GLN (ASX) General Discussion Banter GLN

Originally posted by mondyinvest: ↑

I've realised an error in my thought process on the debt vs equity conversation so thought I'd correct it here.

In short, a large part of my thinking that Galan would have to rely on equity was driven by looking at how other ASX lithium players have funded their projects. The most recent examples of those who went from developers to producers are CXO and SYA. Both relied entirely on capital raises - that definitely flavoured my thinking. However what I've since realised (thanks to a gold junior I follow) is that it's likely these two companies were forced to go with equity because they were effectively rushing their projects ahead to get to market as quickly as possible; both Core and Sayona have taken what I would call shortcuts to production without slowly stepping through all the usual hoops. Debt providers will look very closely at resource models etc to ascertain that what's modelled in a DFS will prove true-to-life when production actually starts (and thus they'll get their money back). This has become apparent with goldie Tietto Minerals (TIE) who originally were chasing a large debt facility but in the end "decided" (*cough*) to go with equity. Fast forward ~18 months and the share price has crashed because the resource that was modelled in the DFS doesn't look anything like what they are actually digging out now they're in production - they simply didn't do enough drilling to prove up the resource to a level that debt providers would have found acceptable (and now they're having to do a bunch more drilling to prove it up, seeing the grade/tonnage reduce, etc). So unlike CXO and SYA who have rushed ahead and have since been punished, Galan's measured approach hopefully makes debt access more likely.

That said, I still think debt for an Argentinian development project will be very expensive (considering, like I said earlier, some US/AUS projects are being done at ~10% rates) but it's probably unfair to directly compare them to how CXO and SYA did things. Cheers

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Also both SYA and CXO were quite highly valued at the time. Makes total sense to go balls to the wall on equity funding if your MC is super high.

Given the rumours circulating with regards to LPI I have added them to my M&A charts - keep in mind that these rumours are yet to be confirmed. However, until then here is the Total Resources M&A chart:

This is the Measured & Indicated resources version:

Hopefully this is just the 1st round of negotiation (if the numbers from Bloomberg are even accurate) and the offer moves north from here.

Keep in mind that this is just the resource on the old code consessions, however the 21st January 2019 JORC compliant resource/reserve announcement that includes both old and new code concessions is not much different (i.e. it is 2.07Mt LCE vs 1.91MT LCE from their Phase 1 DFS shown in the charts above). In their Phase 1 DFS (January 2022) they said they have an additional 979kt LCE on the new code concessions but the problem here is that this is not specified in a JORC compliant way (i.e. it is really just a footnote to the JORC resource - see below):

Because this is just a footnote they don't actually specify the grade of this additional 979Kt LCE which makes it difficult for me to include (not just because it is not JORC compliant). However, if I assume the grade of the "additional 979Kt LCE" is similar to the overall average grade of the 2019 old & new code resource, which is 1167mg/L then I can add this non-JORC compliant resource in good faith. It would have been better if they split out old and new code resources in the 2019 release because then I could just use the new code grade which I suspect is higher, but they don't do this. Anyway, if I add in the additional 979Kt LCE resource then this is what it looks like:

There is an argument to say that the new code resource should be included in the valuation as Codelco will have access to those resources. However, equally there is an argument to say that it should be excluded because any other prospective buyers would need to obtain a CEOL in order to develop the new code resources and the pathway/timeline for doing this in unclear and therefore new code should be excluded from valuation. There is no right or wrong answer here, there is only perspective.

No matter which way you value LPI the current initial Codelco offer (if true) makes GLN look extremely undervalued.