DISCLAIMER: This is not financialadvice. Do your own research.
OK, after watching GLN’s latestpresentation at SW Connect and the Webinar on the 11th, I’m personallystill not seeing and hearing a thorough explanation/presentation from Galan on justhow impressive the DFS results were and the real differential value of theirresource and their development strategy. Maybe its just me, but GLN released one of the best DFS’sin industry 3 weeks ago, and in my onion, I don't think they have not properly highlightedand advertised the Phase 2 DFS and its immense value & resilience, or explainedthe differential value of their low-cost, low-risk, fast track lithium chloridestrategy.
To be blunt, GLN’s marketing &investor relations communications over the last few years has been somewhat lacking, I won’t bring up the many gaps/issues, but I’m sure most investorswill agree, and it’s not common to GLN, many small caps struggle with comms. Kudoson Galan for being tight with the purse strings, but spending money on goodcomms is so important and worth its weight in gold. Professional, clear andregular investor comms is critical for a junior explorer, and unfortunately, theabsence of this with Galan has hurt us. I am convinced the lack of “telling& selling” of the GLN story and value proposition is part of the reason forthe share price& valuation being so woefully low and far belowany and all peers on a $/t LCE basis (ref: HOOPZ chart below - remember, HOOPZ's x-axes is a log scale not linear, so every line to the right doubles in valuation!). In my view, GLN needs to (theymust in fact) hire a dedicated inhouse Investor Relations / Comms Manager to doall this properly, rather than rely solely on JP (who I’m sure is very timepoor).
Yes,the Li macro mostly drives the share price trends, but Li macro does notdrive the valuation relativity between Li companies and GLN should at leastbe trading on par with peers if not at a premium! It’s unbelievable that wefind ourselves stuck valued at a tiny A$30/t LCE (EV basis, ref chart below), afraction of most peers, yet we have one of the highest grade/lowest impurityresources on the planet, and at huge scale, and furthermore, we are wellprogressed having started pond construction on Phase 1 (5.4ktpa LCE) andreleased a DFS on Phase 2 (21ktpa LCE), with theplans & theresource for future Phases 3 & 4 of up to 60ktpa LCE! Its no coincidence that companies with inferior resources/projects but superior comms are trading at higher values than us.
The mind boggles at the markets valuationmiss here on GLN and so it can only come down to the market not properly understandingwhat GLN has to offer. Also, when a development strategy appears “new” or “unique”,like GLNs chloride strategy is to many retail investors and some brokers(not new or unique to anyone in the Li industry), it’s then even more importantto clearly communicate and explain your strategy. Yes, Offtake and Fundingare critical issues reducing our valuation currently, but my argument remainsthat relative to peers (many far inferior or less advanced than GLN) we arestill way undervalued and that cannot be all Offtake and Funding related.
OK, whine over! All is not lost, I love GLN’s resource, I love theirchloride strategy and I love Daniel Jimenez, so I remain a strong holder. So, asa long-term Top 20 shareholder (and Chemical Engineer with MBA) who has technicallyresearched and economically modelled GLN in detail and more than almost anyoneover the past several years, I have decided to do some of my own investorcomms/explanations here for you all, for what it’s worth.
So, expect a longpost, sorry, as I brain dump all the key highlights I think of with respect to GLN.This will be in the context of me selling the company value and storyand so is not meant to be a balanced assessment/research (plenty of risks &concerns not mentioned, but hey you don’t highlight those when your sellingyour vision!) so don't come after me about being biased and with all the negatives..
THIS IS NOT FINANCIALADVICE, just myown personal views and research.… but feel free to copy and send this to family,friends, brokers and potential new investors; send it to the world, link it in X, shout itfrom the roof tops!!
So, when I think about the GLN storyand value proposition, I think of these 6 key points that differentiate us vs thepack;
1) Our world classresource & location,
2) Our low-risk, low-costfast-to-market development strategy,
3) Our premium indemand LiCl product,
4) Our outstandingproject economics & margins (driven by the above 3 points),
5) Our highlyexperienced & proven team, and
6) Our very strong govand local communicate relations.
