Morning all, It's been sometime since I've contributed anything...

Morning all,

It's been sometime since I've contributed anything of substance so thought I'd provide some additional insight on all things AVZ.

AVZ vs selected Spodumene development peers:

3.5 years ago (8/11/2017) the SP reached an interim high of 30.5c and there were 2,216,539,071 shares on on issue (fully diluted excluding performance rights) valuing AVZ at A$676m (though at one stage in January 2018 the company was valued at a record ~A$800m).

To clarify the below table, I've added an 'AVZ 2017' column to compare the 'then vs now', with the main differences being the no. of shares on issue and AVZ's share (%) of the Manono project. Interestingly, the negative/dilutionary effect of a higher no. of shares on issue (approx. 750m higher vs 2017) is almost completely negated /offset by the addition of a 15% increase in the Manono project (option to acquire from Dathomir).

For the purpose of the exercise, I've also assumed that AVZ had a JORC resource & DFS in 2017 so as to compare apples with apples on an NPV and EV/t valuation basis, though in reality AVZ didn't yet have a 2mtpa PFS (let alone a DFS) nor had it begun it's extremely successful 30,000m drill campaign which then paved the way for a mammoth JORC resource of 400mt at 1.65%. And of course, back in 2017 AVZ didn't have 4 x game-changing binding OTs with Ganfeng, Yibin (CATL) and the like.

Nevertheless, and keeping the above facts in mind, a 30c SP in 2017 terms equals 27.5c in today's terms (refer to 3rd column) when comparing values such as project EV/Resource tonne and attributable premium/discount to project NPV. And yet, clearly the market has ignored these comparisons with AVZ's current market valuation of A$477m fully diluted (exc. perf. rights) at 16c per share which represents a significant discount of ~30% (~$200m) vs AVZ in 2017,

The other points to make with regards to the below table is that even at 27.5c per share (again refer to 3rd column), AVZ would STILL be trading a 18% discount to attributable NPV and a whopping 83% discount to ASX hard rock development peers on an EV/t basis, or a 68% discount after a 15% country risk discount is applied. Furthermore, looking at the market caps of LAC (A$2.57 billion), LTR (~A$1.15 billion) and PLL (~A$1.5 billion), and its clear to see that AVZ can, in the short term, easily justify a re-rate to 27c - 33.5c per share (A$800 - $1 billion fully diluted) on a Lithium development peer vs peer basis.



AVZ vs Global Sample of Spodumene Projects ( x 9) in Development.

Due to a surging demand outlook for Lithium hard rock (note: LAC not included in this calculation), the above table also highlights the current EV/t peer average for Spodumene developers at record levels, ~A$1000/t Li20 as highlighted in yellow.

To illustrate, the below is an EO 2020 - 2021 evolution comparison of spodumene rock development projects on an EV/t basis including the latest update. note: ASX listed is PSC not illustrated but it is included in both peer average calculations (btw I replaced FFX with PSC as PSC had a very similar EV/t calculation to FFX before it added gold to its portfolio) to maintain a balanced & more representative 'global average'. i.e. with FFX included the average would have been even higher, however with PSC replacing & being a pureplay Lithium Co. it contributes to a more accurate representation to the overall picture IMO.  



The main difference since the 7th April update?

The spodumene development peer average on an EV/t Li20 basis has risen from A$857 to A$989. That's another group increase of ~A$130/t Li20. By contrast, AVZ has only fallen A$15/t (from A$110/t to $A95/t Li20). Therefore, at 16cents per share, AVZ is trading at a whopping A$894/t Li20 (an all- time record 90% discount) under its peers. Even at 27.5c per share, AVZ would still be 18% below its NPV and would be trading at a 83% discount to its peers (average) on an EV/t basis, so obviously there is massive growth upside to come from AVZ IMHO.

To remind, we are awaiting:

*Updated Reserves calculations (June)

*FEED Study (June). The completion of this study is required in order to upgrade the DFS to a BFS level.

*Finalisation of MSEZ as part of a final Cooperation Agreement with the DRC government.
Launch by AZES last Friday (June 4th) 'of the work of the Commission for granting SEZ status for the examination of the Manono SEZ Project located in the province of Tanganyaka.' i.e. we are getting close
[sidenote: The below link from the DRC Ministry Of Planning highlights the legal framework for a SEZ.
https://www.investindrc.cd/en/Special-Economic-Zone?lang=en ]

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 TSX listed DRC Tin producer Alphamin Resources 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 couple of key milestones have been ticked, before morphing into a $A4-5 billion (market valuation) Lithium & Tin powerhouse producer in 2023 (IMO).

*Additional 5-15% of Dathcom / the project from Cominiere? Would bring AVZ's ownership in Dathcom up to 90% (June - August). An additional 5-15% of the project is a separate negotiation to the cooperation agreement between AVZ and the DRC government.

*MOU on Project Funding with syndicated DFI group (June) following the satisfaction of a critical Condition Precedent i.e. the completion of AVZ's SC6 off-take. AVZ believe that MLAs now have ALL of the information required to conclude their due diligence and sign an MOU, and which may then be considered as a formal tick on finance subject to ML approval IMO.

*Remaining 53% of Tin off-take/s with pre-payments? (June - August) 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.

*PLS off-take (June - August) as per remaining Tin OTA/s, anticipating an upfront equity component but with bigger $ involved. Refer to presentation notes further below for more opinion on this.

