Morning all,
Thought I'd provide an update and some additional analysis to last week's commentary, and why I believe a 12-18c target brings AVZ back to a fairer (yet still conservative) value vs its peers, at least in the short term.
1. AVZ vs hard rock development peers (as at 30th September).View attachment 2660291On 9/11/20 I wrote:
Note: post updating this graph on the 30th Sept, the hard rock development project mean (average) has risen a further $47 p/t (should have read $58/t)
to $314 p/t Li20 Enterprise Value (highlighted in yellow in the snapshot below), an increase of $58 p/t. And yet AVZ (already heavily discounted at $33 p/t the end of Sept) has only risen by a further $7 p/t to $40 p/t. In fact, AVZ in currently trading at an 87% discount vs it's hard rock development peers.Update: In just a week, the hard rock development project mean (average) has risen a further $14 p/t to
$328 p/t Li20 Enterprise Value (highlighted in yellow in the snapshot below), an increase of $72 p/t since 30th Sept. By contrast, AVZ (already heavily discounted at $33 p/t the end of Sept) has only risen by a further $10 p/t to $43 p/t. i.e. The gap to a fairer valuation vs peers has widened.
2. AVZ snapshot versus three development peers; Lithium Americas (LAC), Liontown (LTR) and Piedmont Lithium (PLL).View attachment 2660309The above update highlights stark difference AVZ's valuation vs main peers, with AVZ trading at an 79% discount to attributable project NPV. When comparing projects, IMO it's ridiculous that AVZ's $225m M/Cap is less than half that of LTR ($456m) and PLL ($500m), and well over a billion dollars less than LAC ($1.37b).
Even at 15c per share (almost double the current SP), AVZ would still be trading at a 60% discount to NPV (vs PLL current 58% discount) and at 15c still a whopping 74% discount vs hard rock development peers on EV/t basis. Conclusion: Extremely undervalued vs hard rock peers and also LAC IMHO.
3. Giant Cup and handle pattern forming on the monthly chart? IMO yes, especially when one looks at the catalysts that are likely (IMO) to drive this formation.
View attachment 2660324From a TA perspective, note that the 20 & 50 month MAs, MACD, Stochs and TSI have all turned positive after months and months of the SP forming a flat and extremely solid base between 4 and 7c.
By the way, the Valley Of Disappointment is a known phenomenon in the lifecycle of many stocks (see below chart), and AVZ is certainly no exception to the rule and IMO has been a 'textbook case' since 2019.
View attachment 2660351The good news for AVZ holders is that the SP appears to have begun its next phase up (in line with Lithium Boom 3.0 - see below) and IMO will likely outperform linear expectations in the coming months by mimicking development peers' exponential (triple digit) gains over the last 6 months and post covid crash recovery eg. CRE, EMH, LAC, LI, LTR, PLL, VUL etc as per the below performance chart.
View attachment 26622624. A walk amongst current & future giants of the Lithium Supply Chain - 3-year performance chart.Note: In Nov 2017 (3 years ago) AVZ's SP was trading at 25c per share and at a time when there was no DFS, no 400mt JORC resource or JORC reserves, 60% ownership (then) vs 75% ownership (now), no comprehensive met tests, no tenders, 20 Battery Megafactories in the pipeline (then) vs 174 Megafactories in the pipeline (now), no 20 million per annum Tesla EV sales estimates by 2030, no 35 million VW BEV/PHEV sales estimates by 2030, no first DRC democratic election in years, no US friendly climate/renewable/EV policies etc etc.
Indeed the world has changed since 2017 and much has transpired in 3 short years. During this time, Manono has not only proved its economic potential IMO, but also proved itself as a crucial & desirable asset / raw material source for the Tier 1 EV Battery supply chain, and a world class project that absolutely needs to be brought into production by 2022/23 if the supply chain is going to cope with imminent exponential demand from now until at least 2030 (see more on that below).
View attachment 26605495. AVZ vs Global X LIT ETF 2018 - present. The performance gap differential has widened substantially since July 2020 & even since Oct 2020. Short term target i.e. just to bring AVZ back to the bottom of previous gap length: ~16c per share (double the current SP)View attachment 26606066. Manono Price and cost sensitivities - a dozen cases / possibilities and their impact on NPAT & EPS over current Life Of Mine (20 years) The below table highlights a dozen price and cost scenarios.
