I like that you are out looking for opportunities. No doubt PLS itself and through it's engaged agents have been scouring as well.
What intrigues me is you have come up with a potential target that wouldn't make much of a dent in the cash balance. Not trying to knock as I like responses that add to a discussion. It does demonstrate though, to a degree, the lack of high ROI opportunities for acquistion.
My initial reaction to that company, Alkemy, as a TO target is multifaceted. On the face of it, their Port Hedland aspirations merely look to roast and leech Spodumene Concentrate to value add before shipping to Europe. From there they would like to value add again by building a converter to process lithium sulphate (from PH) or lithium carbonate (any number of sources but most likely South American brine based Li2CO3) to hydroxide - we're basically talking about the back end of a converter in Europe and the front end with the kiln etc in Port Hedland. On a personal note I think some people are confused by conversion steps (not suggesting you personally) and don't quite understand what is required to produce Lithium Sulphate as an intermediary and then refining Li2SO4 or Carbonate to Hydroxide. I'd encourage readers to spend some time investigating if they find that sort of thing interesting. In a nutshell the really technically difficult part comes after the roasting and the leaching which is why an intermediate product like Lithium Sulphate is very tempting for miners without chemical experience. Dig, roast, leech and ship. It is that latter stage of the process that Chinse operators have mastered and have a significant competitive advantage.
From a PLS perspective, the company is already well advanced in evaluating a novel approach to decrepetation and extraction to Li2SO4 with Calix (the traditional method involves heating Spodumene until the crystals "shatter" from an alpha state to beta in which the lithium can then be leached with acid to result in a lithium sulphate solution. Alternatives like pressure leeching are also being explored, but the gist of it is that SC needs to reach around 1050°C to enable the alpha to beta phase change for lithium to be extracted - that is the decrepitation part).
So the question for me is what is to be gained by PLS from that acqusition? I'd argue that PLS is further advanced down the intermediary road through Calix and has always had the option of a traditional kiln approach like Alkemy.
I'm not sure how many are aware but there has over time been significant issues relating to waste at Kwinana etc. It has been a major cost consideration - does it go to landfill at great expense, or is it "cheaper" to truck it back to Greenbushes? Would a kiln at Port Hedland to produce Li2SO4 pose similar problems. Of course sales of SC to China have never really raised these concerns given the lax enviro considerations for lithium refineries.
Naturally the Europeans will prefer to have limited "waste" and into the future that will be an increasing topic of discussion as they inevitably turn to actually refining SC on a mass scale. This is required to reduce dependence on China to feed the cathode / battery plants in Europe.
The natural answer to me is if an intermediary Lithium Sulphate path is chosen (and let's face it, in Australia from a competive capex and skills based perspective it is a better option than converting to salts like Li2CO3 or LiOH.H2O) do so at the site. In many regards PLS appears more advanced than Alkemy for intermediary salts and would likely have a more attractive IRR than the Alkemy feasibility study (integrated & on site without having to source SC from 3rd parties).
So what would PLS be acquiring by spending on an acquisition like Alkemy. Is there some sort of personnel talent they would be acquiring? Does it open up the option of building a Li2SO4 refinery in the UK by way of progress made re permitting etc there by Alkemy?
If reports are accurate, PLS is interested in a converter JV with an experienced operator. I'm not sure Alkemy fits that bill. Reports suggest PLS would be interested in a refinery with capex in the region of $1b. How large a refinery very much depends on where. On the face of it, what PLS most certainly do not want is to have to learn the difficult ropes of the latter stages of conversion and would much rather an experienced operator take the lead. I think it is also clear that doing so within Australia has proven to be a costly mistake for others and PLS is not interested in investing in an Australian Hydroxide refinery.
So, I would imagine PLS would be content in not being the operator of the chemical plant but would be wanting close to a 50% economic interest. Given the nature of government grants and ability for government backed / arranged / guaranteed low cost financing in a global arena where nations are competing to attract such projects and given PLS would be ensuring supply of SC, it is possible that the actually cash requirements from PLS for a 50/50 JV would be a mere fraction of the $1b price tag of a project.
So this once again brings me back to the question of what is available as an acquisition and what might be an acquisition simply because PLS has a pressing need to reduce cash and put it to use. I may be wrong but acquiring Alkemy could be an example of spending because the cash is available and there is pressure to spend.
It is a difficult task facing PLS and short of having identified a multi-billion dollar cash only acquisition (or even cash plus script) for a project of which there are few that would provide a solid ROI, I do believe that of the options available to PLS, returning capital to investors to the tune of as much as $2b may be the best way forward.
On a personal note, in terms of organic growth, I'd like to see PLS putting some focus towards acquiring juniors within Australia where sovereign risk is low and permitting is far less difficult than say a jurisdiction like Canada. Some may say PLS already has enough resources at Pilgan/ Ngungaju to negate such a need, but mining is PLS strength and another location could be a solid ROI. The trouble is the sheer number of well funded companies buying in at first signs of a viable strike making any TO bid quite costly.
I'd like to see PLS developing new greenfield mining sites within Australia and having experienced / well resourced JV partners operating refineries internationally. That is PLS strong suit. Getting in before others have acquired blocking stakes... well I don't think that is PLS's forte.
If we are talking about cash on hand, rather than cash balance after taking into account debt, then PLS is fast approaching the $4b mark. I strongly believe that in the absense of an identified multi-billion dollar acquistion, PLS can easily trim that $4b by $1.5-$2b through dividends/ buybacks and still have enough cash in the bank to satisfy even the most risk wary of investors and allow for further inorganic growth if the opportunity arises. As for paying down debt, considering the excellent terms I'm comfortable with PLS maintaining it, as long as excess cash is dealt with appropriately.
$2-$2.5b cash on hand is still a monster buffer. As previously posted, there is a potential in identified / potential growth projects that would require up to $1.2b in the next couple of years - but keep in mind PLS operates on the far left hand side of the cost curve for Lithium miners and it is extremely unlikely they would find themselves in the position of having to sell below cost again. PLS will remain cashflow positive.
PLS is a mature operation and newer SC projects tend to have significantly higher costs. Chinese Lepidolite is far more expensive again. Also keep in mind that PLS has undertaken a monumental earthworks programme during the more recent periods of high SC pricing to future proof cash costs of production.
@SF@HC please correct me if I'm wrong about Alkemy and what value they could add that I'm missing.
(20min delay)