Sovereign risk is one discount factor to SP not but not to the current extent assumed in the current SP (when tracked against other exploration plays). Lithium is no longer driven by 'hype' like two years ago but by 'actual results now' and a defined exploration program. I suspect if they find something of mineable quality, so lets see what August brings and what additional drilling will then be undertaken, taking a long term view (up to 1 year from now) sovereign risk discount would be worth about 20% of the current PLS price IMO. But given the market is more demanding now of lithium plays getting to market rather than driven on hype, so timelines to development become another factor, you could take another 30% discount on top of that since PLS is transitioning to the mining stage now, but if the resource is bigger than Greenbushes as stated, you can add back 10% - 20% as an exploration play. So that is my current perception of the exploration play at the exploration stage. That is if things work out as an exploration play price could be 20c later this year, but that is a guess like everyone elses guesses here, but still a high risk high reward play IMO.
In terms of mining, I probably agree a vulture, probably Chinese, will come over the top and hoover up AVZ as a takeover if it has a demonstrated economic resource (JORC), but if it has a resource it has three years to get into the window of development as a greenfields project have that amount of time to get into the market IMO (i.e. the current spike in lithium demand where supply from brownfields projects can't keep up is the basis for the greenfields developments - after 3 years IMO any new demand (and the demand growth curve will be smoother) will be met by the exiting mines and any greenfields developments in production within that 3 year window, meaning any potential greenfields developments not producing by then will need to wait to the next major demand spike up to have a chance to get into the market (and for those read SP hammering). Just to illustrate what I mean using an LNG example - the Gorgon LNG project was first floated for development in the early 1990s with production coming onstream in the late 1990s as a result in a spike up in LNG demand back then - they missed the development cycle and then missed the next development cycle of the early 2000s as well but finally caught the next development cycle and hence first product came in 2016, some 18 years after first production was initially assumed (incremental LNG demand was met by brownfields developments but the spikes in demand were met by new greenfields developments in other jurisdictions).
Hence why meeting this 3-year window is fundamental IMO to AVZ and any other emerging lithium player because brownfields players like Greenbushes (and I note brine players are tweaking production processes to get a better quality of product that can be used by end users for lithium hydroxide0 in future, i.e. the market hard rock really dominates over brine and for the avoidance of doubt I am not referring to lithium carbonate here) will be more than able IMO to meet any growth in demand beyond 2020. Beyond 2020, the forecasted growth curve, from what I have seen, is forecasted to be smother if you believe analysts supply/demand prediction on the curves. This is not investmet advice so to others DYOR.
Anyway, lets see what August brings. Oh ye, despite my view on sovereign risk as expressed in the past I have now bought purely on the basis that the resource looks significant but the drill bit will determine that and that has negated my general view on not investing in these types of African plays. Time will tell if that was a dumb decision but the results look quite promising here as I have posted in the past as a non-holder (now I'll post as a holder).
All IMO
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