In respect to your EV/Resources.
Lets play out two Scenarios.
Scenario 1: Everything goes as planned, Lithium takes off, there isnt sufficient supply to meet demand and lithium prices remain highly inflated for year and years to come.. In this scenario, we assume that all additional lithium supply gets eaten away, in this instance i understand that your EV/Resource valuation may hold.
However, consider my scenario:
Scenario 2:
Lithium continues to be in high demand as expected, however in 2 years time the amount of new lithium producers dramatically increases as they attempt to take advantage of the supply/demand gap. As a result of this, the lithium price starts to fall, before they find a bottom.. In 5+ years time, once competition kicks in, there will come a time where the grade of the lithium ore will be the only thing distingusihing the miners who make profit. Higher grade = lower cost. Thats the reason why the small cap iron ore miners went bust, grades were too low to make profit while the big boys continue to operate.
Rewind back to the present.
I Buy PLS, as you say i am getting a great EV/Resource price, under scenario 1 where prices continue to rise or are maintained over the Life of the mine, you are right it is a bargain.. However if scenario 2 holds, and the prices retrace as supply comes online, then im over paying a lot. Why?
Resources in year 1 (price inflated) are worth more than Resources in year 2 (stable price).
Obviously there is a timing issue when taking this into account your EV/Resource comparison. To put it in a more simplistic perspective look at the iron ore industry now. People were paying a lot of money (high EV value) in the mining boom.. Now the mining boom is over, iron ore price has fallen, yet the reserves remain relatively unchanged. In essence what you are saying now is that EV for BHP is lower.. They have the same (give or take) resources.. Hence fundamentally its a good buy? You cant say that.. obviously their margins are not the same even though the EV/Resource may seem favourable. What if the Iron ore price drops to a price where miners are making losses. BHP may be a bad example but a lot of small cap miners went bankrupt, yet their EV/Resource looked VERY VERY attractive.
My point is this... yes there is a spike in Lithium, IMO it will stay open for a few years before supply catches up to demand and prices find an equilibrium once they do, companies will compete against each other to reduce costs (at this stage they dont care, they make money as long as they have lithium).
If you beleive in scenario 1. You should buy into firms with high reserves and high grades.
Why? They will be able to continue mass producing at a low cost for a considerable time.
If you beleive in scenario 2. Buy firms which have low EV value and low mine of life/ low grades.
Why? These firms would not have jumped too much in price, however, as they are in production and have small mine lifes, you will get them at a cheap price, they will also be able to take advantage of the gap in the supply/demand for the next few years until their reserves deplete they will also exit the industry before it gets too competitive.
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In respect to your EV/Resources. Lets play out two Scenarios....
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