Exactly right!
So much happened in the past two months (news) yet so little happened (share price movement). Firstly, the biggest headwind currently is the plunging lithium prices. LiveWireNetworks published this report yesterday:So, why are lithium prices down 40% since last November? Back then, the commodity was trading above US$86,100 per tonne, this figure is now US$47,417, according to Trading View.
The prices of lithium spodumene – the most widely exploited mineral source of lithium – have risen from US$400 a tonne three years ago to a peak of around US$6,000, before pulling back to US$4,500.
Now, here’s where you have to stick with the fundamentals. The overall consensus is still a big supply/demand deficit into 2030. Mines still take 10-15 years to begin production. Spodumene prices increased by 2000% in 2 years before finally decreasing by 40% in 5 months (October 2022-March 2023). The 14% or so drop this week has been after 3 banks collapsed, Credit Suisse received a $50B Swiss francs bailout by the Swiss Central Bank, and the incredible uncertainty about another 2007-8 scenario occurring. SVB was the 2nd largest bank collapse. This time though seems like governments are PRINTING money to save the banks, whether in US or Europe. In fact, $300B was added to the Fed’s balance sheet this week (could be up to $2T by their estimates). So it took all that, and 2022 living the worst market performance since 2008, for lithium prices to go down 40% from the peak.
What if spodumene prices plummet -95%, back to US$400 per ton? Frankly, that would mean the electrification transition is over and some new battery chemistry has been commercialised in just 2-5 years. Even then, the technology would use lithium because, according to the PERIODIC TABLE, it is the:
- LIGHTEST metal
- HIGHEST electrochemical potential
- LARGEST energy density compared to its weight
So, lithium will ALWAYS be in demand, and with more electronic devices (vehicles, storage batteries, handheld devices, etc) being developed, it will always be used in these “new” chemistries. Also, it takes YEARS for this commercialisation, so for at least the next 2-5 years, lithium will not go all the way back to the US$400 lows of 2020 (during covid…) If we agree on this point, let’s be realistic. The first support level is 50% retracement, so US$4000 for spodumene. If things go dire, EV production halts worldwide, then perhaps it halves again to US$2000. But remember, it's not “technical analysis” it's real supply/demand. Just 3-5% of cars sold were electric last year in Australia and US. The goal is to increase that by 10-15X by 2030 (50% electric) or more in many countries. There are significant tailwinds coming up. One more thing: banks are on the brink of collapse = interest rate halts = money printing = short-term bull markets. Overall conclusions:
- Spot prices will NOT plunge to US$400
- Tailwinds include rate hike breathers, money printing, China EV demand opening-up
- Spot prices decreasing is arguing whether there are new chemistries already in full commercial production (takes 2-5 years MIN), demand slowing (contrary to EV targets), supply increasing (unless new mines come online in <3-5 years… that too won’t affect us now)
- Spot prices, IMO, may reach US$2000 absolute worst, based on nothing.. yeah but no one could predict it rising 20X either
- Companies like FMG rose by 16X market cap in 2006-2008 ($2B to $32B) when the price of iron ore went 6X since the start of the century. So, the performance of a company does NOT depend on just the commodity price. As SB said, expand the resource and tonnage, and it can MORE than offset the decrease in price. Only the privileged "leading" producers can do this though. Performance is based on many other “intangible” strategic factors such as the right timing at the right place as they call it. Which is what I want to discuss now.
- Comparing the profitability and portfolios of the world’s largest lithium (hard rock) producers
In this excel document, I’ve arduously compared 11 lithium producers (as much info as I could find... in reasonable time. Reading many 200 page annual reports is not fun). It’s important to compare primarily/purely lithium companies because then it becomes financially meaningful. Sayona is focused on its lithium operations first and foremost.
https://www.dropbox.com/s/2uwbilju12qp9in/Global%20Lithium%20%28Hard%20Rock%29%20Producers.xlsx?dl=0
Comments Comparison of lithium (hard rock) producers (AUD) Location Total Ore Reserves (Mt) Contained Li2O (Kt) Mining Period Tonnage (t/yr) Production Cost Sales Contact Price Ownership NPV NPAT yearly Market Cap (Average, YTD) Market Cap / NPAT Ratio (Market Cap / Contained Li2O) * Ownership Conversion price: 1 USD = 1.5 AUD Compares P/E ratios Measures valuation per ton of Li2O owned OLD VALUATION Sayona Mining Limited (ASX: SYA) Canada What the market "knows" officially North American Lithium Abitibi Hub 29.2 @ 0.96% Li2O 280.3 2023-2049 200000 @6% $873/t $1836/t for
50%, $900/t for 50%75% $844M $151.4M 2.129B @ $0.24 14X Total ownership of 311.3 Kt Li2O. This gives $6,839/t Authier Tansim Moblan Northern Hub 12.03 @1.4% Li2O 168.4 2027- TBA TBA TBA 60% Lac Albert NEW VALUATION Sayona Mining Limited (ASX: SYA) Canada What the future is, conservatively.
