Long post alert.As is known when the actual producers are going into Care & Maintenance, the explorers-turned-developers will consider delaying release of their study output and FIDs to time the commodity cycle entry (its pointless to ask for finance for a loss-making mine). This largely explains why DFS was 'late' and why we are supposedly going to see it in Q1 2024 (I am not holding my breath).
With a wide variety of analysts now forecasting surplus LCE products in the Li market extending into 2028/2029 before price starts to recover this may not look too pretty for EMH and its position on the cost curve. Unfortunately unless CRMA brings significant grants and subsidies to EMH as a 'local supplier' or EBRD wants to bet big on the LCE price recovery sooner - CEZ/Geomet may be deferring its FID process.
My analysis largely agrees with the piece below about CXO:
https://www.marketindex.com.au/news/tough-market-conditions-not-limited-to-core-lithiumThis may not be a popular opinion but it appears that my LTH target of 2026 just shifted to 2028. This may offer quite a few years to average my holding down to ~.3xx-.4xx (EMH may not exist by then).
Those who will say that "Spot price does not matter, we are building a mine to produce in 2026-2027", you are correct, however, the degree of discrepancy between spot price and LOM price does matter and convincing financiers is a lot easier when LOM price sits closer to the spot and not orders of magnitude above it.
My guess is that in the DFS delay was caused by price modelling for the capex and opex increases, as they have pushed the all inclusive cost per tonne of product well above the CEZ/Geomet economic cutoff for FID based on the available 5-year price forecasts for LCE products.
Let's revisit the 2022 PFS:I've highlighted everything that needs to be read, it is clear that the costs are escalating at a tremendous rate, specifically after the introduction of the backfill plant as part of the design (2019 PFS Update) .
What they were not immediately showing in that executive summary text, above, is that the Net production cost per tonne has increased from
$3,435 to $5567 thus shifting EMH's position materially on the cost curve compared to its junior peers, what we do not know at the moment is how much more that has increased since 2022? I would say knowing the inflation rate and recent DFS's produced by peers 30-45%.
~ $7200-8000.PFS 2022:
PFS 2019:
Now the 2022 PFS figure for the total Capital costs is below, however, we also know from the recent announcement that capex and opex has increased. I would say that it would now bring us in the $1B-1.2B range (inclusive of the sustaining capital) compared to the 2019 and 2022 PFS:
So where does this leave EMH at this, 2024, moment? I think the figures in DFS are starting to challenge Cinovec's viability based on the available price forecasts for 2026-2028 however likely price recovery in the LOM extended to 2045 still maintains a healthy NPV and IRR figures....? The answer well at least the best available answer provided by EMH is in the sensitivity tables that conveniently shows individual impacts on the NPV based on the increases of 30% Capex 30% Opex and -30% LCE price impacts (against the baseline
2022 NPV of $1.94B, as per below):
Basically in the displayed 30% scenario results in impact of -$1.67B (-
$170M 30% CAPEX, -
$410M 30% OPEX, -
$1.09B 30% LCE LOM Price @ $12k). This leaves this project with an NPV of
$270M. For a $1B-$1.2B investment this will have a joke of an IRR and nobody sane will even consider it. EMH will have to consider using a higher LOM price than $17k to justify its economics and influence the FID, however the forecasts are not helping EMH and could make it look like a fool if the price drops to $8-10k and LOM price used in DFS is say $22k.
TLDR; EMH is being pinched with capex and opex and its cost curve position is blowing up whilst NPV is going down (as per the information that they have provided themselves to the market through the sensitivity tables in the PFS Update 2022). The only way for EMH to exist is to crank on LOM Price in the DFS, but that would delegitimize the DFS if it is overdone (i.e. EUR's DFS, LKE DFS).
What you should do? I don't know, I'll start with the adjustment of the investment horizon to reflect the market conditions and forecasts, if required.
(20min delay)