This was going to be a long post with an elaborate model but I changed my mind. One thing that is very evident particularly across in another digital world is how poorly understood certain aspects of an investment in PLL and SYA are.
At this point in time
ONLY ONE COMPANY HAS AN OFFTAKE AGREEMENT and that is PLL (I've said that before and I'll say it again)
That agreement provides for the greater of 113Ktpy OR 50% of annual production (which ever is the greater). Now I don't really care whether we get the first 113Kt produced in a year or the last 113Kt produced. I don't really even care if the period starts Apr 1 or Jul 1, or if it is prorated on a Jan 1 calendar year basis. It simply doesn't matter to me. Why? Because I am SIMPLY VALUING PLL on a NTM (as in Next Twelve Months) basis.
Because PLL has an OTA this is simply a matter of following money.
PLL COGS (Cost of Goods Sold) = US$900 (actually likely less than US$900 as SYQ (not SYA) pays shipping to PLL location in Cherryville and why wouldn't SYQ want to save a few bucks if PLL says hey ship it to Port of Montreal for instance).
PLL ASP ... well that could be any number but for simplicity say it was $US5,900
PLL OCF (as proxy for EBITDA) = $5,000 x 113,000 = $565M
PLL EV (using 50% of Livent multjiple) = US$4B and since no debt MC = US$4B which is 4x current US$1B MC and implies US$230/sh
That EBITDA and CASH flows directly to PLL and only PLL because of the OTA.
Now for SYA it is a whole different story, THERE IS NO EBITDA or CASH flowing to SYA. IT FLOWS TO SYQ and more than likely STAYS IN SYQ AS RETAINED EARNINGS. Estimating the EBITDA for SYQ isn't quite as straightforward. Sure, SYQ has the revenue from PLL buying its ore (US$101M) and from whatever remaining tonnage SYQ sells on spot market.(sure I heard what BL said at AGM. Also heard his prior interviews too) whatever number that is From that SYQ will deduct costs (which while we can say LoM costs are US$590 its going to be more in the first couple of years for sure - always is). But that EBITDA and CASH is not SYA's it is SYQ's. And SYQ is paying multi $M to Hatch for PFS and from there likely a DFS and then likelly a FEED for an unknown sized carbonate plant upgrade or maybe a greenfield hydroxide plant as well as drilling Jourdan (OK only $10M). What I'm pointing out is SYQ needs lots of FUTURE CASH for CAPEX and thats why I believe the money stays in SYQ as retained earnings. I see ZERO CASH FLOWING to SYA from SYQ in the next 12 months following NAL going into production (perhaps even longer).
Couldn't SYA sign an offtake agreement with SYQ too? Well yes sure ... but what form would that that? That's a commercial terms agreement the JV has to agree upon ... and what's the difference to SYQ selling to say GM versus selling to SYA ... SYQ has to maximise the JV opportunity ... just as was done in Jan 21 or so to capture guaranteed cash flow and de risk the acquisition of NAL.
I hold SYA only because I want 100% project exposure to NAL spodumene production. The PLL OTA gives me 50% right away (plus 25% of the remaining 50% production). I get cash right away with PLL and OTA plus a future distribution (of 25% of the $900 payments and 25% of spot after reinvestments). With SYA I'm getting 75% of the balance of the cash in SYQ after reinvestments. Its when and how that is different. And Moblan might be the monster but in so saying it will also gobble montrous amounts of Capital (and IQ contributing 40%).
So as I look at it RIGHT NOW ... following the money ... PLL shows investors the money well in advance of SYA. Whether or not this is the realization behind the constant shorting discussion on SYA who knows but PLL also has high short interest. Whether that changes in future when cash is flowing into PLL from the OTA remains to be seen.
FTM-FTM (Follow the Money i- Future Twelve Months)
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