Ignores downstream processing!North American Lithium Abitibi Hub 29.2 @0.96% Li2O 280.3 2023-2049 250000 @6% $873/t
$3500 USD/t = $5200 AUD/t
after 2024 for 100%75% $4800M (see earlier
NPV model post)$1082M from 2024
and beyond2.129B @ $0.24 1.97X Total ownership of 700.2 Kt Li2O. This gives $3,041/t Authier Tansim Moblan Northern Hub 50 @1.4% Li2O 699.9 2027- TBA TBA TBA 60% Lac Albert Pilbara Minerals Limited (ASX: PLS) Uses current figures, obviously will improve! Pilgangora Australia 159 1908 2019-2045 570000 $1136/t $7500/t 100% Outdated from 2018 $1242M 13.491B @ $4.5 11X $7,071/t Allkem Ltd (ASX: AKE) Olaroz Argentina 16.2 Mt LCE 6567 2014-2054 15000 LCE = 120000 @6% spod $6926/t $64854/t 66.50% NA $632.2M 7.651B @ $12 8.35X Total ownership of 4526.7 Kt Li2O, for
projects in production. This gives $1,690/t.
Note majority comes from brine source not hard rock.
Makes comparisons difficult.Mt Cattlin Australia 13.3 @1.2% Li2O 159.6 2021-2025 68000 @6% $1353/t $7700/t 100% $161.4M (3.83yr mine life) $284.2M Naraha (started production october 2022) Japan Use Olaroz Feedstock Use Olaroz Feedstock 2022- 10000 LCE NA NA 75% NA NA Sal de Vida (development) Argentina 8.59 Mt LCE (stage 1+2) 3470 2024-2064 45000 LCE NA NA 100% NA NA James Bay (design) Canada 37.2 @1.3% Li2O 483.6 19 years 321000 @5.6% $500/t $1500/t (quite conservative) 100% $2130M modelled NA Cauchari (pre-development) Argentina 4.8 Mt LCE 1939 NA NA NA NA 100% NA NA Liontown Resources Limited (ASX: LTR) Kathleen Valley (nearing production) Australia 68.5 @1.34% Li2O 917.9 2024-2047 500000 (ramp up to 700000) @6% $678/t $2088/t 100% $4200M $493.5M $3.297B @ $1.5 6.68X $3,592/t Buldania Australia NA NA NA NA NA NA NA NA NA Lihtium Hydroxide Refinery (design) Australia NA NA 2027- NA NA NA NA NA NA Core Lithium Limited (ASX: CXO) 23.66X (incorrect in reality,
NPAT understated!)Finniss Australia 7.4 @1.3% Li2O 97.9 2023-2033 197000 @5.8% $546/t $1115/t (July 2021 DFS. Too conservative) 100% $140M outdated model $78.4M $1.855B @ $1 $18,948/t (short lifespan, tiny resource) Global Producers Albemarle Corporation (NYSE: ALB) Lot of missing information Greenbushes (largest mine in the world) Australia 69.9 @ 1.95% Li2O 1363 1983 Multiple conversion facilities.
Overall, 200000 LCE = 1.6 Mt @6% spodNA NA 49% NA $3375M $43950B @ $375 13X NA. Total ownership is a bad metric,
have a portfolio of assets and conversion
facilities that take feedstock from
various brines/hard rock sourcesWodgina Australia NA NA NA NA NA 60% NA Kings Mountain (development) US NA NA NA NA NA 100% NA Silver Peak US 62 Mt @ 84mg/L 5.2 NA NA NA 100% NA Salar de Atacama Chile 647 Mt @ 2071mg/L 1340 NA NA NA 100% NA Tianqi Lithium Corp (SHE: 002466, HKG: 9696) Greenbushes (largest mine in the world) Australia 69.9 @ 1.95% Li2O 1363 2021- Already included as refinery feedstock 26.01% $5150M $32B 6.21X NA Kwinana Plant (hydroxide refinery) Australia 48000 LCE 51% Anju (carbonate refinery) Sichuan 20000 LCE Zhangjiagang (carbonate refinery) Jiangsu 20000 LCE Shehong (mixed products refinery) Sichuan 1995- 24200 LCE Livent Corp (NYSE: LTHM) Zhejiang (hydroxide plant) China NA NA 2024- 15000 LCE $410.3M $6.464B @ $36 15.75X NA, ingests feedstock for
refineries. However, currently
with 2857 Kt Li2O, the measure
gives $4617/tFenix (Salar de Hombre Muerto) Argentina 7.071 Mt LCE 2857 1997- 20000 LCE 49% North Carolina (hydroxide plant) US NA NA 2023- 5000 LCE Whabouchi (development) Canada 2025- Bécancour (hydroxide development) Canada From Whabouchi mine 2026- 34000 LCE Sigma Lithium Corp (CVE: SGML, TSX-V/NASDAQ: SGML) Grota do Cirilo Brazil 13.79 @ 1.46% Li2O 201.3 2023-2032 220000 @ 6% $74.5/t $1050/t (extremely conservative) 100% $372.8M outdated model $150.2M $3.384B @ $32.7 22.5X (from very conservative numbers) $16810/t Lithium Americas Corp (NYSE: LAC) Cauchari-Olaroz Argentina 1.952 Mt LCE 788.6 2023-2063 40000 LCE $5400/t $18000/t (conservative) 44.80% 323.4M $4.758B @ $31.5 Only Cauchari-Olaroz is producing
near-term. Gives 14.7X (ignores
