He’s not wrong if you’re valuing LTM on just a production basis...

He’s not wrong if you’re valuing LTM on just a production basis using a PE model.

It also depends upon whether you believe Olaroz and Hombre Meurto will hit nameplate for their expansions this year.

Just using rough ballpark figures for this example, so there will be error in these numbers:

If you use say $10,000 per tonne price for lithium carbonate then ballpark estimates at 62 500 tonnes of LCE per year suggest around US$250-300 million in profit per year. That equates to approximately US$ 0.23 EPS. At spot of approximately US$13000 per tonne then it’s around US$450 million profit, which equates to US$0.42 EPS. Use your favourite multiplier but realistically no more than 8x, and you get between AUD$2.75 to $5.00 per share. I think 8x is good because it accounts for the speciality chemical nature of lithium. Lower multiples also make sense.

Now, I expect $US10000 per tonne to be absolute rock bottom as most future and some current Western spodumene mines will end up on care and maintenance if sustained.

I haven’t factored in SDV, James Bay and Nemaska value. These need to be considered. Factor in James Bay and SDV and there’s another US$150 million minimum profit per year at approximately US$10000 lithium carbonate/hydroxide price.

Depending on costs, I think it’ll land around US$650 million per year profit at around US$13000 lithium carbonate/hydroxide price with all these operations. About US$ 0.60 EPS. PE x 8 = US$4.8 = AUD$ 7.2

Thats not a huge drop from here and is partly why I disagree with the idea that we’re highly overvalued. You could justify further declines and maybe $6 by changing the numbers or not considering projects under development, but I doubt we’ll see that.

Now, 1) it’s obvious that the brine operations provides the earnings in low pricing environments. 2) the idea of them buying a WA hard rock deposit of scale is pretty fanciful and should not be pursued. 3) there’s plenty of cash flow at rock bottom prices to invest in expanding brine operations and other opportunities when they make sense.