Hello,
i am also a retail investor like all of us however in Aug 2021 i embarked on the journey to understand, intenalize, analyze and invest in the global new energy transition.
AVZ placed against the macro geo political, economical backdrop caught my attention in October 2017, since then i have watched it closely and invested.
The attached pdf is the write-up i did all day yesterday where I organized my thoughts from last 4.5 years and penned down in a holistic way so that other like minded folks can have access to it.
thank you @Cunial for posting the original.
below is the natural flow readable format.
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Caution Number-1:
I invoke my second amendment right from the US Constitution for an individual priveligde to free speech, expressed in verbal and in written, to post the following 14 Twitter messages.
Though i have attempted to write these messages using best of my professional and personal competence with intention to share useful information, from and for, in equity markets, with others. It is possible that these messages may be neurologically biased or written in a specific state of mind and can therefore result in loss of monies, or in some cases, loss of entire wealth of the reader on social media. Note that I am holder of AZZVF stock on the USA OTC exchange since 2H-2017. Please be careful, if wealth is important aspect of your living.
Caution Number-2:
If DRC's President Felix is out of power and authority from its present highest level for any reason (constitutional demotion, acute health sickness, voted out in Dec-2023 or assainated (God forbid absolutely not) then I shall have no monetary investments in DRC within one business day of that unforeseen event.
Request Number-1:
I have attempted to compute numbers with due diligence. However, there may be errors and omissions, perhaps you can find any and share with all. I would be grateful.
Request Number-2:
If you can find concerns, kindly back-them with reasons and sources, so i could amend the original for benefit of all.
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Major Premises:
- All monies in USD. All dates in MON-YR. All weights in Kilo Tons (KT).
- Dathcom Corp: AVZ 75% + DRC(CAMI) 25%. DRC tax rate 35% but for the proposed AVZ SEZ permit, post SEZ permit taxation is about 15%.
- SC6 Operation: DMS @56.5%; Recovery @ 60%; Strip Ratio @0.48;
- PLS Operation: front-end only of the entire hydroxide plant (Calcination stage) and therefore a modular design for downstream off takers to complete the last stage "in their last mile".
- SC6 will not be exported (not a significant demand from AVZ for CATH to agree to), instead PLS shall be shipped via both east and west marine ports (FOB only). SC6 may be sent within Africa - southern and eastern industrial partner zones.
- pricing is for only battery quality lithium which is 6% (and not 5.5% that Pilbara auctions at $6k+ a ton Spodumenand Chinese converters are facing recent challenges spec'ing BQ to cathode OEMs).
- PRs 4029 and 4030 (both surrounding and circling 13359 concentrically are 100% AVZ owned and is not included in the foregoing analysis.
Sources:
DFS, pgs 1,61-62 (APR-20).
Other assumptions (Pilbara, Africa economic trust zones, battery quality Lithium, PLS pricing) are public info.
For EBITDA calculations, following 4 metrics are explained and used:
Metric-1:
Total Mineral Deposit (PR15339, RD+CDL+5 other smaller Pegs.)=1.5 Billion Tons.
Sources:
US Canter Fitzgerald's chat with AVZ, tonnage at TS:18m.40s (Nov-21):
https://youtu.be/1w_AR-TKGec
Wiki, Under Discovery and Occurance, last para. (Sep-22):
https://en.m.wikipedia.org/wiki/Spodumene
Metric-2:
Total Mining Duration (in years):
From Jan-25 to Indefinite.
20 years LoM is due to the lithium price forecasting constraint placed by Roskill LLC and therefore can only go as far as 20 years.
Sources:
DFS, pg. 2, para. 6,8, (APR-20).
Metric-3:
Yearly Production (ANSI mT):
700 KT For SC6; using PLS conversion rate of 3.5 results in (700,000 ÷ 3.5) 200 KT PLS.
MD Mr. Furguson was 25% higher when he quoted 250 KT product to be electric-railed from Monano to Dar E Salam port in a recent interview (as he may have expansion plans finalised for the PLS trains 2, 3, 4 and 5 in the pipelined hydroxide studies already slated, and perhaps completed, for q1-22.
Each PLS train produces approx. 46,000 tons per year and 5 trains approx 250KT.
Sources:
DFS, pg. 1 (APR-20).
AVZ MD stating yearly tonnage, at TS: 7m.8s (AUG-22).
https://youtu.be/VuybAbrmCgA
Metric-4:
Pricing for SC6, PLS and Li2H.
AVZ to CATH has a price floor and a rising ceiling for 3 to 4 year contracts in chunks.
The remaining 76% product is for open market and will be priced in a sustainable, affordable negotiated manner guided by both quantity and quality in alignmemt with Benchmark Mineral Intelligence BMI charts as well as LSE lithium pricing once it's accepted and traded (replacing S&P global Pratts and Fastmarkets data) in 2023 onwards.
DFS from April 2020 has 700 for SC6, 7000 for PLS and 10k for Tin.
Prices in 2H-22 are 9 times for SC6 (6,500), 11 times for Li2H (78,000) and 7 times for Tin (70,000).
For 2025 to 2027, It is okay to use 25% of today's prices which is: 1,500 for SC6 and okay to use 30% of today's price of 23,000 for PLS.
For 2027 to 2032, we use 1,200 for SC6 and 21,000 for PLS.
Therefore, for next 10 years we use avg. as 1,350 for SC6 and 22,000 for PLS.