Case 1 uses the current and initial DFS no.s (unlikely IMO as I expect these to improve prior to FID). Cases 2, 3 & 4 assume higher Tin prices and lower transport costs of varying degrees (likely to very likely IMO).
Cases 5 - 7 do the same but all assume a lower average SC6 and lower Lithium Sulphate price over LOM (possible IMO).
Case 8 assumes persistently low SC6 and Li Sulphate prices i.e. over the next 22 years (unlikely IMO).
Cases 9-12 assume no PLS plant (unlikely to very unlikely IMO unless replaced with a Lithium Oxide or Hydroxide plant).
Cases 11 & 12 also assume extremely low and near current SC6 prices persisting for the next 22 years (very unlikely given the likely demand between now and 2042.
Note: all cases show that the Manono project is a robust and profitable project, albeit much less so at persistently low prices. On the flipside, I haven't included super high / overly optimistic prices for SC6 or Lithium Sulphate, so there is significant potential upside in the event that forecasted demand for BG Hydroxide over the next 10-22 years (see further below in this post) eventuates as I think it may, which in turn may cause several substantial price spikes along the way.
View attachment 2662799View attachment 26628357. The great opportunity of this decade just keeps on getting greater. a)View attachment 2660690b) Forecasted Tesla Annual Deliveries to meet Elon's 'possible' 20m EVs by 2029. i.e. one year earlier than 'conservatively' planned.View attachment 2661881c) VW projected annual EV deployment to 2029 (exponential yet still well short of where they need to be if they are to catch Tesla by 2030). View attachment 2661971d) i)View attachment 2662547 EV new car sales in Europe eclipsed 12% share of all new car sales last month and are therefore on a Hyper-Growth S-Curve trajectory (similar to the below). Based on this trajectory, by 2024 80% of all new car sales in Europe are likely to be EVs.
Note: Norway is already at 80% in 2020!View attachment 2662475ii)View attachment 2662520EV new car sales in China captured a 6.3% share of all new car sales last month and EV sales are on a Medium-Growth S-Curve trajectory (similar to the below). Based on this trajectory by 2027/28, 80% of all new car sales in China are likely to be EVs.View attachment 2662529iii)EV sales for Rest Of World (i.e. ex China & Europe) continue to be mixed but mostly on the rise. Note: EV SUV & Ute/Pick-up sales are still negligible due to the lack of models released so far. However, 2021-2023 are likely to be the years when a significant no. of models are launched eg. Mustang SUV, ID4, Model-Y ramp-up, Cybertruck, Rivian, GMC Hummer, F-150 and many others. Thus, I think we can reasonably expect EV new car sales in the US, Canada and Australia to significantly increase from 2021.
For the now though, overall ROW EV new car sales look to be on a Slow-Ramp-Up S-Curve trajectory (similar to the below). Based on this trajectory by 2029, at least 80% of all new car sales across the globe are likely to be EVs of some description.
View attachment 2662589BUT BUT BUT ... Where will all this Battery Quality Lithium come from i.e. to supply this exponential demand growth from all over the world in a relatively short timeframe? Remember that it takes approx. 4 - 7 years to bring exploration projects into production, and in some cases longer, particularly for conventional brine projects located at higher altitudes.
And we should also be mindful that not all Lithium deposits are created equal nor at a scale and/or concentration whereby they can be economically and vertically integrated. As I keep saying, Tier 1 deposits at scale are extremely rare, and Gerritt Fuelling (ex President of Rockwood Lithium Asia - major subsidiary of former 49% owner of Talisons / Greenbushes mine - before being acquired by Albemarle) explains some of the main issues for smaller localised projects that may struggle to cut the mustard.
View attachment 2662631Thus, a major part of the
Tier 1 battery quality supply answer/solution
AT SCALEthis decade lies at Manono IMHO, and I can see requirements for both Roche Dure and CDL running 2 x 10mtpa operations 24/7 to supply consistent and clean feedstock (free from impurities) to several Hydroxide plants in China, Africa, Middle East/& or in Europe.
