General discussion, page-119

In my previous post I touched on the fact, once producing or nearing production, the market will value a stock on it’s profitability (EBITDA) and future revenue growth, not by the size of it’s resource.

A mine life of 23 years is more than enough. As our resource/reserve is open in most directions, this allows for an expansion if required. In 23 years time we probably won’t even be using Lithium batteries.

Our DFS which is being updated gave a year 1-5 EBITDA of US158m based on a SC6 price of US$666/t,

The price of SC6 is now above $1000 (and going up), that’s over $334 extra cream per tonne on top (less tax/duty).

A rough calculation $334 x 436kt production = $145.6m + the original $158m = $313m EBITDA for the entire operation

To get a net profit from EBITDA we just need to deduct the ITDA - Interest, Tax & depreciation/Ammortisation

Our loan will be $64m @ say 6% interest = $3.84m interest pa

Not all the $194m (inc $20m contingency) capex will be depreciated, assume $130m @ say 7% = $9.1m

$313m less the interest & Deprec’n = $300m

Tax & duty at 36% leaves $192m

Our 40% share = US$77m or A$106m net profit per year.

If we apply a modest PE ratio of 10 to that, our market cap would be $1.06b

This is why both Doc’s say both Leo & FFX will be billion dollar companies.

The above is very rough, but ignores any expansion Doc Mike said they’d look at, it also ignores present spot prices & forecast Lithium prices. I think the updated DFS would have to be based on SC6 well above $1000/t, and a PE above 10 to allow for Li price rises & expansion.

So when the other crowd tells you how resource size is the main valuation metric, remember profit is King & in order to make a profit you have to have a project that is fully funded & is going ahead. Even a company like CXO that has a tiny resource has a very high market cap because it is headed for production. If resource size was King we’d be out there drilling now and Ganfeng would probably have asked for a few extra drill holes to see how far our resource extends.