So, let me talk about now each ofthem. I have a detailed narrative below on each of these key points, thatI then used at the end to summarise down into a single slide summary slide onthese 6 points = “Galan’s Value Proposition on a Page”. If I were then goingthe next step and building an investor presentation for GLN, I would simply usethis narrative and pick out the key takeaways/highlights from each section to createone clear & compelling slide for each of the 6 points above...simple and effective.
So grab a coffee, here we go…
1. World Class Resource &Location
GLN has a resource that every companydreams of in any commodity business = SCALE & QUALITY!
The reason this is the holy grail ina commodity business is that scale and quality (i.e. high grade, low impurities)equate to low cost-of-supply and in a commodity business, where you havevolatile and cyclical pricing for your product, low cost-of-supply alwayswins, always! This is because in times of low price you remain profitableand online producing, while higher cost operations often lose considerablemoney or even shut-in; and then during high price cycles your margins go nutsand your “value torque” to the upside is huge, far greater than higher costoperations. GLN needs to highlight not just HMW’s low cost-of-supply butexplain what that really means with respect to the resilience of the projectand company and reduction in risk it creates, not just from lower pricecycles, but also from cost/escalation increases. It’s also helpful to highlightthe project breakeven Li price to put our margins in perfective and completelydisarm the negative arguments about price assumptions and capex increases. HMWwill not just survive low price cycles, but it will thrive through these, andthe upside is nuts (re #4 below!)
GLN sure has the SCALEin Argentina; currently sitting at a massive 7.3MT LCE and in my viewthis is easily going to 10+MT once they add in the extremely Li rich northernCatalina area resource they just secured 100% clean rights to. What’s also criticalto highlight with respect to our resource, which doesn’t get enough airplayfrom GLN, is that a whopping 65% of it is already in the top “Measured”category! (72% of HMW resource) – EVERY time anyone from GLN mentionstheir resource it needs to be accompanied with the statement that the majorityof it is already Measured. This is incredibly differential for GLN vs peersand something I’m sure glossed over by many, our resource isn’t mostlyindicated or inferred like so many peers, we have drilled the crap out of itand have multiple short and low-term flow tests already completely and verydetailed hydrological modelling by word experts done (shout out to Alvaro!) -it’s the real deal and only going to get even better and bigger. In my world ofoil and gas, good reservoirs always get better; we have a saying that “goodrocks only get better”, and GLN sure has the best rocks!! GLN also has moreLCE than LTR (5.8MT LCE), Patriot (3.8 MT LCE) and Allkem in Hombre Muerto (6.9MTLCE); three behemoths in the industry that will all have lower margins thanGLN’s HMW simple Brine project, yet they are valued and many many multiples ofGalan. Fast Fact: Did you know GLN’s 7.3MT @ 852mg/L is equivalent on anapples-to-apples LCE basis as over 200MT @ 1.25% if it were a hard rock asset!
GLN also sure has the QUALITY,in fact we have the highest grade and lowest impurity Lithium asset inArgentina with a total resource Li average of 852 mg/L and higher grade inmany core areas, with a staggering 981 mg/L achieved at PBRS-03-23 from theirfourth long-term pump test. We also have extremely low impurities (Mg, Ca, SO-4etc.) which greatly simplifies and de-risks the evaporation process, reducingthe number and cost of reagents needed and making our premium lithium chloride. Quality matters! All those high capex unproven DLE projects out there are using DLE not by choice but due to their resources all being crappy low grade and therefore having no choice. Mark my words, if all these brine DLE projects had Li grades up anywhere near GLN’s they would not be proposing DLE! Our quality allows us to use a simple, proven, low risk, low energy and low-cost evaporation pond development.
HMW SCALE + QUALITY = LOW COST OFSUPPLY = EXPONENTIAL MARGINS ON THE PRICE UPSIDE AND PROTECTION &RESILIANCE ON THE PRICE DOWNSIDE.
