AVZ (ASX) Running discussion on SP

Originally posted by setfire2thehive ↑

Might be time to recap on 17 points i put to AVZ management as overdue to reflect on what is still outstanding as per their CO announcements.

1) 5 MTPA - Due April 2019 - This is overdue as of today
2) Transport Study - Due April 2019 - This is overdue as of today
3) Independent Research Report - Due Nov 2018
4) Patterson's Research Report - Due Mar 2019 - (Not sure there's much incentive given they've offloaded most shares)
5) JORC update - Due April 2019 - This is overdue as of today.
6) Metallurgy - Cores due to arrive in April - This is overdue as of today
7) 10% Project interest increase - How does AVZ plan to pay for this purchase, what incentive would Cominiere SA and Dathomir have in selling 5% if not at a significant premium to current market valuation. This was briefly touched on, but could eventuate as an unexpected piece of news.
8) 5Y tax concession - Due??
9) New Chairman - Mentioned Jul 2018 - Severely overdue - Can you be more specific as to where the discussions are at, or the type of candidates shortlisted, can the date of appointment/s be refined. Can you elaborate on why this has taken close to 12months.
10) Expanded management team mentioned jul 2018 - Is this complete?
11) Australia Roadshow - Just a suggestion
12) Transparency on SPP funding - Were other funding arrangements presented, what were they? Why weren't they entertained? What was/is the strategy on funding moving forward? The last one as you must be aware was a disaster. I think AVZ needs to detail what it's specific strategic plan is. i.e. "Huayou remains our lead candidate to fund capex for plant construction. We are currently in discussion with, (enter countries, or non specific details to the entities still in discussions). Also, can we outline what is preventing investment. Is it price? is it that the investors want the DFS complete, the transport sorted, a chairman or is there just a general lack of interest.
13) Transparency on Huayou relationship - "Talks remain positive" isn't exactly a clarification. What is their current motive? What is their desired position moving forward? Re AVZ - see above
14) Transparency on AG and JNS deliverables - How is their value or success measured. What are their explicit guidelines? i.e. are they responsible for tabling deal, or performing introductions? Additionally do you expect to review their contracts?
15) Transparency on Low-Ball Offers - Have offers, however informal, been offered. By whom, under what circumstances, at what prices. and additionally. Why haven't they been entertained as legitimate. Would be my recommendation that these low ball offers would go a long way to moving the S/P in the right direction. Which in turn allows AVZ to leverage more favourable discussion or funding arrangements.
16) DFS pushed to Dec 2019 - What is the critical path for it's completion. Was it shifted to align with infrastructure upgrades or is it internally constrained?
17) Do the directors intend to buy shares on market at some point in the future. See AJM for example where a director invested $15M in his own coin. Obviously individual circumstances may prevent such an investment, but given the lacklustre share performance and recent performance awarded shares this may be a way re-incentivise outside investment. Another proposal could be to forfeit remuneration or at least a portion of for share allocation.

All in all, a few things checked off but still think the bolded points are the ones that warrant further clarification on strategy.

What i'd like to see in the next 3 months is the following.
-Chairman appointed
-Preliminary met testing results
-Clarifications on current funding and offtake agreement strategy. Not just some fluffy crap that "discussions remain positive". No. just outline exactly what AVZ's strategy is and whom they are targeting and in what time frame they expect this to occur.
-On market purchases - (unlikely but i'd definitely like it to)
-More robust transportation information. Maybe they could elaborate on the assumptions of the current study. and/or if they intend to use alternate routes. Are other roads being developed/upgraded for manano?
-Hydropower - whats the go with AVZ power
-Detailed flight path of DFS. - I dont like a 1Y timeline with no stage-gates available. You won't know it's delayed and by how much until the met's come in and even then.
-Pit dewatering progress

Not wasting my time emailing them -already sent 3 and 2 follow ups with no response. Perhaps someone who has open lines of comms could put it to them.

SF2TH

Expand

Morning @setfire2thehive et al,

You can cross points 3, 7, 8, 9 and 14 off your above list and as per the below. Also note that points 7, 9 and 14 were covered in the following post dated 30/5/2019 https://hotcopper.com.au/posts/38833129/single

However I've covered these off again as per the below.

3) Independent Research Report
http://www.rmresearch.com.au/wp-content/uploads/2019/05/RMResearch_AVZ_20190528.pdf

'Price Catalysts

• Further metallurgical test work results expected Q3 CY2019
(with initial results expected any day now).

• DFS expected to be completed Q1 2020.

• Strategic investors/partners, conversion of MoUs with various Chinese Groups to binding offtake agreements for lithium concentrate and other products.

