FFX (ASX) Peer Valuation -&gt; &gt;$3

Originally posted by MinerTrader: ↑

With the recent rise in share price I have decided to do a an updated peer valuation to see what where a good place to sell may be. The share price and other parameters (Shares + options on issue, cash in bank, cash burn, resource size, etc.) change each day so I have updated my spreadsheet after a 6 month hiatus.

What is clear is there still remains a significant disconnect between FFX and its peers. I suspect this will close come closer to the record date for the demerger (and finally close on the listing of LLL).

The European mines are significantly lagging behind in terms of valuation and I think its because all the hurdles and red tape are just grinding progress to a halt, as such I have reduced the scope of the comparison to a few individuals. Enterprise valuation is accurate as of 1/4/22 (I have extrapolated out cash burn from last quarterlies).

As all the peers are now fully funded I have decided to focus in on production rate, Resources all seem to be open with the exception of CXO but that doesn't seem to be holding back their market cap. Yes the ownership of FFX and AVZ is currently higher but if we go 12 months down the track this is what they will be.

Right now we have phenomenal lithium prices of around $5,000/t spod. Is this sustainable or realistic? I'm not to say however the current breakeven price for current Lithium Hydroxide prices is around $7,500/t so I'd say it can still go up further. A Model 3 70kWh Tesla battery uses 63kg of Lithium Carbonate Li2CO3, Li2CO3 is currently $78/kg up from $15/kg last year. So the cost in a Model 3 has gone from $945 to $4,914 for the lithium alone. Ultimately this will have impact on the end price of the product and an equilibrium will be met. At current prices I'd be surprised if there isn't a lithium project on the planet which isn't profitable. It's just about how quickly supply can come online and at what rate demand grows.

If we look at spodumene prices at 50% of what there are today we get annual profit numbers (adjusted for ownership, in Aussie Dollars).

Surprisingly if we use 50% of the current spod price to look at PE Ratios CXO is trading at the same as current producer PLS. AVZ is not far behind and LTR and FFX are lagging. It's noteworthy that FFX also has its gold asset which is not included here at all.

TLDR:

Value of Lithium attributable to FFX based on peers: $3Bn or $2.61 per share
Value of Gold attributable to FFX (NPV Derived): $750Mn or $0.63 per share
Value of Cash of FFX: $120Mn or $0.10 per share

Total Value of FFX today = $3.34/share

Post demerger I suspect FFX will trade at 20% of LLL + Gold + Cash or $1.25/share. So your literally getting your LLL shares $0.07/share for free buying shares today (on a peer basis).

Goodluck all, next few months will be great, we are so undervalued that even if lithium prices drop in half our share price will still go up. Easy to see why J Capital has backed us.

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Excellent post as always mate.

I've gone back through my most recent peer comparison spreadsheet this evening, added AVZ in seeing as they are now funded, and double checked the figures in all the inputs (let me know if I've made a mistake), and came up with a price target of >$3 as well (for the lithium alone).

See comparison table below:

Key findings:
LTR & AVZ are trading at ~200% of their NPV's calculated from the figures & scenarios given in their most recent feasibility studies.

CXO is trading at >500% of it's NPV.

Whilst poor neglected FFX languishes at only 27% of it's NPV:

If FFX was trading at 100% of it's NPV, it would be $2.18 (this does not factor in the Morila Gold Mine or cash):

If FFX was trading at 150% of it's NPV, still a significant discount from its peers, it would be $3.27.

The Morila Gold Mine adds anywhere from $750M to $1.25B in value depending where the market values it (NPV derived & peer comparison derived i.e. WAF) plus $120M for the cash on hand = at least another $0.75/share in value.

Therefore a price target of $4 is completely realistic in the short term.

This analysis shows that there is a huge value discrepancy between FFX and it's peers. Here's what it looks like visually:

It appears that the market has finally cottoned onto this, hence the strong uptrend we've been in this past month. This should see us outperform our peers in the coming months as we catch up to "fair value" and beyond.

There are compelling reasons to invest in our peer companies for sure, but it just seems to be a no brainer that FFX offers the largest value proposition, with so much more room to move, just to catch up to our peers let alone as we build the mine, start generating huge EBITDA, lithium prices increase etc.

Which leads me to my next point, as I'm sure most people saw, AKE updated the market on Friday that their most recent contract pricing for SC6 is $5000/t which catalysed a huge sector wide run in lithium stocks.

It appears that Friday could be day #1 of a new wave in the lithium bull run which could see all lithium stocks break out to new highs in the coming months, as the paradigm shifts from ~$2000/t SC6 contract pricing to $5000/t contract pricing as the standard.

Check out what happens if I swap the $900/t contract pricing I have assumed in my model to $5000/t:

Now these valuations suddenly look far more conservative at this price point, and new investors jumping on board would be watering at the mouth to see just a 100% NPV valuation based upon todays current pricing, let alone the 200% NPV valuation precedent we have at the moment. FFX $40/share anyone???

Again, at $5000/t pricing, FFX is clearly demonstrated to be the best value opportunity of the lot as it is so leveraged to the lithium price, due to the size & quality of the resource, large processing plant, and lowest OPEX - all of these factors result in a multiplier effect.

Well done to the longs, it has been an incredible journey and it looks like this is just the beginning.