Saturday afternoon ramblings...
When I first invested in MLL last year it was because of the Gold deal and nothing more. On my own valuation I had placed zero value for Goulamina, so that all changed when we received the deal with Ganfeng, putting valuation into the lithium side of the company.
This week we had a huge change on the lithium side of the business with Roskill's future predictions for spodumene pricing.
Last year Roskill predicted the long term pricing of spodumene from 2024 to 2041 was around $US666/t for Sc6%.
Just one year later Roskill now have a long term pricing for lithium from 2024 to 2041 of $US1,422/t for Sc6%..
There are 2 possibilities..
1. Roskill have no idea and are just making it up as they go along..
or
2. There has been a paradigm change in the last year, where the long term demand for lithium will be much higher than thought in prior years and the price will need to stay high to make the necessary lithium available to the market.
The difference between $10,000/t LiOH and $30,000/t LiOH, in something like a Tesla with a 60Kwh battery would only be $US1,080 for the LiOH component. (given about 0.9kg/Kwh of LiOH in a lithium battery). Of course actual EV prices would rise by more than the $US1080, because of margins added on at different stages of production and sales.
The ramifications of the new future pricing for every lithium company are extremely positive. Remember this 'new' pricing has been available to those that subscribe to Roskill for some time, so explains a part of the recent rise in most lithium companies SP. For a company like AVZ with transport problems, the large extra returns expected will help immeasurably, making funds available to upgrade transport routes.
I've always considered the transport of Sc6 from Goulamina to be the biggest weakness of the overall plan for development, but once again the large long term increases in expected prices should make this a non issue.
Of course these longer term predictions always assume smooth sailing in overall markets that never happens. Just like the lithium industry had a large bust in 2018/19, mainly because China's reduced subsidies on EVs, at some point in the next few years we should expect something to again bust the industry for a period of time. There is any number of possibilities, but history shows that 'bust' events happen a lot more frequently than people plan for.
A few interesting takes on the lithium situation..
https://www.reddit.com/r/ASX_Bets/comments/qgpwrt/lithium_outlook_2022/
https://investingnews.com/daily/res...ting/lithium-investing/lithium-market-update/
Tesla and Ganfeng, good for LLL. I assume our lithium project is a large part of Ganfeng's future supply to Tesla..
https://cleantechnica.com/2021/11/0...t-shows-teslas-path-forward-into-2022-beyond/
I'm not quite as bullish as most on lithium over the next 2 years. Firstly, we currently have a computer chip shortage that is reducing production of all vehicles. Secondly in China there are currently factory shutdowns across the board due to tight coal and natural gas supplies, with China warning citizens to stock up on essentials for the coming winter..
https://www.reuters.com/business/co...emperatures-fall-covid-19-spreads-2021-11-03/
In the next year we have Greenbushes continuing to ramp up production ...
https://www.australianmining.com.au/news/igo-tianqi-restart-greenbushes-processing-plant/
Wodgina plant starting in q3 2022
Pilbara ramping up both plants to full production
La Negra (Albermarle) stage III and IV starting LiCO3 production up to 30,000t by year end
Olaroz stage 2 in H2 2022.
Core's Finniss project in 2022.
At Wodgina the capacity of 750,000t/a of Sc6 at a margin of ~$1,000 will be too tempting IMHO for Albermarle/MIN, so initial plans to only open one train will probably change if spodumene prices remain high.
Basically in the next year or so, lithium production will catch up with demand and soften prices, mainly due to existing plants re-opening. IMHO this is especially possible if macro economic events like Evergrande bust, rising interest rates and subsequent market bear markets take place.
Despite Roskill's long term price prediction, we will obviously have massive fluctuations, just like we have in every commodity, but from sometime next year to later in 2023 is the likely time period for softer lithium prices.
Demand from 2024 0nwards continues at high rates, which means continued rapid lithium production coming online, but by then all existing mothballed plants will be in maximum production, so only newer mines like Goulamina, Manono, Kathleen Valley, Mt Holland will be able to keep up the increases in supply (plus expansions of course to Pilgangoora, Greenbushes). New mines and expansions are slower adds, than just turning on existing plants, so again justification for high prices beyond 2024.
Assuming the $1,422 price from Roskill as an average over the next 10 years or so a rough NPV of Goulamina at 8% discount rate comes in at ~$US3B by my calculations for the existing DFS, which means LLL ownership of 40% has a NPV of around $US1.2B ($A1.6B) before any Africa discount etc. The expanded mine and resources will of course be higher.
The next 2 years is likely to see vast changes in the valuation of lithium mines both ways, ie much higher and much lower as the market goes through it's usual gyrations.
LLL by itself is currently valued at only a couple of hundred million at best compared to NPV of $1.6B at Roskill's current prices, so a lot of potential upside while markets in general hold, and lithium price remains high. I'd be surprised if LLL was below $600m upon listing, given the cash for development, Ganfeng's offtakes and association with Tesla.
Assuming the Gold side of the business was stable between now and March (only 4 months away) and stable markets, IMHO it's easily possible for FFX/LLL to double in Mcap between now and March demerger.
Allowing an extra couple of years, and Roskill's prices being maintained, then when LLL is producing spodumene the Mcap should be around $2B or more, given increases in planned production (stage 2), and larger resources/reserves of the mine.
