Morning all,
With only 5 days until AVZ's
National Roadshow Presentation kicks off in Perth on 18th May, there's a fair bit to look forward to in terms of upcoming developments and news flow.
To remind, we are awaiting:
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Updated Resource / Reserves calculations (May)
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FEED Study (70% completed as at 3rd May.
'Currently being finalised' as at 10th May). The Probabilistic Seismic Hazard Assessment (PSHA) has been completed, as has the Geotechnical survey of the Process Plant and Tailings Storage facility area. note: the completion of these studies is required in order to upgrade the DFS to a BFS level. Expecting an announcement re: FEED Study completion and details this month.
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Finalisation of MSEZ as part of a final
Cooperation Agreement with the DRC government (BTD opines that finalisation could be as early as 15th May). Critically, a Cooperation Agreement
'reinforces the DRC Government's pledge to financiers that the DRC is open for business to the international investment community'. Refer 10th May ASX announcement for more details.
[sidenote: The below link from the DRC Ministry Of Planning highlights the legal framework for a SEZ. Thanks to @ConDino007 on Twitter for finding & sharing.
https://www.investindrc.cd/en/Special-Economic-Zone?lang=en ]
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Additional 5-15% of Dathcom / the project from Cominiere? Would bring AVZ's ownership in Dathcom up to 90% (May/June). An additional 5-15% of the project could IMO form part of the final cooperation agreement between AVZ and the DRC government, or it could be a completely separate negotiation.
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Investor Roadshow / Company Presentations (May 18- May 25) - sincerely doubt that management will be re-presenting what investors already know i.e. expect lots of new info and potentially some substantial news by that time (all IMO though).
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MOU on Project Funding with syndicated DFI group due May (LOI s received April) following the satisfaction of a critical Condition Precedent i.e. the completion of AVZ's SC6 off-take. An MOU at this stage may be considered as a formal tick on finance
subject to ML approval IMO.
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Remaining 53% of Tin off-take (overdue but given that existing OTs are sufficient for financiers, BTD suggests company is keeping up its sleeve for future opportunities). note: Tin futures currently hovering at a 10-year high with no end to supply shortages in sight, especially given the expected hockey stick trajectory for EVs.
https://www.wsj.com/articles/tin-pr...20811801?reflink=desktopwebshare_twitter:cool:
Below image source: International Tin Association
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[larger sidenote: TSX listed and junior Tin miner Alphamin Resources (AFM) doing very nicely in the most dangerous province in all of the DRC (North Kivu) - if you don't mind umpire!
Furthermore, AFM don't receive any of the fiscal benefits that an SEZ can provide. However, despite this, they recently hit CAD $1 billion Market Cap with a 11,000tpa production profile.
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To recap, on the 23rd December last year I wrote;
'
...it is worth remembering that AVZ investors not only have exposure to THE LARGEST Measured & Indicated Lithium resource on the planet and THE LARGEST known hard rock project in existence, but they are also shareholders of the largest ASX listed Tin deposit. Manono after all, is home to the world's second largest undeveloped Tin resource and third largest in terms of undeveloped Tin reserves.
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The impact that the Tin price is having on fellow DRC Tin mine producer Alphamin Resources (TSX: AFM), for example, is plain to see, with the market valuing the company at @A$580m fully diluted {now A$1.021 billion and therefore AFM's gain in the last 5 months equates to AVZ's entire Market Cap ]. AFM's 84% owned Bisie Tin mine is a relatively small project (in comparison to Manono) and all said and done is around a fifth of the scale of Manono's Lithium & Tin project in terms of throughput, scale and EBITDA potential.
Furthermore, Bisie has a current LOM of only 10.5 years (compared to Manono's 20 - 100 year mine life). AFM's debt profile is also a big negative IMO, with debt repayments at LIBOR + 10.5% increasing to LIBOR + 14% from 2022. By constrast, AVZ's finance is well advanced with Pan-African DFI's (and potentially others) and I expect single digit loan rate (%) from a potential consortium to emerge in due course.
However, Bisie (AFM) is still attractive in the sense that it is a high grade mine / lowest quartile cost producer, and contains 8% of the world's Tin reserves {AVZ ~6%} and 4% of all Tin resources {AVZ currently ~5% but likely to be triple that given that Tin is present at Roche Dure, CDL & AVZ's 100% owned tenements where artisanal mining is expected to form part of Manono's Tin production profile}.
And the market thinks so too by re-rating AFM from 12c to 40c (3.3 x) {now 72c or 6x} since the Covid crash earlier this year, and seems to like the outlook for AFM's high grade Tin deposit located in North Kivu (the most dangerous province in the DRC according to a recent report).'