2. Low risk, low cost & fast tomarket
GLN’s development strategy, which isa Phased approach, starting small and producing Lithium Chloride concentrate initiallyand not full battery grade lithium carbonate is extremely smart in myopinion. However, unfortunately it’s never been given the proper credit dueby the market and that’s because it’s still not properly understood by themarket. In fact, the opposite has occurred in my view and GLN has been unfairlydiscounted in the market because this chloride strategy seems like something“new” and people don’t understand it and its benefits, and when the market doesn’tunderstand something, it assumes its bad and discounts it!
Producing, and even selling, lithiumchloride is far from some something new, it’s the brine equivalent of spodumeneconcentrate, but with twice the Li content and higher margins!!! That’swhy Mr Lithium Joe Lowry coined the phrase in relation to Galan of “liquid spodumene!”.Livent have been selling chloride for decades and Daniel J, while at SQM, soldchloride to the Chinese for a decade! Its simply the front end of a fullLithium Carbonate development and stopping at high Li concentrate like GLNare importantly avoids the costly lithium processing plant and complex chemicalprocessing part to get to battery grade! It basically keeps GLN as a simplelow risk miner not a risky chemical company – a genius move given most ofthe value lies with the resource Li owner not refiner.
What GLN are proposing is allproven simple technology, with no complex chemistry and importantly no “firstof a kinds” needed, its simply ponds, the sun and then a couple of reagentsand filtering. And it can be done QUICK, so from first pond fill to firstchloride sales is only 9-12mo (depending on final target Li %). Another hugeschedule plus is that selling lithium chloride does not require any product qualification,a year+ long process that is needed before selling battery grade lithium carbonate. So we can get to sales much quicker andcheaper (and with much lower risk) under this strategy.
Starting small, with a Phase 1 of5.4ktpa is also a very smart move as it decouples the whole project schedulefrom the large-scale funding and permitting needed for the bigger20/40/60ktpa project. Important to note is that ALL the Phase 1 facilities (wells,ponds, plant) will be used for Phase 2+ and so Phasing the project like this andgetting the first permit and into construction on Phase 1 has essentially acceleratedand de-risked the entire development schedule! Have no doubt, the HMW projecthas started and is in construction; well before it would be if we wentstraight for a big 20ktpa development first up and were waiting for full scale funding/permittingbefore starting any construction. We also now have the ability to use Phase 1 cashflow to fund some of Phase 2 capex; a huge win! Phase 3+ will easily be fullyfunded from organic cash flow.
Back quickly to our simpleflowsheet with no complicated chemical conversion; this is such anunderappreciated advantage for GLN. Fast Fact: Did you know our process flowsheet simply involves adding tworeagents, Lime and Calcium Chloride and NO complicated chemical conversion.
Liming is where they add a slurry of limeto precipitate out Magnesium impurities as Magnesium Hydroxide salts = Ca(OH)₂+ Mg²⁺ → Ca²⁺ + Mg(OH)₂. And then the resultant calcium ions and further addition of the second reagent, CalciumChloride = CaCl2, will precipitate out the sulphate impurities as calcium sulphate CaSO4 (also known as gypsum). Easy,low risk and low levels of reagents needed given how low our Magnesium and Sulphate impurities are to start with (back to why quality matters and how it translates to lower capex and opex). Then it’s just time in the sun, 9-12mo, to deliver the 6% Li concentrate = 32% LCE or 13% Li2O equiv (2 x SC6!!).
3. Premium, in-demand LiCl product
As I said above, the LithiumChloride strategy is very smart genius in fact (thanks Daniel J) as it notonly allows us a lower risk, faster to market development solution per theabove, but it delivers a premium, in-demand product that we can, andwill, get a premium price for, especially when compared to the added risk andcost and time of going all the way to Lithium carbonate. Most brine explorersand prospective developers are going for costly and difficult Li Carbonate/Hydroxideproduction, and most will fail. Stopping at high concentrate chloride has notbeen proposed by many others as they don’t understand the market and opportunitylike our Daniel does – that’s because there is not an obvious chloride market outthere; that is unless you have worked for SQM in Chile for 28 years like Danieland know that LiCL can be a premium in demand product in its own right, and heknows the margins and value mostly lie upstream with the resource owner, and hehas prior experience selling similar chloride and intimate knowledge of pricingand the converter costs etc. This is what is behind our strategy, years ofexperience, and the reason Daniel has the strong conviction and confidence in thestrategy. If Daniel just did one investor presentient for GLN and personally talkedabout the LiCL strategy and why he chose it, the market would immediately allbe believers! Fast Fact: Did you know DanielJ, while Senior VP Commercial at SQM, spent a decade as selling a similarlithium chloride product to China. Now not a fact, but rumour has it that while Senior VP Commercial at SQM Daniel successfully negotiated with the Chinese for near 100% of the full carbonate price for the SQM lithium chloride!