Sources:
US Govt. Lithium contract prices 2021:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://pubs.usgs.gov/periodicals/mcs2022/mcs2022-lithium.pdf&ved=2ahUKEwiKysW71IL6AhX6zHMBHQ1MD_UQFnoECAgQBQ&usg=AOvVaw1-4RZ3zk4x1ZBSTxEJ2eml
LCM pricing forecast upto 2027 for high, base, low (and SQM) charts by Joe Lowry (SEP-2022) of Global Lithium LLC
https://t.co/TuZErAz7f6
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Calculation per JORC mining code standard for SC6:
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1.
{1.5 billion tons x 0.5 (strip ratio) x 0.6 (recovery rate)} ÷ {250 KT (PLS per year) × 3.5 (AVZ design for SC6 to PLS)} = 51.43 years.
LoM is 51 years.
Tin and tantalum credits are 5% of yearly revenue.
Calculations per US GAAP standard:
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COST:
Cost of Mineral Ore to SC6 converter = $130 million.
(Reference: cost of each PLS train = $190 million.)
Cost for 5 trains (export for CATH-2, USA, EU and Japan 1 each) = $950 million.
Total miscell. mine dev. cost = $220 million.
Net total mine cost = $1.28 billion.
Time to develop mine = 24 months. (2023-24).
Cost of PLS production + Cost of TRC SGR Electric Rail transport, per ton (COGS) = 5,500.
REVENUE:
Yearly cash flow = 250,000 x $16,500 (which is 22,000-5,500) = $4.125 Billion.
NPV (10% dis.; pre, post tax)=
24.046, 20.40 billion USD (10 years only)
36.142, 30.721 billion (25 year only)
39.038, 33.182 billion (40 year only)
39.563, 33.629 billion (49 year only)
IRR (pre, post)=
322%, 274% (any of the durations: 10, 25, 40, 49 years only).
PBP= less than one year but realistically may be couple years or less.
AVZ 75% interest, post-tax as below:
NPV (10% dis.) =
15.300 B USD (10 year).
26.112 B USD (25 year).
33.182 B USD (40 years).
33.629 B USD (49 years).
IRR= 232.9%.
PBP= less than one year but realistically may be couple years or less.
If AVZ's MC today according to the above NPV is 33.629 B USD for approx. 3 Billion shares outstanding, then earnings per share should be about 11 USD.
Then, in Jan-2023 for the:
P/E = 5, SP = 55 USD.
P/E = 10, SP = 110 USD.
P/E = 20, SP = 220 USD.
However, given the thematic nature of the critical mineral sector within the larger macro economic backdrop, the lithium industry is enjoying a much higher P/E of the likes between 90 (PIL, LKE, LTR, AKE) and 35 (SQM, LTHM, ALB).
Considering a junior minor going into mine dev. It is okay to assume a P/E of 60 for AVZ. Discounting, sovereign risk of DRC by 50%, a true P/E can be established at 30
and therefore ...
AVZ stock price should be around 330 USD at the start of year 2023 (a few months from now).
One might argue that DFS has 400 million tons as against 1.5 billion. That is okay and using 400 million we can use the 25% reduction and then the
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stock price becomes 87.5 USD.
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Note:
5% of total yearly cash flow additional r
evenue from tin and tantalum credits are not added yet.
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Upcoming AVZ Catalytic announcements (AVZ equity impact - extremely high, very high, high, medium, low, very low):
0.
Litigation:
Claim-1 (Comminier) dismissed in AVZ favor by DRC government ministry of mines, 15% retained by AVZ (high).
Claim-2 (Dathomir) partially (10%) dismissed in AVZ favor by the Lubanbashi court of appeals, remaining 5% still in dispute and can be settled for good if AVZ gives $50 million more to Dathomir. Most likely this is in deliberation in the court as AVZ refused to give any more monies but has retained the undisputed 10% in Claim-2 (medium).
1.
PR13359 transition from exploration to exploitation, aka license to mine (extreme).
2.
Bankable feasibility study BFS, made public within few hours to couple days after mining license is granted (very high).
3.
DRC-AVZ collaboration agreement (medium).
4.
CATH-AVZ TIA (China) completion and prompt money transfer (very high).
5.
Li2H / PLS expansion (5 trains) study and release of report (high).
Note:
Catalysts 3, 4 and 5 can occur in any chronological order.
6.
Final investment decision, FID issued to mine PR13359 (high).
7.
First formal, third-party compiled and issued, AVZ ESG report released (medium).
8.
DRC grant of special economic zone SEZ permit to Monano district critical mineral industry resulting in reduced tax rates (midium).
9.
Establishment of "AVZ Foundation" benefiting Monano+Kitolto district's start of schools, hospitals, green areas, human shelters and food banks (medium).
Note:
Catalysts 7, 8 and 9 can occur in any order.
10.
DRC approval of hydro power plant (85 km SE) refurbishment for a total of 46 MW (26+20), AVZ has included this expense in its cost (high).
11.
Q4-22 CDL resource update for the 15 km drill hole project (high).
12.
Q4-22: Final debt-FDI funding completed most likely from pan-african development bank and also by a consortium led by USA (canter Fitzgerald) and EU banks in 2023 (very high).
13.
Q2-23: Transport routes to the east port and to the west port (Tanzania SGR electric rail to brundi and then to DRC) contracts finalized with country goverments and port authorities.
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