Good News & Bad News, page-590

As per one of dfs1 post last week, the decisions PLS make now wrt downstream conversion capacity will define the future of PLS, period.

Given the reply, or lack of substance in the company's reply in the quarterly wrt to the 70/30% POSCO JV. I believe the company is considering bigger fish, which makes perfect sense, as 13kt share of conversion capacity doesn't cut it, relative to the size of the PLS recourse. Needing to invest +$300 mill to accommodate the known JV metrics is inefficient and could easily end up being drag on the company's future prospects. Sure, we can supply $315kt spod to POSCO Chem and turn a decent profit anyways and that being the case, offtake agreements would need to change from LOM to a shorter term, say 5 year arrangement.

We could accommodate existing customers, including POSCO at say a production run rate of 650kt pa, with a long term spod price of $720pt (as per Mac Bank recent upgrade) spod margin is likely to be ~$400pt, thus $260 mill gross profit, AUD$338 mill. Yes PLS will need to spend ~$60 mill to get to that run rate, once plant 1 improvements and plant 2 fix is complete. Note POSCO supply is not required for 17 months, so PLS could fix plant 2 immediately and in the meantime sell plant 2 capacity on the spot market via the company's new sales platform.

I believe now is the time for PLS to partner 50/50 and build a larger facility, say 50kt for starters, and preferably in Oz, otherwise we are shipping more tonnes of spod around the world, which could see a carbon tax applied per tonne of spod at destination. As carbon tax is likely, better that tax is applied to 50kt of hydroxide as opposed to 350kt of spod, no brainer.

How does PLS fund its 50% share in a 50kt conversion facility, well, sell 20% of the project to a deep pocket partner, raising $650 mill to help PLS's participation in the conversion facility. Given the conversion facility would add value, finance mix could include debt and cash, not to mention the free cashflow derived from spod sales to existing customers and on spot market while its being built. POSCO and 50/50 JV Co will also buy spod from PLS once conversion facilities up and running. Maybe 650kt to exiting customers, POSCO and ultimately 650kt to 50/50 JV Co

This might be a little scary for some, but this IMO is the most efficient solution to participate downstream in a meaningful way.