A company valued at 110% of their projects post-tax NPV is a no from me.
Fair value (IMO) for a company with a PFS, no offtakes, no mining licence, no finance is around 20% at best ~ 200M USD
"my general rule of thumb for (FAIR VALUE) S/P as a function of NPV is as follows.
1) SS/PFS performed, no offtakes, no finance = 10-20% of NPV
2) DFS/BFS pilot plant no offtakes no finance = 15-30% of NPV
3) Either of the above with offtakes secured = 25-40%
4) Any of the above with finance secured = 35-50%
5) in construction near term production = 50-75%"
If you look at PLL recently released a SS ~2bn USD and have offtakes.
They're trading at 56% of post tax NPV.
The WA based projects need more robust NPV's to support market caps. That AUS jurisdiction seems awesome until your project is mothballed like MIN or insolvent like AJM/A40. Economics are king are we'll see in time if they make the WOF process work outside a lab on a variable ore body.
Additionally, with no determination in the JORC, sampling or metallurgical data to support the deleterious elements content across the ore body it's a case of taking managements word. That didn't work out too well for PLS and also explains why GXY get a better received price for a lower grade Li content product from a lower grade feed source. PLS was feeding around 1.56% of selected ore body to get close to profitable (much higher than JORC grade). How much of the ore body is genuinely profitable? These are the risks when you don't accurate determine the constituents across the resource inclusive and important of the gangue and deleterious elements in the ore.
Post #:
53229872
"Ore Processed 415227t with 72% recovery rate.
Output was 77820t SC6
415227 x 72% = 298900t of x grade to produce 77820t at 6% grade.
therefore feed grade was ~ 1.56%.
So just to lay that out.
You mined 2224000t or dirt,
to find 585000t of ore at 1.42%
Cherry picked 415277t to throw in an average of 1.56% in the front end.
Made 77820t. But did they make a profit?
Total revenue for the ~71kt sold was 37.3m but then outgoings (without the AJM fees) was 43.5m.
So given you're not making a profit by feeding a 1.56% grade how does PLS intend to be profitable long term given it's JORC is 1.25% Li20.
Noting any reduction in feed grade not only results in more processed tonnes but also results in an increase Fe content. As lower grade means an extra 1.3T per T of SC6 produced. ~ 90,000T extra per quarter. Given Fe content ~1.1%Fe = 1000T of Fe in the process circuit per quarter, once you're processing the JORC grade.
Also note this is the 4th consecutive quarter of substantively more 'ore' mined than processed 400kt in total, so I'm not buying the stockpiled story as if the ore in all amenable you'd run the processing plant for free in one quarter. The maths of the recovery circuit and feed grade IMO shows that they are feeding the plant the cream to remain marginal. Even at today's prices they are still in some strife and need to get the AISC down to where it needs to be and that means doing so on the JORC grade."
Noting LTR has not reported Fe or any deleterious elements in the sample and puts the Fe content down to contamination in sampling process. PLS had the same supposedly contamination. Odd how greenbushes/avz/psc all managed to get lower Fe content than the supposed contamination factor of up to 1%... that's all i'll say on that. Irrespectively, there is quite a lot of equipment in the process circuit of a mine with iron in it, but we're talking about 2 different types of IO content. One is in the lattice of the spodumene, one isn't. This is why Mali Lithium now firefinch grinds the spodumene to dust as the Fe is locked in the lattice.
View attachment 3267935
You would think if "there is data which indicates Fe content 'averages' less than 0.5% then it would be worth presented. Question is what area's are over .5%? Hopefully not the high grade zonations being inputted into the mine studies as mineable ore as the
selected sample which is purportedly analogous to the entire ore body is only analogous to the areas it represents. i.e. if you feed 1.5%Li with .5% yes great circuit works. But for the areas with say 1%+ are they as amenable? P.S not saying categorically there is/will be issues. Simple highlighting that with the lack of information there is a risk. Exactly the same risk PLS had.
To their credit they did have multiple announcements on this trying to be as transparent as possible but fundamentally didn't exactly understand the issue IMO
http://www.pilbaraminerals.com.au/s...4fd925ef/PilgangooraReserveandResourceUpgrade
View attachment 3267968
Interesting to have produced 7% and 0.12% Fe content in the lab but took a number of years and extra capital to barely get 6% with similar Fe content and only achieved feeding 1.56% grade not the JORC equivalent which was used in the lab.
For those interested, Fe content in Lithium concentrate is best represented by a Lithia to Iron ratio which gives relevance regardless of grade. I believe greenbushes SC4 product is also their ultra low Fe product for technical specifications. The below Fe content is why I don't entirely buy the 'contamination' effect
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Probably a bit early for this type of technical talk but i guess the point i'm making is I don't think many people if they haven't invested in WA plays already will be convinced to. If I was to target a WA play it would need to be worth a fraction of its NPV and would also need substantive confidence in the project economics in the real world.
As such myself and other AVZ investors are opting for a project at a lower fraction of it's NPV with IMHO more chance of replicating the economics delineated in the studies, but accepting a bigger risk in terms of management/geological location. Unless LTR released an updated DFS with post tax NPV of 4bn AUD then 25% MC to NPV would probably get people over the line - that's currently where AVZ is at but is also more developed than LTR with offtakes and DFS. So probably deserves more than 25%. Next 6months should have BFS, mining licence and FID. That's in the project timeline and supports a 50% of NPV for MC = 1BN aud = 130% ROI IMHO.
For the record I think LTR will get to production maybe in 2024/2025 but I don't think it's worth 1bn now same as I don't believe PLS is worth 3.5bn - and that's my opinion which has been wrong for some time. But wasn't wrong about AJM/A40 and MIN. For that amount of money I'll take a company making 300M profit P/A as opposed to one barely paying off it's debt.
I see people quoting 12bn market caps over at LTR in 2024. All I can say is lol. Use FMG as a yard stick. Annual earning in 2020 was 6bn AUD post tax and at the time around 40-50bn MC = PE 8ish.
Which would mean LTR needs to churn out 1.5bn post tax profit annually (in Y1 of operation) to be valued at 12bn. For context 100,000tpa of lithium hydroxide 56% is worth about that much. Even assume an AISC of half that. Means you would need to produce 200,000tpa of 56% lith hydroxide.
Assume 70% recovery through process circuit and 1.4% feed grade (i'm being generous) ~ 57t of mined material annual for 1T hydroxide = 11.5mtpa feed rate at the front end. That's 6 times larger than the PFS suggested. Reserves would be curtains in 7years - not to mention probable very unfeasible for underground operation.
In short; thanks, but no thanks.
SF2TH