A
MSEZ is
'expected to deliver significant economic benefits for the Manono project' and should turbocharge the overall economics. A MSEZ will also likely be a massive confidence booster for future strategic & institutional investment. And if Alphamin can be a A$1 billion + Tin company with a 11ktpa production profile, then there's certainly no reason why AVZ cannot be a A$1billion+ development company once a few more milestones have been ticked, before morphing into a $A4-5 billion (market valuation) Lithium & Tin powerhouse producer in 2023 (IMO).
At the current price of 15c per share, AVZ's Market Cap is A$448m fully diluted
, and significantly ~$A217 million less than when AVZ traded at 30c per share (again fully diluted) back in Nov 2017. And look at all that has been achieved since then.
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A 15c SP also represents a
55.3% discount to DFS 1.0's NPV (calculated in April 2020), and a whopping
88% discount vs development peers on an EV/tonne Li2o basis. However, I expect the revised DFS (2.0) to significantly increase Manono's NPV, and thus AVZ's SP should re-rate based on this factor alone.
In the meantime, a doubling of the SP from here (i.e. 30c) still equates to an 11% discount to the current/old NPV and a 77% discount to AVZ's development peers on an EV/t Li2o basis. Food for thought.
end larger sidenote]
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We are awaiting (continued)
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PLS off-take (overdue but given that existing OTs are sufficient for financiers, BTD suggests company is keeping up its sleeve for future opportunities with
'a particular focus on new and emerging market penetration').
IMO such an significant development may well consist of a more comprehensive agreement i.e. potentially a JV with a sizeable and upfront equity component, and IMO more than just a standalone OT (as has been the case with AVZ's 3 x recent binding SC6 agreements with various Chinese producers).
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One remaining ESIA submission to A.C.E in the DRC for approval (overdue but pending as at 3rd May)
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Mining permit (PE) application submitted to CAMI in the DRC (overdue and requires ESIA to be included once the ESIA submission is approved)
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Lithium Hydroxide Study from Noram, Canada (June) - further test work progressing (as at 3rd May) to optimise the reagents needed and reduce the sodium sulphate Na2SO4 carry over to optimise the PLS specification.
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Process Plant & HEPP EPC award (due May/June)
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Carriere de l'Este - fourth new reconnaissance hole was 'currently being drilled' as at 3rd May. Each hole has 'intersected significant widths of pegmatite with widespread spodumene present' within the orebody. Assays results pending as at 3rd May.
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Mpiana Mwanga HEPP PPP agreement execution (slated for May but more likely June/July IMO given that further negotiations are required - refer ASX announcement 3rd May). Feasibility Study has been validated by the Ministry Of Hydraulic Resources & Electricity. AVZ Power currently assessing the specified technical & administrative recommendations before negotiations toward an agreement execution continue.
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Mining Licence awarded (slated for May but more likely July IMO - BTD suggests 6-8 weeks from application being submitted)
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Final Investment Decision (June but likely to be July IMO given that FID is subject to Mining permit timelines)
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PLS and / or
Lithium Hydroxide JV (pre, post or in conjunction with execution of Project Finance?)
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Execution of Project Finance / establishment of funds (July) prior to construction. Likely to include a 20-30% equity component IMO, however
BTD suggests that this could be sorted with a JV.
Question 1. Will the equity component be in exchange for a % of Dathcom (resulting in zero shareholder dilution), or will it comprise AVZ shares (dilution but Dathcom remains a 100% AVZ/Cominiere entity), or perhaps a combination of both AVZ shares and project interest?
Question 2. Will a large cornerstone investor and/or JV partner provide 100% of the equity component or will equity comprise of several strategic investors and include a shareholder entitlement scheme? Either way, those betting on a straight CR (especially at a discount to today's price) could be bitterly disappointed.
Finally (and relative to other stocks, commodities, ETFs & general indexes), AVZ & the price of Battery Grade Lithium compounds still have a lot of catching up to do IMO i.e. even just to reach their old highs of early 2018. However, the fundamentals for both are now stronger than ever IMHO.
In terms of Battery Grade LiOH for example, Livent's Q1 call last week highlighted some immediate supply issues that are unlikely to be resolved anytime soon. According to Livent, almost all Battery Grade LiOH production is sold out! The big risk is that the market will be structurally short by the second half of this year. That means that there is likely only one way for SC6 & LiOH prices to go in the foreseeable future IMO. Successful qualification (and perhaps that includes product quality and consistency?) also remains an issue.
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And finally, finally... this nice find below from
@kiwi-matthew on twitter, apparently he found this DRC solicitor and legal advisor liking an AVZ linked in post. Have underlined the relevant bits.
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Joining the dots can create clear images (hopefully of what's to come) before our very eyes
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GLTA, all of the above IMO so please DYOR.
Cheers
Elpha