*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. What price would a PLS product of >97% Lithium content command?   

*Carriere de l'Este (June) - 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.

*Mining Licence awarded (June -August IMO) If expedited by the DRC government and assuming there are no major issues in terms of the information provided, BTD suggests application could be approved 6-8 weeks from May 17 application date.

*Process Plant & HEPP EPC award (due Q3)

*Final Investment Decision (Q3) given that FID is subject to Mining permit & project finance timelines

*PLS and / or Lithium Hydroxide JV (pre, post or in conjunction with execution of Project Finance?)

*Execution of Project Finance / establishment of funds (Q3) prior to construction. Likely to include a 20-30% equity component IMO, however a major chunk of this could be covered by PLS and Tin pre-payments.

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 either some or the majority of the equity component, or will equity be raised via OT pre-payments & several NEW strategic investors? Either way, those betting on a straight CR (especially at a discount to today's price) could be bitterly disappointed.

National Roadshow Presentation notes and thoughts (IMO).

2 to 3 off takes to be concluded, & potentially with with pre-payments. Two of the existing three offtake partners are wanting more product because they know there is limited supply available, and so Management are anticipating supplying additional SC6 & PLS in return for upfront cash.
PLS is the jewel in the crown as far as offtakes are concerned. AVZ is mindful of shareholder dilution and considers pre-payments (as part of the 30% equity to finance the project) as the gateway for future offtake discussions.

AVZ had asked syndicated DFIs to provide a gap analysis (which they should have done by now), as AVZ believes it has supplied all info /conditions that are required apart from the mining license. Therefore, AVZ are hopeful of having an MOU for debt finance by end of June.
Note: Equity & debt funding does not have to be all upfront, can be staged and provided as agreed milestones are met.

Hydro Electric discussions underway to have that signed under a PPP

Government officials were pushing AVZ to submit the ML ! AVZ took its time to ensure that ALL relevant information was provided in the ML application, so as to not hold up the process once submitted.

The 900,000 tons of middlings grading 1.4% will be processed (crushed, ground and put through a flotation circuit) & used to feed a second PLS train.

BFS

A sulphuric acid plant expected to be added to the BFS requires an additional $40 million in CAPEX and will save the project $250 million over a 20 year LOM.
Will this mean a revised total CAPEX Of $585 million?

Keep in mind that the FEED study (due any day now) from Mincor should optimise cost efficiencies, potentially reducing the initial CAPEX estimate. The 12 million tons of wedge reserves (previously considered as waste) will provide a mining cost savings for the initial 2.5 years (4.5mt x 2.67 years = 12mt), i.e. money saved instead of being borrowed to fund pre-production CAPEX / waste removal. So there’s two avenues for potential CAPEX cost reductions to at least partly offset (if not fully) an additional $40 million CAPEX requirement for the Sulphuric Acid plant.

With The Wedge material included, earlier cashflow was expected to further reduce the already outstanding payback period. Strip ratio set to decrease from 0.48 to ~0.35.

From my April 2020 DFS notes, the ROM feed is expected to increase from 88mt to 128mt. Therefore I  anticipate current mineable reserves to increase from the 93mt to ~130mt, as this also fulfills the 28.5 year LOM throughput requirements (4.5mt x 28.5 = 128mt) that the wedge results are expected to deliver for the BFS. What other Lithium hard rock project globally has mineable reserves of ~130mt grading 1.66%?

Rail costs are expected to be finalised and included in the BFS. AVZ expect significant discounts to the standard rate cards from all three rail carriers, given that AVZ is set to provide much needed volume (and therefore income) for these rail companies as a leading and long term anchor tenant.   

SEZ.

AVZ are asking for a 3- 5 year tax break and a low tax rate after that. An exemption from VAT is also required as it doesn’t work for AVZ in country.

Other than that DFIs, there are three other groups that are interested in funding the project to the tune of ~$350 million. AVZ are currently in discussion with two of those groups, and there’s a third option there if required. NF also alluded to local support interested in providing both debt finance and a slice of the project or company in exchange for equity.

The overarching theme with respect to finance is that all potential financiers are waiting for a couple more boxes to be ticked including an awarding of the ML. Therefore binding MOUs are the logical interim stepping stone i.e. approval subject to ML being awarded.

AVZ also remains in discussions with Cominiere for an additional slice (up to 15%) of the project, but this will be separate to the SEZ and will more than likely be finalised later (if at all).

-------end of presentation notes and thoughts-----------

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.





Various Indexes (broad indicators)


AVZ vs various Lithium Brine & Clay development stocks


AVZ vs various Lithium Hard Rock development peers


DRC - the land of giant resources and giant potential. The strategic importance of the DRC for battery metals combined with relative jurisdictional / country risk (see below average for Africa) is not yet properly understood by a large proportion the Australian Investment community IMO.



I repeat: AVZ trading at a record 90.4% discount (should be 15 - 25% tops IMO) relative to Lithium Hard rock development peers.  



Below s-curve = parts of Europe eg. Norway, Germany, Sweden, France, Netherlands etc.



Below s-curve = China & rest of Europe inc. the UK


Below s-curve = USA, Japan, Australia etc. (rest of world combined)


Bring on the exponentially growing demand for EVs (the mass adoption phase has begun), the clean energy and energy storage revolution (more Lithium batteries) and the Lithium MEGA MEGACYCLE.

GLTA

Cheers
Elpha