Evening all,
Haven't posted here in a while so thought I'd share some thoughts.
First of all, last week was IMO a pivotal moment for AVZ – with management providing another fundamentally superb announcement. The outstanding 5mtpa SS is yet another box ticked that further enhances and de-risks our world class project at Manono.
Although the IRR came in at a more modest 64% due to the lower assumed price of spod, it's nevertheless a fantastic rate of return and a more realistic picture given the current price environment for spodumene concentrate.
Overall, the standout points for me (and clearly a few others) were;
- the ultra-low cost per tonne that can be achieved at Roche Dure.
- the added benefit of tin and tantalum credits that are yet to be factored into the NPV and IRR equations.
- the clear economic benefit of potentially adding higher grade feed from Carriere de L'este, also yet to be factored in.
- Upcoming met tests to confirm a premium grade (Tier 1 battery quality) concentrate from RD of between 6.2% and 6.8% (IMO), again another element not yet factored in - and btw this should alleviate any concerns around the company's US$750 median spod. price assumptions.
Essentially the above outcomes mean that our Manono project is very likely to be economically bulletproof i.e. no matter the presumed price of SC6 over the coming years. This is an EXTREMELY IMPORTANT point as it alleviates any 'economic doubt' for potential partners who are considering investing in the project.
A US $450-$550 SC6 price for example, would render many hard rock lithium projects unviable, and certainly those that operate on a smaller scale and/or with high OPEX costs due to low grades, high strip ratios etc. would be the first of the marginal projects to be put on ice. Credible 'experts' have already been warned that depressed lithium prices for a sustained period of time would wreak havoc on an industry that has recently become marginally economic (in many cases) due to the recent price falls.
However, a backdrop of sustained demand growth for Lithium vs theoretical supply shortages (due to uneconomic mine mothballing in a low-price environment) would eventually result in a massive price spike (think 2017), and therefore reigniting the need for an increase in production via existing mines and indeed new projects. Welcome to mining cycle 101 and either way, this is where I believe AVZ is in the box seat with its already proven and homogenous resource at / near surface (low-cost) which is large enough to be mined at pretty much whatever scale is required.
[Note to the demand side: JZ (the MD of AGY) reportedly mentioned at yesterday's AGM that the global corporates want big supply and they want it in the short term, with one Korean group wanting 150,000t LCE per annum. That is simply massive if true, and it bodes well for AVZ as it considers it's financing options, especially given that the entire world used ~277,000t in 2018.]
Now as an FYI only (not advice) I did speak to NF again a couple of weeks ago and LM a couple of weeks prior to that.
The key points from those two conversations that I recall were:
*Board and management are increasingly confident that project funding (or at least part thereof) can be secured PRIOR to the DFS. Discussions with several potential project partners are well advanced. One potential partner has said that they are interested in funding the entire project but require further detail on CIF (Freight) before they can commit.
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[ Note: In addition to my recollection of the above point, I've also heard through the grapevine in recent weeks (via a reliable source) that AVZ have engaged an expert in offtake agreements (Glencore and Mitsui were namedropped as relevant experience). If this is the case, then I can well understand why management would be feeling increasingly confident that project funding (or part thereof) can be secured prior to the DFS.
Side note and my personal view on this: When an OT expert is armed with a 5mtpa SS that screams 'quality long term supply and massive profits for decades', then why wouldn't project funding be simply a matter of course? What's also interesting is that a different 'cab driver' rumour I read here (on HC) recently mentioned that Glencore were drilling a few of their own holes over at a Manono?
By joining the dots the common theme seems to be 'Glencore', although admittedly I've drawn a long bow here and investors should understand that these rumours are well …. just that at this stage. IMO investors should therefore seek to verify any rumours through the appropriate channels and certainly not regard them as fact or advice of any kind.]
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*Option to purchase an additional 10% interest in the project from Cominiere (5%) and Dathomir (5%) discussions are well advanced, with Dathomir likely to be the first cab off the rank. When I asked how AVZ would pay for the additional 10% of the project without eating into the funds that were recently raised to complete the DFS, the response was that only a small payment for the 'option to purchase' would be initially required. Translation: an 'option to purchase' IMO provides AVZ with the flexibility to exercise that right down the track and this could even occur in conjunction with project funding negotiations. i.e. AVZ secures the additional 10% but swaps it for project funding (part thereof). This would be an ideal scenario for shareholders IMO, as it gives management the ability to provide potential partners with a 10% stake in the project without the dreaded dilution.
*Chairman apparently down to 2 candidates. I gave my 2 cents worth and implored management to appoint someone who not only has the credentials and experience to steer a world class African project through to production stage, but also someone who is hands on and 100% dedicated to building value for his or her shareholders. I added that if that means that neither of the 2 candidates fit this mould, then personally I would be happy to wait until they are able to find someone who is 100% fit for the job.
As a lean company, the last thing AVZ needs IMO is some tired, old city spiv (inefficient chairperson) sitting in a cosy office doing not much else other than shuffling paperwork in between board meetings. Sorry, but I've had my fair share of experience in dealing with these types over the years, and believe me when I say that they're 'dead wood'.
*AG are apparently still advising AVZ, however it is my understanding that moving forward the current monthly retainer will be dropped in favour of a success-based fee/outcome i.e. a similar arrangement to AVZ's current US advisors. This has been on my wish-list for some time, as I don't believe the company needs to pay a flat $25k per month retainer to any advisors/consultants, especially when no visible / measurable value is being added on a regular basis.
Events of this weekAs some of the recent charts (i.e. posted by some of our well known residents) suggest, we could be in the early stages of a massive re-rate here, and possibly because someone (with very deep pockets) knows something that most of us don't. Who would have thought that yesterday’s 's volume would easily surpass the massive volume on Tuesday. I've been watching the depth columns with interest and although there was some expected profit taking today (and btw this is typical for a Thursday), the barrage of large orders consistently hitting the market on Tuesday, Wednesday and even today has been extraordinary. The sell side is subsequently thinner and it very much looks as though something real is brewing (as opposed to your typical single day pump and dump).
Whatever the case, when the FA's stars align with the TA's (or vice versa), then that my friends is a perfect storm for a major re-rate. And let's face it, re: AVZ the writing has been on the wall for some time IMHO. Below is a brief summary and my take on the current state of play, but again all IMO and therefore none of the above or below should be considered as advice of any kind.
View attachment 1579708In summary, am glad that I gave myself months to research and fully understand AVZ and the market in which it operates i.e. well before buying AVZ shares at 11c and kept averaging down all the way to the 3.7c bottom. Am also glad that I’ve continued to DMOR and maintain an open dialogue with management, as opposed to focusing on the constant and unconstructive barrage of ill-informed criticism (and fearmongering) from numerous non-holding 'experts' and doomsayers via HC and twatter over the past twelve or so months. And now it's time for me to sit back, watch the impending fireworks unfold with a bucket full of heads at under 5c avg., and 'do nothing' with increasing interest.
View attachment 1579693View attachment 1579699GLTA and please DYOR
Cheers
Elpha
