I just re-read this research report and got intrigued by this comment in it which relates to its valuation on SP should the DFS come to fruition as is at the 4.5 mtpa configuration- https://www.rmcapital.com.au/wp-content/uploads/2020/05/RMResearch_AVZ_202005011.pdf:
"SHARE PRICE UPSIDE: Modelling suggests price targets of 12 cents (post FID) and 28 cents at nameplate production based on a 60:40 debt: equity ratio at 4.5mtpa."
Interesting the debt/equity assumption in the report, albeit 'prepayments' from my understanding might be considered a loan btw (i.e. debt - https://www.wrightlegal.com.au/offtake-prepayment-financing.htm ), whilst equity for Offtake Agreements would be equity. So would be interesting what the underlying assumption was in the RMCapital research report, and how they determined that, and who provided the data for that assumption:
It is pretty close to the valuation I came up with btw at production/nameplate at P/E 10, albeit I tend to think about P/E 15 - Post #: 45096045 The model I sort to duplicate was close to the DFS but not exact, but good enough IMO at the time to have ball park guesses. Note: in the model below, year 7 - 21 same as year 6. Growth potential through expansions not modeled below - so I was just looking at the DFS configuration at the time.
Obviously a lot of water that needs to go under the bridge before production starts, such as signing Offtakes and getting finance, but I found it interesting in itself. Research report demonstrates that the long term benefits here for us SHs are achieving mining and hitting DFS targets, but in terms of SP growth it does require milestones been hit by AVZ, and hence the risk. A key risk is demand needs to return to the growth trajectory pre-COVID 19 on the road to 2000 GWh by 2030 so that AVZ can enter the market this side of 2025. That sign will also be increasing spodumene prices, which are fundamental to recovery, and will be the first indicator IMO that the supply overhang in the market is starting to seriously abate, and that also requires (better and continued) growing EV sales, in particular, in the next 6 months especially, which might also get a bit of movement as well through the new policies in Europe around encouraging EV takeup.
I'll also say that the RMCapital report stated a possible FID decision (but dependent on financing) for July 2020, so suspect timelines, including production start date,
may shift (slightly) to the right as well. My personal view is production could end up also been a staged start up as well - that is Stage 1, which has a lower capex cost, producing 700,000 tpa of 6% grade spodumene might operate slightly longer than moving to (the more capex cost intensive) Stage 2 been 547,000 of 6% grade spodumene sales and 45,375 tonnes sulphate. But time will tell, but the option, IMO, for a staged development are possibly there as well. But obviously AVZ's preference is the DFS configuration and quicker Stage 2 production date, but ultimately I suspect funding and Offtakes are likely to play a part in the staging/ramping of configuration, which will also be reliant on EV forecasts prevailing.
All IMO IMO
