General Discussion Banter GLN, page-8470

Yeah I was going to DM you on twitter because I couldn't believe what I was reading in the NAL PFS and thought that I must be getting it wrong (and I know you have a good knowledge of SYA through your PLL interest - and have mentioned the offtake deal in the past).

For those reading at home the SYA NAL PFS considers a spodumene operation with a 27 year LOM. PLL has a 113ktpa or 50% (whichever is greater) offtake which has a price ceiling of $900 US/t for the spodumene concentrate. However, the SYA NAL PFS assumes that they receive an average of $1,242 US/t over the 27 year LOM which is obviously a lot higher than the maximum of $900 that they will receive for 113ktpa out of 163ktpa of their production (~70%). The PFS basically assumes that this disaster of an offtake will only be in-place for 2 years before they jointly build a lithium conversion plant (hydroxide or carbonate) at which point the offtake will no longer apply (which is their justification for ignoring the $900 US/t offtake and using $1,242 US/t for the remaining 25 years). The problem with this is that the NAL PFS is for a spodumene operation not for a lithium conversion plant (which they may agree to do down the track). So the fundamental pricing assumption in the study invalidates the economics of the study (i.e. the study does not include the capex and opex required for a carbonate or hydroxide operation so how can the major product pricing assumption in the study be dependent on something which you are NOT doing, by definition, in the scope of the study). The reason they have done this is because the economics of NAL are pretty bad with the offtake in place (when you consider the current market cap of SYA) and not quite as bad without the offtake.

This table below shows that without the offtake in place the NAL project (75% owned by SYA and 25% PLL) has an post tax NPV of $844m (which is what is stated in the PFS) but with the offtake in place (which is how I believe the economics should have been presented) it has a post tax NPV of $375m. Now compare this to Galan's HMW post tax NPV of $1.9 billion (lets just call it "billions") or the combined HMW and Candelas NPV of $2.85 billion (lets just call it "even more billions") [note: here I'm using 0.70 as an exchange rate - the numbers would look even better if I used the 0.676 exchange rate that SYA used].


In order to re-calculate an NPV using different product pricing assumptions (i.e. with and without offtake) you need to reverse engineer an NPV model using information in the PFS. When I did this I needed to use an opex of $700 US/t to replicate the outcomes of the PFS - which is very high for spodumene production. So in summary why are the economics of the NAL project so bad? Two reasons: 1) the offtake is capped at a low price (by today's standards - perhaps it didn't seem so bad at the time), but you know it's bad when the company refuses to acknowledge its existence in the project economics and 2) the opex per ton would appear to be quite high (read "extremely") compared to it's peers.

So how does all this relate to Galan? I do get frustrated with the share price performance of Galan when I compare to most of the other Lithium stocks on the ASX. I think to myself: "just get the offtake done already!". However, the above serves as an example of what can happen when you opt to get the offtake sugar hit to the share price too early in the development (or Lithium bull run).

So I guess I am making two key points here: 1) the fact that our operating costs are so low is a massive bonus and is reflected our extremely high post tax NPV and free cash flow compared to most other Lithium stocks - at some point this WILL make a difference to our SP, and 2) the fact that we haven't committed to an offtake just yet is a major bonus and represents significant latent potential which will be unleashed at some point.

To be honest, every time I read/hear someone refer to the fact that we don't have an offtake as a positive thing I would roll my eyes. However, after diving into the detail of the SYA experience I do feel much better about it. In SYA's case this early decision/commitment created epic upside to the share price but also now means that it's leveraged upside to the price of lithium is significantly reduced. It has been hobbled as a company and will find it difficult to recover from this in terms of maximising shareholder value from it's assets - perhaps they will do better with their other assets.

And yes bombers I agree that SYA is highly likely to be a target of the shorters as it enters the ASX 200. It will be really interesting to watch this unfold - a heap of institutional buying flighting a heap of institutional shorting with a heavy sprinkling of retail FOMO on top.

Apologies to those that are really keen on SYA and are having to read this. You can probably consider what I have said to be a load of bollocks.

ALL IMO DYOR