FYI
Can Congo Become The Saudi Arabia Of Lithium?
Sep. 20, 2017 5:00 PM ET
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| About:
AVZ MINERALS LTD ORD (AZZVF)
by: David Krejca
David Krejca
Growth at reasonable price, long-term horizon, long/short equity, research analyst
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Summary
AVZ Minerals is the majority owner of potentially one of the world’s largest lithium-rich pegmatite deposits.
So far, exploration results suggest that AVZ can be sitting on up to 800 million tonnes of high-grade lithium concentrate.
With such reserves, AVZ is poised to become a lithium industry game changer.
Even though AVZ Minerals (
OTC:AZZVF) plans to commence commercial operations of its flagship project in 2019 at the earliest, its shares have already risen by more than 600% since the beginning of the year. In this sense, AVZ Minerals seems to be an excellent asymmetrical bet on the emerging lithium world.
Corporate profile and important developments
AVZ Minerals is an Australian company developing presumably one of the world's largest lithium projects in the Democratic Republic of Congo in central Africa. The company has several exploration licenses in the Kibaran Belt and successfully completed several drillings, which showed superior lithium concentrate quality. With an exploration target of up to 800 million tonnes of 1% to 1.5% lithium oxide with additional tin and tantalum credits and experienced board of directors, AVZ Minerals is poised to become a leading lithium mining company. As can be seen in the output from the company's investor presentation below, AVZ is currently is performing various geological tests and drill programs, which are expected to result in a pre-feasibility study by the third quarter of 2018. The commencement of mining operations is then planned to start by 2019-2020.
Source: AVZ Minerals Market Presentation
Manono flagship project
The company's flagship project, Manono, is located approximately 500km due north of Lubumbashi in the south of the Democratic Republic of Congo and covers an area of roughly 188 km2. The project lays within the mineral-rich mid-Proterozoic Kibaran Belt, which stretches for over 1000km through Katanga and into southwest Uganda. The Manono project itself comprises a mine with decades of mining history. Between 1919 and 1982, the historic Manono Mine was owned by Belgium company Geomines SA and mined for its tin content. Today, the Manono Project is owned by AVZ (60%), responsible for funding expenditure to completion of a feasibility study, La Congolaise D'exploitation Miniere SA (30%), a State-owned enterprise, and Dathomir Mining Ressources SARL (10%), a privately-owned company co-ordinating the built-up of the necessary infrastructure.
Source: AVZ website
Other projects
Besides the Manono project, AVZ operates other two projects. The first one is called the Manono Extension project and comprises two granted exploration permits covering 242.25 km2 surrounding the Manono project. The latter -- Katanga Regional project -- encompasses seven exploration licences within the mid-Proterozoic Kibaran Belt in the south of the Democratic Republic of Congo, located in essentially three clusters within the Katanga province. The licenses are relatively unexplored and cover an area of approximately 1172km2.
Valuation
Since AVZ has not created any feasibility study yet, it is difficult to come up with any intrinsic value estimates. One way to look at AVZ's valuation can be through peer comparison with already established lithium players. Coming from the most recent intrinsic value estimates of Galaxy Resources (
OTCPK:GALXF) and Pilbara Minerals (
OTCPK
ILBF), I guess that AVZ's fair value with 1714M shares outstanding could be anywhere between A$1.33 and A$13.4 per share. However, please note that this is merely a rough estimate.
Source: AVZ Minerals Market Presentation
Considerable geopolitical risks
Even though the mining law in the Democratic Republic of Congo was developed with the support of the World Bank and therefore provides a transparent framework for the exploration, development and mining of mineral ore resources, the country still presents considerable geopolitical risks. Due to a fragile political system, frequent demonstrations and social unrest, DRC remains one of the least developed countries in Africa. All this could potentially hamper the company's operations.
The bottom line
To sum up, AVZ is indisputably on track to become presumably the most dominant lithium mining company. With massive reserves of high-grade lithium pegmatite, AVZ clearly presents a perfect underfollowed long-term asymmetrical investment opportunity. Should the EV industry boom play out faster than it was previously expected due to recently announced petrol and diesel car bans, AVZ's shares could skyrocket. Clearly, lithium is an element of the future and AVZ is on the best way to capitalize on its demand.
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