch between spot and long term certainly a possibility which is what PLS is doing.
The other thing about high spot prices is that it is a trigger for new supply, and as new supply comes onstream prices drop. It is simple economics, because right now at US$1400 per tonne price assumption virtually all prospective greenfields projects would be viable and that means buyers can underpin those projects where pricing is more reasonably based than prices in the LTR DFS, noting long term contract prices
At the end of the day, spodumene pricing in long term contracts is generally by way of negotiation at each sale taking into account movements in the hydroxide and carbonate price. Generally speaking spodumene prices historically have been about 5.5% - 6.5% of the average of the carbonate and hydroxide price. These posts I did a while ago explain that concept too-
Post #: 49713811 and
Post #: 49705729LTR DFSI thought the LTR DFS was a good read, but one thing is clear is that its feedstock is 1.3% Li20 average, meaning you need 5.8 tonnes of ore at a 80% recovery rate to produce 1 tonne 6% grade spodumene. That average is not much more than PLS, despite having some very high grade sections. I would expect more drilling here btw to to get higher Li20, but the DFS has to be written on the MRE they have and so be it, albeit surprised a little that some inferred resource was also used. But as I said the more drilling they do, the more METs you would see movement into the measured and indicated resource and from there to the proven and probable category as per the JORC code requirement.
The other point is one can debate the underground mining cost but it is what it. In terms of the share price has overshot argument I don't have much more to add that the comments below in this post, which are still relevant in terms of the DFS -
Post #: 56183644 Other can play around with the numbers in the valuation post I dis for the previous PFS and scoping study - in there you can see where I value current SP depending on NPV, but IMO the market seems to be pricing LTR as a transition point between NPV valuation and EPS valuations IMO IMO. I won't bother updating my previous analysis but if anyone wants to well the methodology is in these posts when I looked at the previous Scoping and PFS studies -
Post #: 51260256 and Post #: 51260846Above comment attributed too me around I presume concernsI guess you have to have faith in what management has said around METs and underground mining. I have always said LTR will get to mining and I congratulate those SHs here who held firm from below 10c. Hope you all enjoy retirement etc. In this peer comparison thread, where I post a bit, this post gives some views around underground mining and METs etc for LTR, in addition to a few other companies, with that thread I use to post comments on other things around lithium etc etc and other companies -
Post #: 54283727All IMO and all the best.
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