Action and Recommendation

• RMR is initiating coverage on AVZ with a Speculative Buy underpinned by the favourable results from the 5mtpa Scoping Study.

• Our near term price target of 10 cents still puts AVZ at an 72% discount to attributable after tax NPV10 of A$1.54bn based on a 5mtpa operation.
RMR is showing upside to 16 cents post DFS and 36 cents at production on a range of reasonable assumptions.

• The project is a standout among lithium hard rock players and consider AVZ cheap under 10 cents'
(now even cheaper under 6c)

7) 10% Project interest increase

Q. How does AVZ plan to pay for this purchase, what incentive would Cominiere SA and Dathomir have in selling 5% if not at a significant premium to current market valuation. This was briefly touched on, but could eventuate as an unexpected piece of news.

A. 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.

8) 5Y tax concession
Q. Due??
A. Post DFS

9) New Chairman

Q. Mentioned Jul 2018 - Severely overdue - Can you be more specific as to where the discussions are at, or the type of candidates shortlisted, can the date of appointment/s be refined. Can you elaborate on why this has taken close to 12months?

A. Chairman apparently down to 2 candidates. They want to be sure that they have the right person and are in no rush to appoint. 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'.

14) Transparency on AG and JNS deliverables

Q. How is their value or success measured. What are their explicit guidelines? i.e. are they responsible for tabling deal, or performing introductions? Additionally do you expect to review their contracts?

A. AG were appointed to provide AVZ with introductions and advise AVZ on strategic matters (eg. original timings of the plan to production etc). In addition, I was also informed that AG were given free reign to table any deals, but clearly and more recently these never came to fruition.

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.

Furthermore and 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.

It's crazy how people think that yesterday's strategic agreement with HY prevents AVZ from signing further OT/JV agreements. Nothing could be further from the truth IMO and it's only a matter of time before the first OT/JV is signed. Hint: pre DFS imminent IMO. Our deposits at Manono are far too strategically important for the major EV/battery players to ignore, and HY's strategic partnership simply reinforces the plan and belief that Manono will be mined sooner rather than later. And there will be ample supply for more than one OT partner IMHO. Plus all the talk of political and country risk is way overblown IMO (just ask Huayou, Glencore and Ivanhoe who have all recently increased their investment in the DRC) and in any case has been more than accounted for given the massive discount of AVZ's resource vs it's inferior Aussie peers.

All IMO but hope the above helps to alleviate some of your concerns.

GLTA

Cheers
Elpha

p.s. found this little tidbit amongst the latest news
https://www.moneymorning.com.au/201...es-9-84-on-agreement-with-huayou-asxu-lw.html

'Today, AVZ Minerals Ltd [ASX:AVZ] entered into a strategic relationship with Zhejiang Huayou Cobalt Co Ltd, through its group company Huayou International Mining (Hong Kong) Ltd.
The strategic agreement is non-binding and non-exclusive.
At time of writing, AVZ’s share price is trading lower at $0.055, down 9.84%.

AVZ’s Manono project

As stated in the announcement, AVZ and Huayou are focused at bringing together and strengthening the Manono Lithium and Tin Project, located in Democratic Republic of Congo (DRC).
Under the agreement, AVZ can take Huayou’s experience in the DRC and mainland China and use it in its Definitive Feasibility Study at Manono.
Huayou can also offer financing, offtake financing, strategic services, EPCM and cost-effective transport of product to its last destination.

As stated in the announcement, AVZ and Huayou are focused at bringing together and strengthening the Manono Project.

AVZ Managing Director Mr Nigel Ferguson Said:
‘AVZ values its existing relationship with Huayou very highly and this new agreement will see the two companies come even closer to advance the Manono Project. We believe that bringing Huayou’s tremendous mining expertise to bear on the DFS, financing and offtake negotiation will accelerate the commercialisation of the largest lithium ore body on the ASX and yield tremendous value for AVZ shareholders.’

Additionally, the President of Huayou Cobalt Group, Mr Hongliang Chen said:
‘Huayou is pleased to have joined AVZ in a Strategic Relationship to progress the Manono Lithium and Tin Project. This project is one of the standout development projects globally in our view. It has the potential to deliver a premium grade product to market and we expect to work closely with AVZ to maximise the potential of the Manono Project.’

AVZ’s 2019 share price outlook

The strategic relation between AVZ and Huayou is set to promote a relationship beneficial for all stakeholders.
It seems after previous tension, the two groups have come together in what is a positive development for both companies, despite AVZ’s share price taking a bit of a hit today.
More to come.

Regards,
Ryan Clarkson-Ledward,
For Money Morning'