AVZ (ASX) Reality Kicking In

Originally posted by Scarpa: ↑

One thing I do want to say, despite my point 5 in my earlier post, is that A$1 billion everyone rabbits on about is a misplaced to start with. The DFS had capex costs of US$546 million, including US$50 million contigencies, noting some of that capex cost estimate might include things, like roads, that AVZ may not end up funding. At an exchange rate of 70c, this figure becomes A$780 million. At 75c, becomes A$730 million, not A$1 billion. Obviously to reiterate AVZ can use a staged approach to capex if market conditions don't facilitate what it wanted to do, meaning lower capex costs upfront.

Now, if people are going to say, no use a much lower exchange rate, like today's 65cor 60c, well it would mean Australia is still in the doldrums given exports are the basis of the economy, which means the USA is still up the creek. Why, well the USA consumes about 20% of the world's GDP, and China exports finished products to the US and Europe, and if it can't export 'lots' then it doesn't buy Australian resources, which again means crap resource prices and problems for existing high cost producers. The point though, is as the US and Europe recovers and China recovers, more Oz exports are required and hey presto that increases your exchange rate to your historical average etc etc.

In any event, given AVZ's functional currency is likely to be US$, given it is located in the DRC and therefore prices received are US$ based and opex costs would also likely be mainly US$ based, well borrowings will be in US$ to start with IMO IMO and the only conversion to A$ will be at tax time/reporting purposes to ASX in my opinion. Functional currency of US$ becomes a natural hedge to US$ borrowing, noting IMO some of teh project will be funded by equity for Offtake Agreements (or prepayments, but that is a guess and all IMO IMO IMO etc etc

Ultimately AVZ remains a speck play, free carry strategies are good to reduce risk where you can and ultimately AVZ needs the market to improve to allow its entry (again a market risk outside AVZ's control and if the market improves well spodumene prices will also improve).

All thoughts down without a VB been drunk or spilled.

All IMO

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Originally posted by Scarpa: ↑

As to the dilution comments, this post explains share price, EPS and PE ratios - Post #: 44475779

I go into further detail in this post: Post #: 44418651

At the end of the day, if you get to mining, and yes getting to mining means means more shares on issue, but the extent depends on how equity is raised btw, if you hit your DRF targets in production well SP rises because SP becomes a function of EPS and P/E. Now, how did PLS get to mining, and how many more shares were issued from start of exploration to first day at mining -if PLS hit its targets, and spodumene prices stayed at the US$550 average of its DFS, well I guess its SP would have been a lot higher than today, i.e. I mean PLS was over $1 at one stage despite this so-called dilution.

I also would assume a binding Offtake Agreement with equity - as Offtakes come before financing - will increase the market's view that AVZ will go to mining. I doubt the market's response would be to trash the SP because of potential dilution, IMO, looking at other plays with what happens with binding Offtakes on SP.

All listed miners on the ASX were explorers at one stage who needed to raise capital, i.e. read dilution, to get to mining, but yet SP became a function of profitability, expansions etc etc.

All IMO

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Originally posted by Scarpa: ↑

You obviously didn't read the full post. I used over US$600 per tonne.

1. Others know I modeled on US$673.70, so read my posts over the last few days and you'll get the drift of my thinking. I also showed viability at US$500 per tonne, but at that price profitability falls and that impacts SP, an obvious point (even if AVZ were in production, another obvious point).

2. I posted that if prices don't go above US$500 per tonne, whilst AVZ is still viable its SP will not be where people think it will be. Here you go, my posts of last two days on this exact subject - Post #: 44527311 If you want to know about inflated valuations, and perceptions, you should have a look at the LTR board.

3. I said it is in everyone's interest that PLS and AJM survive because it means spod price have increased. And I rate AJM more highly than PLS at the moment because it had positive EITDA at Dec quarter. Despite, basically using its stockpiles essentially in the March quarter, really surprising PLS didn't make a greater profit based on its quarterly. It is obvious that if spodumene prices do not increase, it means EV demand has still not picked up and tehrefore it will not be possible for AVZ to get into production in its stated timeline - something I have also said (refer embedded posts at point 2).

