My prediction is we will hit $2.20 within the next 2 weeks but could be as early as Thursday next week and then it retraces a bit. KDR at the moment is too compellingly under-valued to stay at this market cap of about $560mil for any day longer.
The fact that PLS is in negotiation with Polaris Shipping and LG Chem to form a joint venture to build a lithium downstream processing business is a compelling validation of our own KDR-SQM joint venture lithium downstream conversion model. And guess what, now GXY also goes down this route of lithium downstream processing with a Chinese converter too as part of its recent off-take agreements with 5 other customers. Again, they must be convinced of the superior value adding of our downstream processing model. In other words, both PLS and GXY have decided to follow KDR's steps to downstream processing of lithium ore to produce lithium carbonate/hydroxide. Even Mineral Resources (MIN.asx) which was hailed as the biggest lithium DSO exporter (at the LOWEST margin) by Deutsche Bank report just a few months ago now also talk about their plan to move to lithium conversion facility.
PLS's current resource = circa 130mil tons at 1.22% LiO2
KDR's current resource = circa 128mil tons at 1.44% LiO2
KDR's next resource upgrade = highly likely 250mil - 300mil tons at higher grade, probably 1.50% LiO2
KDR's total lithium potential (with almost 3000 drill-holes that have intersected lithium as reported in ASX announcement 5th July 2016 at Bounty with 222 drill-holes intersecting lithium, Texas with striking 0f 6.4km and hundreds of drill core intersecting lithium near surface, compared to current Earl Grey resource of 1.4km, Prince of Wales with 86 drill-holes intersecting lithium, Early Grey, Van Uden, Tasman, Earl Grey south, and now add in 2 tenements next to POW and Bounty that KDR has bought from WSA recently) could be 4 times - 6 times bigger than PLS's current resource.
PLS's current market cap = circa $1.7billion.
My prediction is PLS share price will re-rate to $1.50 from current $1.00 within the next 6 months as they move closer to production facilities commissioning and the announcement of their JV with Korean partners to enter lithium downstream processing business. That would bring PLS's mc to approximately $2.5billion.
So, what does it mean for KDR's relative sp and mc?
After the next resource upgrade (any time in the next 3 months) I strongly believe KDR will have more than twice PLS's resource and more importantly at very significant higher grade (approximately 1.50% compared to PLS's 1.22%). When it comes down to gross margin, assuming other variables are the same, could be highly significant, and when it comes down to net margin/net profit, it could be even much much more significant. I am talking about up to more than 100% difference. If we have more time, I can help put this into perspective or someone can help on this topic later. Of course I understand there are many variables that make PLS and KDR completely different businesses with completely different EBIDA and net profit profiles. But hey, we are with SQM, the biggest and the best in this lithium refinery game. This is where SQM's 22 years experience in business, management and technical expertise, marketing muscle and a network of more than 300 customer base count the most to our advantage.
So, how much should KDR be worth with 2 times bigger resource than PLS's and at higher grade (at approximate 1.55% compared to PLS's 1.22% grade) as we move through further de-risk stages of FIRB approval (within the next 3 weeks as stated by BLUE OCEAN EQUITIES report), official forming of the JV (my guess is also within the next few weeks), mining permit, DFS, off-take agreements, refinery location selection with LEADING AGENCY STATUS already approved by WA mining department and ultimately construction stage....within the next 12 months. You do the maths and you will see we deserve to be in the range of $1.7bil - $2.5bil mc, depending on how fast we move through those de-risk stages as listed above. Remember we are talking about a KDR with 2 times the resource of PLS and very significantly higher EBIDA and net profit margin because our grade is much higher.
Keep in mind: we could be as big as 4 times - 6 times bigger resource than PLS's current resource.
Question is: can we survive until market cap reaches that range of $1.5bil-$2.5bil within the next 12 months or KDR.asx would be changed to something like Rio lithium, or FMG lithium, or Albermarle, or our name would be in Chinese or Japanese language, or even as SQMoz...
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