Crew just a reminder from an investor who is similarly seeing the gloss coming off but not sold that we are in a dog stock by a long shot:
- We're in the
bottom half of production costs amongst worldwide producers of lithium hydroxide, primarily because it's atmospheric pressure and requires only minimal heat relative to roasting (120 versus over 900 I think?).
- The P1 plant will produce 5,000 tonnes per annum; this is a quarter of usual nameplate production on spod roasters, yet it is still
highly profitable on LioH prices well below current spot (noting however that contracted prices will be unlikely to match spot).
- I imagine scaling of P2 will realise cost efficiencies and
further heighten profitability (but I don't know, obviously).
- Our process
can be switched between lithium carbonate and hydroxide as dictated by demand.
- Our process can be fed by a variety of lithium micas giving
versatility in feedstock, and still produce profitably.
- As repeated ad nauseam, the qualitative narrative around the production (
ESG outcomes, low greenhouse emissions with potential for best in class assuming green hydrogen supply is secured, which is admittedly something that is very speculative) is really good. Note the ex VW CEO is facing fraud charges in relation to faking emissions tests - battery makers and car companies would be alive to the 'story' needed around their supply chains.
- Macro environment incentivises UAE to create
investor friendly conditions and pivot the economy away from/diversify from oil though note slight issue in Namibia below.
- While new tech, it is proven at pilot plant scale and is
not overly complex or novel - and we own the IP globally.
- We have a
locked offtake with one of the biggest mineral clearing houses in the world. While the back to backs are to be settled shortly we are told, Traxys is bound to take or pay regardless.
Negatives I can think of, most of which have mitigating considerations:
- Not great world economic conditions, albeit counterbalanced by energy prices spiking and a continued worldwide investment in renewable energy and EVs.
- Recent noises from Namibian government regarding banning lithium ore exports without express dispensation - I view this as a leverage tactic and we would have to weigh the strength of that leverage overall - Namibia isn't exactly flush with economic development options if Lepidico and other miners in country have to pull up stumps. May play into P2 siting discussions, though I imagine the USA's interest in securing global critical mineral supply chains may ensure they take an interest in Namibia's position (though that is entirely speculation on my part - I note that as of December 2020, the US State Dept website characterises relations with Namibia as 'friendly'.
- Tesla metallurgical process - to be honest I know little about it it might beat us on cost to produce but it will not supplant all forms of lithium production (brine, micas, spod) instantly.
- Pretty poor stakeholder communications - in particular around the reason for delays. Though as I've suggested before, I think this is less a concern over the project, given legal due diligence is a late stag piece of the puzzle, and more to do with the complexity of the vertical structure, and the multiple product lines (caesium, rubidium, SOP etc, but especially the former two as the market for these is so opaque, though high value) and the involvement of the US government, whose priorities are less driving hard at the visible pile of cash but ensuring strategic imperatives are met.
- The claim lodged by our northern hemisphere neighbours over the lapsed supply agreement with Desert Lion - dubious given the expiry was last year, and timed at the point of finance. Again I don't know, but I suspect a gambit claim - 'pay us and we go away' while on the cusp of finance. It would amount to ~2% or so if paid in full, a big if, of total finance. It does not affect existing stockpiles or mine life as it is a cash claim.
A few other considerations:
- Overall I think it's kind of rare for listed firms to give much of a shirt about retail investors beyond the listing rules when they are in the day to day of building the business. Not saying that's acceptable, but it's not unusual to this firm and therefore it doesn't make me overly suspicious.
- I also would consider that Joe has made plain he doesn't intend to go to retail shareholders to raise funds before the finance package is awarded. His incentive to keep the price up to avoid dilution therefore is perhaps less? Though it would depend on the package being offered to private finance, high leverage and or upfront offtake revenues may reduce dilution so take with a pinch of salt - I'm speculating here.
- That Cornish Lithium is in trouble is not necessarily anything to do with our process. It might be, no doubt, but we have no indication of that and I suspect it's more likely that while you might have some really fine grade flour and fresh lurpak butter to bake your cake with, but putting them in a batter with rancid eggs and cooking for 15 minutes on 70 degrees results in a semi-baked e coli colony. Again just speculation.
- I saw nothing new in the video from the Las Vegas conference. Weird that current negotiations weren't mentioned but reading into that is fruitless.
- The lapse of options sucked majorly but as otherwise mentioned, given the likely stability of revenues and potential for high interest cover ratios, I'd prefer more debt as it's cheaper.
- What UAE sovereign funds might mean in partnership with US for LPD, or not, but I'm not really sure at all on that front other than similarly to Namibia, I note that the US State Dept says this: "(both countries) enjoy strong bilateral cooperation on a full range of issues including defense (sic), non-proliferation, trade, law enforcement, energy policy, and cultural exchange" as at December 2020. So that's cool.
If others disagree or have additional takes I'd love to read them.