Speaking of chloride price. When Ithink about the price we can get for our chloride, I don’t focus on the % full LCEprice, I think more about the absolute incremental cost/t for a converter toconvert our premium product, and then what margin they want to make off buyingour feedstock, and in some cases, this needed margin could be very small ifthey are desperate for volume, or if our premium LiCl “upgrades” their otherinferior feed and lowers their overall unit costs, or if they just want to runtheir plants full as they operate more efficiently that way. I estimate our chloride will only cost ~US$1000/t to convert, so for arguments sake, if a converter is getting US$30,000/t price for BG Li2CO3 and their conversion costs of our LiCL are only US$1000, this means a converter can afford to pay quite a high % LCE indeed forour LiCl and still make a healthy profit. I say again, the value lies with the Li resource owner, not refiner, this is key to understanding the Galan strategy!!
Our premium LiCl product is also extremelyflexible and attractive to converters, as it can be blended easily into other Li Plants and caneven potentially upgrade the entire feedstock of other plants via blendingtheir crappier feedstock with our premium concentrate (hence perhaps one of thereasons why we can achieve such a high price). We can also easily adjust to anofftakers preferred % to match their needs, just adjust the time in the sun andwe can deliver 5%, 5.5%, 6% or even 6.5/7%% if needed. So, you can’tunderestimate the value of high grade combined with low impurities. The quality of our resource truly is world class and offers a low-risk development of an in-demand product.
The beauty of our LiCl product aswell is that it provides optionality for GLN and converters. It can beeasily transported (easier than hard rock spodumene) and refined into variousproducts, not just lithium carbonate (for LFP, LFMP batteries). It can be easilyconverted into Lithium Metal (for solid state batteries) or Lithium Hydroxide(for high nickel batteries) as well. GLN also as the option (not obligation) tobuild its own carbonate plant later, but importantly this strategy means GLN doesnot need to make that call and pick a battery winner now!
People seem to worry about GLN notyet having an export permit for its LiCl, and yes opening up the global exportmarket for our chloride would be huge and bring in massive new interest andofftakers, however it is not needed for success given local Argentiniandemand. Fast Fact: Did you know that there are atleast 8 new Li2CO3 plants currently being built in Argentina. Many of these new plants are likely to want/need some additional chloride feedstock to keep full, and some may even need our chloride to meet their own offtake commitments given problems/delays in upstream development. So I personally have no concerns being able to place our premium chloride in the local Argentina market and should we obtain an export permit, we can then pick and choose as the international world will fight over our product for sure, especially China. Watch out for the Argentina elections and if far-right candidate Javier Milei wins, our chance of an export permit goes way up in my view. Even the next most favourite candidate is right leaning and so odds of an export permit will increase post-election.
4. Outstanding Project Economics
The Phase 1 and Phase 2 DFS’s thathave now been released demonstrate the immense value of the HMW resource andproject. The new Phase 2 numbers are ridiculously good for such a low-riskdevelopment (back to the strategy and value being with the resourceowner). I have built my own economic model for GLN and originally calibrated it off the PEA results and then calibrated it off the two DFS’s and it matches very well now. This allows me to run my own sensitivities etc. and I can tell you the project is extremely attractive under even the most pessimistic Li macro-outlook.
To put the current Phase 2 post tax NPVof US$2B in perspective, in oil & gas companies would easily spend US$10B+to get an NPV and long-term cash flow like this! Oil companies would spendUS$1B capex to get a few hundred million post tax NPV and stable long-term netcash flow! For GLN to generate US$2B post tax NPV and US$236M free cash flowpa, from a US$400M capex investment is nuts (even generating half this NPV &cash off US$400M is super impressive vs most other industries). The numbers & margins are amazing and while others are putting out high project economics as well, remember, ours is fora LOW RISK LiCl strategy based on a simple flowsheet and proventechnology!
