General Discussion Topics, page-140834

It was earlier asked if SYA has a "peer" given its no longer a developer but a producer but still is still in the ramp up to nameplate stage. I put forth a couple but they all had something that was not acceptable. Fair enough.

So I'm going to put forth Sigma Lithium as a real "comparison" and use their slides (from Mar'23 Earnings call) with some additions/modifications/ added. Sigma is not quite at nameplate yet (close) and only really began production in July'23 from their mine in Brazil. @Langleybc is this a "peer" for comparison purposes???

First slide of note ... if you go the Sigma Lithium website and download the original presentation you'll see what I've done. I've modified the silde by adding Sayona, removing Lithium Argentina and adding as additional "disconnect" by firstly I'm suggesting Liontown is not a peer - big No. Likewise for MinRes, Arcadium, Albemarle and SQM as all of them produce chemicals in addition to hard rock spodumene. Which really only leaves Pilbara and while it has long gone past its ramp up phase it is continually growing.

So Sigma claims a disconnect to Pilbara ... approx half of PLS annual LCE production but valued at just about 22.5% of PLS MCap. In other words Sigma should be at a minimum of double its present market cap to be inline with the value ascribed to PLS.

Lets just assume the market has it right and is discounting Sigma by ~75% because it sees lots and lots of risk associated with Sigma's growth profile. Well then, as we compare SYA to Sigma we have approx 67% of annual LCE production at a valuation of about 15% of Sigma. And yes there is a small amount of debt in Sigma (as there is in SYA - those preference shares are debt in case you're all wondering where the debt is). So if SYA were valued the same as Sigma it would be ~US$1.3B MCap (for 100% of NAL and nothing else). And yet we sit well below that. Why .... that's your "homework"




The next interesting slide is the following ... because the above slide is simply assuming that all production is equal ... and it is not. Again, I've made some modifications - highlighting "NAL and Authier" on RHS of slide and highlighting NAL Cost in USD/t


The best way to really understand the meaning behind this slide, is that for new entrants, their position is determined by the cost and the lower your cost you push out the higher cost producers. NAL's cost at ~USD1,000/t (yes it will come down as steady state nameplate is reached ... just as Sigma's has come down and still has a little more to fall).

So we are now comparing Sigma at ~$425/t cost V SYA at ~$1,000/t cost ... which company can operate profitably through the cycle? Don't lost sight of the fact that "customers" are buying "lithium units" ... that dont really see the difference until it matters (more on that later). Investors need to figure out what they differential in cost means short term/long term

If you're serious about understanding your investment you will look carefully at this slide and understand it vis-a-vie SYA. What you don't see in the slide is the Opex of a DMS only operation (Sigma) vs that of a Floatation required operation (NAL).



Low Cost is always important because they are the ones you can control

Now price is also important. Is there some way a SC producer can breakaway for SC CIF market price??? @arfbarf this is for you

"... the highest premium in the highest quality that our product exhibits is translated into premium pricing, and we have been able to do that consistently. The economics for our ninth shipment is again reaching our mark of capturing a 9% share of the value of the lithium hydroxide posted at the London Metals Exchange. Which now equivalent is equivalent to $1,290 per ton. That number is a fixed floating formula and it will be adjusted by the London Metal Exchange price one month after the delivery..."

and they are receiving that because their product is differentiated (as much as you can a "commodity product" - spodumene concentrate)

"...it became clear that the product is better, metallurgically, chemically, and physically for just three reasons. Large particles, high purity, and low contaminants like mica. So ultimately, this package brings 20% - 30% measurable cost savings to our clients. There's value in use. That was the moment when we evolved further commercially. This month we shipped to LX/LG the full boat - 22,000 tons - because there has been enough track record of trying and understanding what the material did for their batteries, for their cathodes, so that they felt comfortable to engage directly with us. And then once you have a direct relation to a cathode maker, battery maker, we were able to achieve what we believe to be our stable pricing, - fixed/floating formula - of 9% of the lithium hydroxide quoted seaborne rate, meaning LME."

So this is shown in this slide:



That's how you get to here




So the question you have to ask yourself as an investor is simple ... which company can confidently operate profitably across the price cycle and deliver the free cash flow yield that produces returns for the equity investor.

What NAL needs to do is first get its costs down ... do whatever it takes to make that happen (might even be as simple as increasing throughput ... spreading fixed costs across greater number of SC tonnes produced) because you see in the chart that once the product has been accepted the ASP has flipped above the benchmark price.

I continue to hold a small amount of SYA because of the location of NAL serving the NA market, but as is clearly evident NAL is not the jewel that some make it out to be, when compared to other investments on purely fundamentals. I like to keep the discussion real so if you need a spoonful of sugar ... that's someone else.