Running discussion on SP, page-10504

I guess since I have been quoted that I would just simply take you through my thought patterns and how it relates to transport costs and hopefully by the end of this post I would have drunk my first stubby of VB.

6% grade spodumene

1. In terms of costs and benefits, the ore AVZ has a higher Li20 content than for other hard rock plays, with the exception of Greenbushes. In this Post #: 34698690 I calculated that it takes roughly 4.73 tonnes of ore, compared to 6.19 tonnes of ore for PLS, forAVZ to produce 6% grade spodumene at the minesite converter (which in effect implies lower unit costs per tonne of ore produced which ultimately are seen in a feasibility study in relation to more revenue for each tonne of ore input to the 6% grade spodumene criteria (i.e. in essence 30% more revenue will be derived from say a fixed 2 mtpa ore feed facility using AVZ ore compared to PLS ore is what I am saying ).

2. Nonetheless, given the grade of ore input, another outcome is that in all probability AVZ will be producing beyond a 6% grade spodumene concentrate. For each 0.1 percentage points above the 6% grade, the benefit is an additional US$15 per 0.1%, so if the grade produced is say 6.3% spodumene concentrate you get an additional US$45 per tonne for that concentrate above selling 6% grade spodumene. The US$15 per 0.1 percentage points is inferred from the announcements of TAW and GXY where they state that for each 0.1 percentage points above 5.5% spodumene concentrate they get an additional US$15 per 0.1%.

3. Points 1 and 2 above do not include transport costs and the credits attained from tantulum/tin (plus the additional costs for extracting tin/tantulum in the process flow sheet). Taking these factors I previously estimated that the cost of production would be between that of PLS and BGS, but haven't updated those estimates for the now higher grade we are seeing in the AVZ resource (which indicatively IMO would put the cost of production including transport costs closer to PLS). Refer this post and the embedded posts therein to get the drift of what I am blabbering about here -Post #: 34697520

4. Whether you produce 6% grade spodumene or 6.3% grade spodumene won't have a significant impact on the transport task. The biggest impact is in terms of producing hydroxide or carbonate.

Lithium carbonate
5. On basic maths, noting the Li20 grade for AVZ it takes roughly 5 tonnes of ore to produce 1 tonne spodumene concentrate and around 7-8 tonnes of 6% grade spodumene to produce 1 tonne lithium carbonate (slightly more to produce hydroxide). Or another way to put it, it takes roughly 35 tonnes to 40 tonnes of ore for AVZ to get to 1 tonne lithium carbonate so energy is a key factor here - especially the roasting stage for treating spodumene concentrate at the plus 1000 degrees celsius. These calcs in Post #: 30759223

6. Obviously producing carbonate will reduce the transport task, but also increases capex and opex costs, and a key cost is the price of power. My comments on power are attached in this post -Post #: 34114641

Conclusion
7. The startup facility I see here is probably producing spodumene concentrate with the process flow sheet also allowing the extraction of the tin/tantulum.

8. Producing lithium carbonate or hydroxide will happen probably later, and will probably occur at a regional centre close to a power source rather than minesite IMO (unless of course a power source can be found earlier).

9. The most likely transport task, IMO, will be a combination of road and rail (maybe some barging) as has been recently discussed on the Road to Manono thread.

10. Finally shareholder value will be extracted here with a configuration of 5 mtpa or greater. Scale and size is going to be fundamental to economies of scale here which reduce unit costs here for AVZ, particularly in reation to the transport task. Or another way to put it is if cannot get AVZ to produce 5mtpa ore feed then value will not be high as some assume here longer term - see Post #: 26548026 and Post #: 29971739 That is the size of the resource is irrelevant if the market cannot absorb a production target greater than 2 mtpa ore feed start up facility IMO (so that is the key - the future demand scenario and AVZ's role in meeting that increased demand). My view is that the market for lithium will be greater than anticipated by 2025 and that means that AVZ will be able to ramp up its production to support a 5 mtpa ore feed operation by 2025.

11. The concern however is the slow progress in drilling, so lets hope the scoping study provides a framework to determine the likely development scenarios by end September and then for the subsequent DFS to further assess those so that AVZ is in a position to commence production by 2021/22 (meaning a Final Investment decision by mid to end 2019). Yes I am assuming the deposit is economic to mine, as you can gather from my views above, so it is simply a question too me of the market's ability to absorb production from AVZ which is the key (as is addressing transport costs).

12. I would hope that the DFS would be completed by mid 2018, and btw I would be expecting AVZ to be concluding offtake agreements with prospective buyers prior to the DFS concluding. Some may disagree with this point 12 btw.

13. Short term the SP may fluctuate with traders etc, but longer term I remain positive. Some may disagree with this vie wtoo.

All IMO and need a VB because I just need a VB as I drank my other VB halfway down this post.

Enough blabberings.

All IMO IMO IMO IMO