As a sensitivity example, if I drasticallyHALF the Li price in my Phase 2 DFS model, the project still generates significantreturn and value; some ~US$600M post tax NPV and US$90M pa free cash flow! If I DOUBLE the capex in my Phase 2 DFS model, the project still generates ~US$1.7B post tax NPV and US$200M pa free cash flow! If I reduce the LiCl payability % to just 60% of the LCE price (way too low in reality as it just gives the converter way too much margin, but as a test) the project still generates ~US$1.3B post tax NPV and US$140M pa free cash flow! You can’t say this for most projects out there, in any industry! Thebreakeven LCE price (i.e. NPV8 = 0, so with an 8% return) is less thanUS$8,000t!! This demonstrates the extreme resilience of the HMW project and if I run upside scenarios (higher price and lower opex via more economics of scale for example), the numbers get crazy high.
What I would like from GLN is moredetail in their presentations on the DFS and actual project strength (from a value and risk perspective). Its easy to run these sensitivities and create some simple tornado charts for a slide presentation and really emphasise these key messages about project resilience, upside, low breakeven, low costof supply. The project is way stronger and lower risk that GLN arecommunicating, and so investors then just assume we are like many other companies with much riskier less resilient projects (or worse as they don’t understand the chloride strategy yet) – but we are very differential and superiorin my view and based on my modelling!
Now what’s also exciting beyond thesealready awesome Phase 2 results, is what’s in store for us for Phase 3(40ktpa) and Phase 4 (60ktpa). The numbers get scary high, and the real excitingpart is that we have the resource already to support 60ktpa for 40 years soit’s not a pie in the sky dream relying on further exploration success, it’s areality from the already discovered resource! What’s impressive as well is the economiesof scale potential for these future phases that we should realise, withmaterial sunk costs already included in Phase 1&2, we should see capital efficiencyimprove and unit opex drop considerably, perhaps to $3,000/t. The economics forPhase 3&4 are breath taking. Using my calibrated model, here are my forecasts for Phase 3 and 4 below. My gosh, should we get to 60ktpa (and we have the resource to do that), GLN couldultimately see nearly A$1B in annual free cash flow!!!!
NOTE: The above Phase 3/4 metrics are based on my own personal economic modelling and assumptions, to be used as indicative only and with caution.
Should we decide to add in a Li Carbonateplant for Phase 3 and the added capex for that, I’m not concerned as we wouldonly do that if the economics supported it and it looked as good or better economicallythan selling chloride forever. We can also then locate the carbonate plant offsite in a more optimum location if needed. And I’m not worried about a long-term 60ktpa chloride demand as we will definitely have an exporting license by Phase 3/4, even if it’s just for the incremental 20/40ktpa as by then it’s a very simple & strong argument = no export permit, no phase 3; no phase 3 = no jobs or additional tax revenue! That argument will guarantee an export permit.
How/why one of the big guys has notmade a takeover play for GLN baffles me, especially recently given how lowour market cap is; just A$265M (US$180M) and we already have 7.3MT of very highgrade 852mg/L Brine (6.6MT is MEASURED!) and have line of sight to 10MT+. Ihave to assume JP is just screening/ignoring all their calls as he hasrepeatedly stated his intention is to take Galan all the way to production
5. Highly Experienced Team
Every junior explorer/developer claimthis I know, but Galan really has it! There really are afew real absoluteindustry guns in the GLN team that normally a junior would never attract. Theteam GLN have attracted has a lot to do with Daniel Jimenez and the respect andcredibility he brings! Daniel truly is a global leader in the Li industry (justask Joe Lowry), and he understands the intricacies and complexities of thebrine industry, especially commercially, better than almost anyone. Danielcomes with 28yrs senior exec experience at SQM, including Senior VP Exploration& Senior VP Commercial. To have him on our board is just amazing and I can’texpress this enough – DJ and the HMW resource itself arethe two keyreasons I remain invested so heavily.
