Interesting commentary from David Decklebaum (analyst at TD Cowan in US, who has Arcadium has his #1 pick for 2024) in his interview with HK/RH of RKE on Rock Stock Channel E89
https://www.youtube.com/watch?v=i5moqnhHSE8
This is his answer to HK "Why" (is it #1 pick). I've highlighted the point relevant to NAL.
"For one, you think about business cycles. The worst possible situation you could be in right now is a developing producer that just started producing, right? Because you're going to be in a negative cash margin and you're going to be burning cash into precipitous rate and you can't stop. If you're a developer that's bringing on something in 2028 and you're already funded, you're completely agnostic. In fact, you'd probably love to see your competition that's out there now dying."
He goes on then about the optionality that Arcadium has with its multiple projects that aare producing, brownfield expansion and new greenfield additions.
Specifically to PLL ... my highlighting
(HK) Okay.So, let's talk about Piedmont, which was your top small and mid cap pick for along time. And we're an advisor and big shareholder, or I have been shareholderin Piedmont for some time. Talk about long-term investing. I have taken someprofits along the way, but there's a big fear of dilution at Piedmont, whichhit the stock precipitously, as everyone was speculating - Arcadium, they shutdown Mount Cattlin, Core shut down Finniss - there's an ongoing fear, will theyshut down North American Lithium? You downgraded Piedmont ahead of the earningsannouncement, you've now listened to, participated and asked questions of Keithand Patrick and then you published a note. So, could you just articulate - whatis your view on after the sell down of Sayona shares, what their cash balancesare, and what's your recommendation - should we buy Piedmont?
(DD) Piedmont'sfates are going to be tied to the fate of the lithium macro. And I think if yourewound to when prices were – spodumene concentrate, it wasn't too long ago itwas $2,000 a ton, and they had a locked-in floor price out of NAL at $900 a tonthat they were paying on the cost side - if you're going to make an $1,100 aton, $1,000 a ton spread on 113,000 tons a year of their offtake portion, youhad a pretty healthy line of sight to the amount of EBITDA and cash flow theywere going to be able to use in order to fund, not just to build out Ewoyaa,which is not substantial for them over the next several years, because FIDisn't expected there until 2025, but also certainly longer term with Tennesseelithium. The fact is today, with spodumene pricing sub $1,000 a ton, untiltheir offtake agreements kick in with LG and Tesla and they're delivering atmore favorable pricing, I think you're going to experience - obviously, thisquarter was weak just from a pricing adjustment perspective - that's going tocontinue into the first quarter. And I think Keith has taken very proactiveactions to basically just play defense and elongate the balance sheet. That'swhy you would sell down your non-core equity stakes Sayona and Atlantic. I wantto say that they have something around $70 million pro forma on the balancesheet of cash. I think he outlined laid out a plan where capital spending thisyear is going to be somewhere in the 30 to 40 million dollars. So obviously, there'ssome time element there, where without external capital in this environmenttoday, it’s going to last him a couple of years until he'd have to tap themarket. So, I don't think that there's necessarily a credible near-term fear ofdilution, but on the opposite hand, to get out of where they are today, you aregoing to start needing a source of cash flows. And to your point, we don't knowwhat's going to happen with NAL. You have Sayona and Piedmont collaboratively reviewingoperations there. I think they both said that they're focused on getting costsdown by building a storage dome - there’s many things that they're looking at -but ultimately, if price persists where we are today, if you don't get somesort of correction, I think they are going to be faced with some pretty hardquestions around do you curtail production? Do you go into care andmaintenance? And I think there's a lot of elements on what's a $13,000 a ton,$14,000 a ton. You're not going to build Tennessee lithium today. It's notgoing to make economic sense. Carolina Lithium is still facing permitting questions.But ultimately, this is a stock that can play defense for a while. And many ofthese names we talk about, you're below the incentive cost curve level now. Now it's a question of duration. And undoubtedly, we think lithium pricing isgoing to be higher. In the long run, they just need to figure out a way toget to the other side. And I think that they're doing that. But if you compareit to other relative investments right now that we cover, I think it's fair tosay that you're taking less risk, certainly with other names like Arcadium, orthose that haven't necessarily started producing yet, which is justcoincidentally unfortunate for Keith and the Sayona folks that just brought onNAL last year."
We have discussed most of what DD was describing (funny how that disconnects so dramatically with the experts across the road).
Now DD has a price target of US$20 on PLL (ouch - right) and was asked what went into that ...
"(DD) The $20 is based on if we assume like our long-term pricing achieves $24,000/t and you build out Tennessee lithium over time and NAL is back to producing a spodumene concentrate that's selling you know in the high call it $1,800/t range. Choose whatever multiple you think is appropriate relative to chemicals, would be just blowing down those cash flows over time. Obviously developing a Ewoyaa under the same framework. And we, we don't include Carolina lithium in that valuation right now."
So, $1,800/t SC6 range and $24,000/t LiOH range ... and assuming TLP is built ... but its not built anytime soon ...
The math here then says PLL is netting ~$1,000/t selling SC to its OTA partners ... so minimum $113M EBITDA (project level) for PLL ... With 20M shares issued thats ~$5.5/sh of EBITDA and a EBITDA multiple of 4 to get us to $20 target .... check my math.
That appears to have no value for TLP added in either (because it would be $0 EBITDA)
And where does Ewoyaa's contributions sit?
HK chips in with his view as follows:
"(HK) The way I view it is my own opinion. I don't know that I'd give any value at the moment, for Tennessee or even Carolina. Ghana, you can value relative to where Atlantic is valued, but on the North American lithium, if you think $1,800 spodumene is possible by 2025, 2026, and then this mine survives, you just do the math. That's a couple of hundred million dollars of cashflow. It's trading at US$250M market cap. It's one times forward cashflow. If you take a view - I believe spodumene prices are going to be this price - and if you look at other companies like Sigma Lithium or Pilbara, there's an implied spodumene price in their valuation. And if you think Piedmont's not going to have to dilute because they have sufficient cash and North American lithium survives - that's the big question - does North American lithium switch off all those cash flows? Keith was quite optimistic, I think, articulated an optimistic view. They haven't just made a decision, but it seems better than 50% with this crushed ore dome and their improved recoveries - December was the best month ever for production - that this isn't like a Core Finnis-like situation from what I'm hearing. And James Brown at Sayona, hats off to him. He's done this before with Altura. He's built mines."
Interesting views FWIW.
(20min delay)