8. Battery Megafactory GWh requirements and the impact on Lithium demand vs supply including number of spodumene projects likely to be needed.@Scarpa, your easy-to-read-and-understand template design inspired me to improve my own, so if the below tables look familiar (albeit expanded upon in terms of data) then you will know why.
a) 2019 Battery Megafactory GWh requirements (highlighting the temporary oversupply conundrum) View attachment 2660675The below figure is a result of the temporary yet severe oversupply the industry experienced in 2019 and 2020, and illustrates supply tonnages that have been removed from the market due to unsustainably low Lithium prices. We can now add Altura to this list.
View attachment 2662025However, the above VAs / mothballed projects / delayed expansions etc. will take time to bring back online and they will only do so once each of these projects can be deemed as economically viable / robust in a volatile price environment. Translation: prices must increase substantially and must be economically sustainable/ favourable for each of these mostly mediocre projects (IMO) before the green light is given and (resumption of) CAPEX is provided.
The good news is that Morgan Stanley China/Asia reported on October 27 that as of September 2020, (Lithium)
'chemicals inventory digested rapidly'. Spodumene inventory had also decreased to 82.5kt LCE, or approx. 3 months of refining consumption (see below). It is very likely that this figure will have further reduced in October (last month), and I suspect that Lithium spot prices will begin to respond positively in the coming weeks.
View attachment 2662103b) Sept 2020 Battery Megafactory GWh pipeline requirements to 2028 (pre Tesla Battery Day estimate of requirements announcement) and the impact on Lithium demand vs supply including number of Spodumene projects likely to be needed.View attachment 2662130c) i) Dec 2020 Battery Megafactory GWh pipeline requirements to 2028 (inc. Tesla Battery Day requirement estimates) and the impact on Lithium demand vs supply, including no. of Spodumene projects likely to be needed.View attachment 2662319ii) LCE Growth rate to 2028 to satisfy the above 8. c) pipeline capacity estimate View attachment 2662382d) Dec 2020 Battery Megafactory GWh pipeline requirements to 2028 (inc. Tesla Battery Day 3TWh estimate by 2030) and the impact on Lithium demand vs supply, including no. of Spodumene projects likely to be needed.View attachment 2662352e) i) Dec 2022 Battery Megafactory GWh pipeline requirements to 2030 (inc. Tesla Battery Day 3TWh estimate by 2030 and estimated 100% pipeline growth between Dec 2020 and Dec 2022) and the impact on Lithium demand vs supply, including no. of Spodumene projects likely to be needed.View attachment 2662709
ii) LCE Growth rate to satisfy the above 8. e) pipeline capacity estimate View attachment 2662448As you can see from the above, the compounded annual LCE growth rate estimates for BG Hydroxide in particular, is very similar to Tesla's own EV sales growth forecast from now until 2030.
Therefore, assuming the rest of the Tier 1 EV industry (including Western car & truck OEMs and other OEMs that require high density NCM/A type applications) and their supply chain gets its act together and follows suit in terms of overall CAGR, then it is very likely that every half decent Lithium project on the planet will be required with maximum throughput, and the number of 2mtpa and 5mtpa Spodumene projects by 2028-2030 will dwarf that of today's operational few.
AVZ (more so than ever IMO) remains in the box seat and is in the sweet spot to enter production by 2022/2023. However, the clock is ticking and management need to deliver solid OTs and Finance with favourable and flexible terms in the days, weeks and next few months ahead to allow an imminent course to production to be set, and to help the SP to commence THE REAL ASCENT (in earnest) and towards realising its full potential over the next few years.
GLTA
Cheers
Elpha
p.s. re: AGM, don't forget to vote if you are a shareholder. Your vote must be received by 2pm (WST) today (Tuesday 17th Nov).
Have voted AGAINST Resolution 13 (spill resolution) as am happy with the current makeup of the Board, plus IMO we don't need any disruptions prior to achieving OTs and Project Finance.
However, I did vote AGAINST Resolutions 4 - 8 as I don't believe these particular Performance Rights necessarily reflect true performance. i.e. achieving 25% Offtake (especially if the terms are not known) and Decision To Mine should be considered as part of their job IMO, especially given the boards overall current remuneration as outlined in the Annual Report. IMO these new Performance Rights are not an appropriate incentive, nor do they represent an acceptable amount of 'risk sharing' with shareholders.