His presence at GLN and conviction inthe project/strategy is what has then attracted such a strong team, including JuanCarlos Barerra (33 years mining experience, 28 with SQM including as SeniorVP of Ops – Juan has arguably built & operated more brine ponds than anyoneon the planet), Alvaro Henriquez (An absolute guru geologist and brine hydrologyexport, including senior roles at SQM) and Claudia Pohl (another SeniorSQM executive with 23yrs there including 10 leading the Li project studies &planning division). Fast Fact: Did you realise, GLN has on its team, over 100yrs of SQMLithium experience, importantly covering the entire Li value chain; fromexploration, to project evaluation, to project development, to construction, tooperations to commercial/sales. WOW!
So, the local Argentina team andexperience and knowledge of Brine and Argentina and South America is superstrong, and I believe adifferential value add for GLN vs peers.However what GLN are lacking experience wise, in my opinion, is some corporate leadership/managementhere in Perth with proven major project delivery & project management experienceto help & support JP and compliment his skills. But this is not abnormalfor any minnow explorer that transitions into a developer/producer, I just hopethey don’t wait too long to bolster their executive ranks here in Perth with aproven project deliverer given we are already on our way and in construction!
6. Strong community and localgovernment support and relationships
This is an area where JP excelsand my hats off to him. The relationship GLN has developed with the localCatamarca government (and Salta too for that matter) is second to none and mostof this is down to JP. This is where he really shines. Remember, in Argentina mining is governed and controlled by the provincial governments not the federal government, so these local relationships GLN has are invaluable. I expect them to pay dividends in all the upcoming regulatory approvals.
GLN also has a very strong reputationin the local communities which has been built through action and trustover the past several years, from way back when GLN donated ventilators duringCovid to many other community-based investments since. GLN also have a strongfocus on hiring local and sourcing local content which is incredibly important.
I’m overall very pleased with this #6area so don’t have much to add.
SUMMARY:
OK, so well done if you made it thisfar…a lot of words,sorry, I got on a roll and kept typing, but I do think it’s important to understandall the detail so you can then distil it into the key points you want on aslide and get your 2min elevator pitch on point.
So, Ihave done that for you all (and GLN) as well. I have taken GLN’s opening presentationslide, with the six little circles, and rebuilt it based on the above 6 keypoints and how I would explain GLN’s story (made it dark background as I thinkit pops on the screen better). I have summarised all the above detail into 2-3bullet points for each of the 6 main points and created the below “money slide”. I view this slide as “GLN’s ValueProposition on a Page” and it includes all the valuable differentiating factorsthat make GLN so special and why I’m a big fan and shareholder.
It’s a single page/slide that can be usedto tell the GLN story extremely well. It is a little wordy still, yes, but allthe words are super important in my mind (I have spent many hoursdistilling the detail into these exact bullet points and getting the words to allfit – no easy task). We can’t always rely on the presenter in the moment toremember all the key points to highlight (I’m often guilty of that), and thisslide can now also standalone without presentation, therefore can beleft at a meeting or sent to a potential new investor. I do like GLN’s simplefirst slide without the words, but I don’t like having to rely on the listenerto remember them all! This new version solves that problem by having the key pointsall on the slide. It also flows well (top left down, then top right down), fromresource to development strategy to product to project to the team andrelationships that will deliver it…I freely offer it to GLN to use and reallyhope they do (other shareholder feedback to GLN asking them to use thisslide may help – assuming you like and agree with my slide that is) NOTE: This is NOT a company created or endorsed slide, itwas developed by me as an example of what I would do.
Anyway,enough from me. I hope you all found this useful, and again, feel free to useor share any of it and send the attached slide to everyone you know in theindustry!! Galan and JP have done an amazing job getting is to where we are physicallywith the project, but we will all agree our share price is seriously lagging solet’s all, as shareholders sell our value proposition to anyone that willlisten and lets move GLN out of this undervalued top left box we’ve been stuck in!(HOOPZ chart reference ). Andfinally, reminder, this is not financial advice, just my own personalviews and research and I encourage you all to do your own.