AVZ 0.00% 78.0¢ avz minerals limited

Morning folks, Just a quick recap of AVZ and the Manono project....

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    Morning folks,

    Just a quick recap of AVZ and the Manono project.

    Market snapshot

    ASX Share Price (1st May 2019): $0.040 (52 week high: $0.215 / 52 week low 3.7c)
    Market Cap: A$91m (US $64m)
    Cash: ~A$11m (fully funded to DFS and decision to mine)
    Debt: Nil
    Enterprise Value: $80m (US$56m)
    Liquidity: Excellent

    Resources

    Roche Dure

    JORC compliant resources: 400.4mt at 1.66% Li20 (spodumene)
    Li2O = 6.65mt
    Li = 3.08mt
    LCE = 16.45mt
    = world’s largest spodumene resource complimenting its Tier 1 status (high grade, homogenous /  up to 200m thick intercepts, low deleterious elements, low strip ratio)

    Implied JORC compliant resource value per in situ tonne (AVZ's 60% share): A$0.33 (US$0.23)
    [vs Wodgina recent valuation (sale) per in situ tonne of US$8.90]
    Pegmatite potential (note: my estimate only): 600- 700mt (open at depth)
    Roche Dure has only been drilled out over 1800m strike length and there is 5.5km of strike length at Kitotolo (south)

    Carriere De L'Este

    800m covered (exploration to date) however pegmatite is between 1.2-1.5km long with an additional 3km on the back end (may continue to the southwest (towards Tempete pegmatite)
    150m thick main pegmatite sitting on several other pegmatites of between 20-60m thicknesses.
    90 samples returned values >2% Li20 (zones running 2% between 30-90m thick and expressed at surface)
    5 individual samples grading >4% (containing > 50% spodumene)
    Higher grade zones than Roche Dure and potentially exceeding RD as a significant lithium deposit.
    Pegmatite potential (note: my estimate only): 600mt – 800m tonnes (upper target assumes continuation of pegmatite southwest, and potentially linking Tempete and Mpete pegmatites)

    Total Manono resource potential (my estimate only): 1.2 - 1.5 billion tonnes
    Implied 1.5bt in situ resource value p/t (AVZ's 60% share): A$0.09 (US$0.06)
    Note: Confirmation of a 1.2 – 1.5bt resource would rank Manono as the world’s largest lithium resource period i.e. includes known Brine projects. If Manono was a country, then a 1.2 – 1.5bt resource would rank it as the No.2 location in the world for known lithium resources (behind Argentina but ahead of Bolivia and Chile).  

    Manono Project Economics
    2mtpa Scoping Study included estimated NPV of US$1.79 billion, IRR of ~90% and CAPEX of US$150-$160m.

    Opportunities to improve previous SS NPV

    *Tin and tantalum credits (both not included) to substantially improve project economics.

    *Current SS uses past Met Test results of 5.8% SC – potential to increase this to between 6.3 - 6.8% (awaiting 2019 Met Test results – samples were due to arrive in Perth on 28th April)

    Results from the Preliminary Met Test Work carried out in early 2018 stated;
    “Results for this preliminary metallurgical test work on coarse reject material from two diamond drill holes testing the Roche Dure prospect provides further support for an extremely strong project. Having a +6% lithium concentrate produced, with low values of detrimental elements and without optimization techniques being applied, positions the company extremely well against its peers and compares favourably with historical Belgian work carried out which produced a 6.8% Li2O concentrate.”

    *Scale up to 5mtpa operation immediately or over time (10mtpa) – multiplies revenue and improves CAPEX efficiencies and OPEX efficiencies p/t.

    *Potential to build a ‘local’ processing facility, capturing lucrative downstream revenue

    *Mixing higher grade feed from Carriere De L’Este would improve project economics even further

    minus threats that may negatively impact the current SS NPV

    *Assumed spod. price of $920 p/t is/was not conservative enough for the 2mpta study (though that price is still certainly within in the upper range of my medium to longer term estimates for Tier 1 battery quality SC6).

    *CAPEX will be significantly higher if processing Tin and Tantulum.

    *Longer and more established transport route options would increase transport costs and negatively impact project economics.

    = Net upside assumption (IMO)

    Based on the above, I think that overall there is more scope to improve project economics than not, which should result in a DFS that boasts some very attractive numbers for potential financiers.

    Note: CAPEX (according to NF when I spoke to him last) will likely be a mixture of debt, pre-payment (offtake) and equity. Therefore, I suspect the equity component to be relatively modest (in the order of 25-30%) and manageable in terms of the degree of dilution on a per share basis.  

    Near term catalysts

    1. 5mtpa Scoping study (has been submitted to regulators for approval)
    2. Transport Study (anticipating this to be included in the SS)
    3. JORC update (anticipating substantial increases to the measured and indicated categories)
    4. Met Test results - confirmation that drill cores have arrived in Perth (ETA last Sunday 28th April) then anticipating further updates at various stages i.e. as the test results become known
    5. Research report/s and further media coverage following the above updates
    5. Appointment of well qualified, well respected and experienced Chairman

    H2 2019 catalysts

    1. DFS
    2. Offtake agreements (CATL and/or Huayou to begin with??)
    3. Project Finance
    4. Large brokers to initiate coverage following DFS
    5. 5-year tax holiday
    6. 10% additional project interest

    7. Industry consolidation - further project acquisitions, mergers and vertical integration by major Lithium players including auto and battery manufacturers, Chinese producers and 'The Big 3'.

    8. EV / Battery storage revolutions continue to unfold at an exponential rate, placing further pressure on battery quality supply. Multi-tier Lithium market becomes more evident. The penny finally drops and the wider investment community figures out that;
    a) Tier 1 battery quality product is not in oversupply and;
    b) Lithium supply is as much a chemical business as it is a commodity business.  i.e. influential analysts are not factoring in the cost to convert lower quality product underestimating the future demand for Tier 1 battery quality product, and their multi-year forecasts don’t take into account that Lithium exists in various qualities from the source and that Tier 1 battery quality material is much rarer in abundance than lower tier forms.   

    9. Higher Tier 1 hydroxide and carbonate prices will be required to meet demand and encourage or stimulate battery grade Lithium exploration to meet future demand. Currently there is little incentive for new explorers, particularly those that have projects with inhomogeneous ore bodies, inferior grades, inferior quality and high exploration costs.

    10. Increased market focus on tin due to its use in new technologies.

    GLTA and please DYOR

    Cheers
    Elpha
    Last edited by elphamale: 02/05/19
 
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