debt and current net losses)Total ownership of 2229 Kt Li2O. This gives $2135/t Pastos Grandes (development) Argentina 0.943 Mt LCE 381 NA (40 years) 24000 LCE $5070/t $19,600/t (conservative) 100% Largest resource in US Thacker Pass (development) US 3.7 Mt LCE 1495 2026-2066 40000 LCE (phase 1, phase 2 doubles) $10115/t $36000/t (RECENT, from 2023) 100% $7425M 1008M Cauchari-Olaroz Argentina 1.952 Mt LCE 788.6 2023-2063 40000 LCE $5400/t $18000/t (conservative) 46.70% 0verall $5815M $26.565B @ $16.5 4.57X NA Mount Marion Australia 900000 50% Mariana (construction) Argentina 20000 Lithium Chloride 100% Sonora Mexico 20000 LCE 100% Goulamina (construction) Mali 506000 50% Various refineries/recycling at Jiangsi, Hebei, etc From the figures, one can summarise that the market is valuing lithium companies from OFFICIAL, sometimes OUTDATED and UNDERSTATED, feasibility studies. Many DFS presented low-ball contract prices (AKE’s James Bay, CXO’s Finniss, SGML’s Grota Do Cirilo all being <AU$1500/t). The companies appear fairly valued based on official figures, but in the current environment, many lithium plays should have a rerate. It’s an industry-wide trend. When NEWER, OFFICIAL, documents will be released (with higher contracts pricing), the P/E ratios will suddenly NOT be 15-20X, but more like 5X. This will help a rerate in share prices.
For example, institutions see Sayona as “fairly valued” because, from the conservative PFS ($1800/t), our NPAT is ~$151M. Giving a P/E of 14X at the moment, pretty much fair value (ignoring projects in development). However, the current pricing is AU$ 6750/t. If it goes down another 25% to say AU$5200/t, the NPV shoots up to $4.8B for NAL ONLY. The NPAT surges to $1B and the P/E ratio shrinks to a tiny 1.97X. Ignoring every other project (even Moblan). So, thinking clearly, even at prices plummeting 50% from the highs of AU$10K/t, Sayona should be rerating to ~AU$5B market cap. And remember the importance of these “OFFICIAL” documents? Well, Moblan will be in the spotlight very soon, so don’t forget to add a couple of billion dollars’ value there.
2. Determining the “intangible value” of Sayona’s strategies
Sayona is building vertically integrated hubs, nearby other mining entities and the end users. This proximity will give tangible value with greater access to expand assets, M&A (as Silent-Bubbles has brilliantly pointed out past few months), and source feedstock from other mining operations. A LOT of realised benefits. And, because this is a long-term vision, Sayona is likely on the hot list for government funding. Any delays or financial difficulties to fast-track downstream production will be solved quickly, especially with the billions of dollars in the Critical Minerals Strategy and various energy/defence grants Sayona could be eligible for. The funding announcement is going to be very left-field and significantly improve the sentiment. After all, many explorers and developers are stuck and have dreams that may NOT be fulfilled. Funding is key, and we have plenty to do “big steps, quickly” e.g. potentially buy the resolute factory in Amos.
3. Revisiting technical analysis: Bullish Pennant
I did say, we would see 39 cents by 6th February. There was a cup and handle pattern which broke down. Even if you don’t follow technical analysis, the second time it went 37 cents from 11 cents should have been a clear signal of Sayona’s value. It did this during the worst lithium “spook” market in mid-2022. Now, 6-weeks after my prediction, the rally has been delayed and delayed to form a rising pennant pattern. Basically, the longer fundamentals take to be verified/proven to the market, the longer the technicals will delay a rerate. We’re nearing the critical “bounce” point, which should happen before the month’s end. The 39 cents ATH is not far off, even with decreasing lithium prices. Moonrocket has kindly provided a nice list of announcements to look forward to. Being debt-free, there’s only upwards movement from here (unless spodumene prices dive to AU$1.8K/t, where we would STILL ONLY be fairly valued. Still no downside . Oh and that ignores every other project. So cheer up fellas, the show has not even begun
General Discussion Topics, page-93088
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