4. AVZ owns 65% of the project btw, and if we are talking funding it will be equity for Offtake Agreements or prepayments, with some debt instruments, in a staged development IMO. Without binding Offtakes or equity for Offtakes, well the discussion on funding becomes irrelevant - i.e. I mean PLS and AJM had Offtakes before external funding, it is tehway explorers get to mining. The DFS has not included likely tax and royalty concessions for the SEZ, the quid pro quo of funding DRC government share btw - you do realise there are a number of African projects where the government has a equity stake and they are in production, whilst in Australia we just allow multinationals to take it all and pay no tax LOL(but that is another story and a discussion for the Politics Thread, not here). It has also not included refund of VATinthe AVZ DFS.

5. The A$1 billion everyone quotes, well remember this project is viable producing spodumene only which reduces your capex back to US$250 million at 4.5mtpa orefeed, lower if you scope less because as you know PLS started with a 2mtpa configuration. It is the sulphate plant that bumps up capex, but ultimately,if prices don't improve and/or EV demand does not increase to pre COVID-19 stated levels, it is a staged development, but ultimately none of this matters if EV demand doesn't get back to the growth trajectory of reaching 2000 GWh by 2030.

6. Refer back to point 3.

7. Calm down,we'll work out what the actual PLS costs are when they actually operate at nameplate capacity and are not selling from stockpiles. I for one have stated own threads that I presume once the plant gets to the DFS assumptions around recovery that opex costs will come down and quality issues will sort themselves out - Post #: 42646968 and Post #: 41417087. I would certainly like to see PLS and AJM succeed as it is in evryones interest. Last thing you want is PLS drawing down any loans because it still can't control costs and/or prices remain low. Refer point 3 again.

8. The DFS capex also includes capex that AVZ may fund or may not fund as well - you may want to have another read of it, especially around roads. It has a contingency of US$50 million as well. Part of PLS's cost overrun issues in capex is it didn't install the correct capex and therefore had to retrofit solutions and two Australia is notorious for cost overruns in construction - note, everyone yabbers sovereign risk but few Australian projects have ever come in on budget. Also, just for you, having a condensed, deep, and high grade homogeneous depsoit makes it easier to work with. Best way to explain this - AVZ has less than 60% the drills of LTR (and even PLS), and has a measured and indicated resource 2.5 times it, and that makes designiging a workable process flowsheet a lot easier to do especially when you have a significantly lower strip ratio to work with and a grade of resource that is higher (meaning you have slightly less waste to also deal with in the pegmataites themselves).

8. As I said, if EV growth forecasts return back to pre-COVID 19 forecasts soon, and teh grwoth trajectory to 2000 GWh to 2030 is retored then there isplenty of room for a number of new greenfield entrants to enter the market. If it does not well all this debate becomes irrelvant (refer point 3 again). Refer - Post #: 44500594

9. Good depsoits with low deleterious elements are always developed in due, regardless of where they are located. It is simply a question of when, and whether AVZ shareholders get to enjoy those benefits. Take Simandou - Post #: 44528456

10. For all our sakes, lets hope the Europeans and USA start doing something in the gigafactory and lithium production chemicals space to keep the Chinese honest. Looking at PLS, for example, I suspect the Chinese are also not honouring contracts there as well - my view is Chinese see contracts as binding for the seller, but not binding from a buyer perspective at times.

11. In terms of your throw away line - Bolivia will not be developed because of its high magnesium content, full stop. It is why people rabbit on about deleterious elements. High magnesium means it is difficult to convert to lithium carbonate let alone hydroxide, given costs involved of removing impurities - that is whay Argentianian and Atacama brines will always be ahead of Bolivia, despite Bolivia having a significant reserve - point quality matters, refer point 9 again. But if you are interested in Bolivia here is my post about that - Post #: 42687080

12. But to reiterate, a growing lithium industry is in everyones interest. Plenty of room for existing and new producers if those growth forecasts eventuate. This will translate back to price of spodumene. If they don't all this debate is hypothetical.

13. This is the speck end of the market. To contro risk free carry strategies should be preferred where you can IMO.

All IMO

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@AndyRoo, you might want to revisit the posts to you before as don't have much more to add. In terms of your latest comments, until PLS diversifies its Offtakes away from China, and has non-Chinese entities on its register, then the 'China dominant' issues you raise for AVZ also apply to PLS, as does the comments around how much of say AVZ a CATL, in effect, entity owns. How much of PLS does CATL own and other Chinese enties?. BTW, PLS still has a 2mtpa configuration - yet keeps signing contracts so the real question is how binding are those contracts given PLS's more recent sales figures, and why has PLS been unable to turn a profit last quarter despite the majority of its sales been sourced from inventory. Ultimately, it is in everyone's interests that spodumene prices rise. Refer linked posts again.
All IMO