Here is my take on your question regarding a perceived lack of MC gain in line with spod pricing.
To justify current market cap, I believe an EBITDA multiple of between 8-10x would be appropriate.
Current MC is around AU$3b which would suggest required NTM EBITDA of AU$300-375m.
For the purposes of this post I will be assuming in 12 months time that ALO is back online with required capex behind them to improve recoveries and rectify issues / repair areas of plant that have been pushed to the point of failure.
At 550ktpa, assuming cash costs of US$340dmt cif SC6 (net of tantalum byproducts which plant 2 likely won't contribute but is a remote possibility depending on mine plan), PLS would require a sales margin of US$410-510dmt. So we are looking at SC6 pricing at US$750-850dmt cif china to justify the $3b MC without further expansion.
Now we should probably add some sustaining capex and group corporate costs etc (call it US$12m pa) - could feasibly add another US$20dmt cif china -further lifting required sales price to US$770-870dmt cif China. Now I will point out right now that these sales prices are possible within the next 18 to 24 months based on history and current market dynamics but unlikely sustainable in the long run.
As others have mentioned, current reported pricing (my preferred agency smm) is at US$485-515. So it could be argued that the SP has not reacted to reflect current market pricing and on the contrary has been ascribing significantly higher pricing along with very high multiples for a mining operation.
I believe a generous EBITDA multiple is around 8x if we are looking much further ahead than 12 months. Again this is still at a premium to other mining operations but is likely fair given broad li sector demand expectations. I also believe a long term nominal price for SC6 of US$680 is reasonable. Yes pricing is likely to bounce higher than that for a period until new supply can be brought online.
This new supply can come from planned mega expansions like CGP3 +4 at Greenbushes (yes they don't currwntly sell outside their bubble but will nonetheless have an impact on pricing PLS offtakers recieve for their product through the effect on chem pricing.
Much talk has been given to the "impossible" task of meeting demand that focuses typically on greenfield operations with rarely a mention of expansions by incumbents. Wodgina could expand before 2025, along with Mt Marion and of course PLS all within WA. Globally there are other hard rock operations that rarely get attention such as Sigma in Brazil and there are a couple of African plays that given sovereign support could also come online. New Nemaska in Canada is moving forward again and extremely marginal operations such a NAL could very well see a return if a bid comes though that is high enough to be consideredseriously and not blocked by either CATL or Investissement Quebec. Only plausible reason for some many delays to keep the bidding open is they have only recieved super opportunistic bids which is not particularly surprising given the quality of the asset. Slightly less marginal but still borderline operations like Alita could also come back online. Piedmont has also been getting a lot of attention for it's conversion plans despite itself having a low grade, very high strip grade resource and a backup plan to purchase feed from Sayona and it's own marginal assets.
I went though a list of announced and probable upstream projects for 1mtp LCE SC6 by 2025 and stopped counting. It appeared entirely possible. Post 2025 gets trickier and my crystal ball does not see that far ahead. Too many variables and it is possible conventional brine will have large commercial scale DLE and even DLE from unconventional previously considered uneconomic sources such continental (oil field) or geothermal brine. So to me 1mtpa of capabilty globaly appears absolutely plausible by 2025.
I read far too much about the length of time it takes from discovery to commercial production which is a valid point. However there are quite a few projects advanced enough to be coming online from 2025. Core and Liontown are 2 Australian examples even though the latter will need to contend with an underground operation and some other difficulties. Yet there is a good chance both will get up. The Covalent JV between SQM and Wesfarmers obviously needs no introduction as it is a ripper of a reaource with major backing. Even Rio may get serious about it's Jadarite deposit in Europe. Lepidico may proceed with plans to process Lepidolite - last I read they were considering conversion in Dubai or some such.
Back to PLS and trying to determine a fair value.
I have explained that if expenditure to bring ALO back online and operating satisfactorily is not part of the equation and 550ktpa is the operational capabilty, i cannot see the current MC justified until SC6 pricing exceeds US$770dmt cif china, and using my preferred EBITA multiple of 8x, given the long timeframe to reach those pricing levels.
If we take US$660dmt cif China as a LOM / long term SC6 price, I also cannot justify the current price. However it is a useful tool to value other possible growth from with PLS over the long term.
So to be clear, in my mind although some hype has worn off, we have not just seen a situation where the SP is no longer tracking SC6 price increase, what we have seen is an enthusiastic market factoring in much higher revenue than published pricing. To my mind Li company valuations well overshot current Li pricing and is very forward looking. As such it is reported pricing that needs to catch up.
Now what is required to lift the MC from here.
There are a couple of options.
Doubling SC6 output to 1mtpa SC6 at say US$320dmt cif China cost net of tantalite credits (am assuming major expansion will come from the initial PLS tenements which were typically of higher grade and had tantalum concentrations that justify extraction, along with economies of scale) as combined output of plant 1 & 2.
The result of expansion to 1mtpa (using my long terms SC6 price of US$680) indicates PLS could have EBITDA for the group of around AU$450mpa. A multiple of 8x EBITDA of AU$3.60b, or nearly 20% upside to current MC, or if one was to apply a 10x multiple that results in a MC of AU$4.5b which represents 50% upside.
I believe an expansion of output at Pilgangoora could be financed by way of debt and free cashflow if an expansion of the afore mentioned scale was approved in 2022 for early 2024 ramp up. Yes I am aware differing plans have been put forward from time to time, but the market dynamics and absorption of ALO could alter things. I am merely submitting some simple examples.
Another option to increase revenues and in turn MC is to get involved in downsteam conversion. POSCO would be ideal and I am still of the opinion that deal is a little like Orocobre and Toyota for the Naraha Carbonate to Hydroxide refinery under construction in Fukushima. Many holders there reached the point that they gave up on the prospect as ToyotaTsusho was moving slowly with few updates. The thing is they were working to their own timeline, and I believe POSCO is doing the same. IMO far too soon to call that arrangement dead.
If the choice was to build a converter in Aus, I would not be as keen as it is my understanding that return on investment in a converter vs expansion of mining operations has a similar ROI. PLS have a smooth running plant now and I would not like to see them take on the technical risk of building an operating a converter themselves.
Another option is to buy out a play like CORE (CXO) and apply the knowledge to develop that as a third local mine / concentrator. Their resource has been improving and although it may not necessarily have costs as low as plant 1 or 2, I believe it would be quite profitable and increase PLS bargaining power with offtakers. Again though, the last thing I would like to see PLS acquire are proven highly marginal assets like Bald Hill, or NAL with its Val d'Or mine, concentrator and partially constructed small scale converter.
What I want to see from here is a roadmap to AU$500m EBITDA a year by end 2024 which to me would represent a minimum increase in MC of 50%, and hype / demand depending, a move to 1mtpa SC6 could very well justify a AU$4.5m valuation.
The POSCO JV if it were to occur could deliver PLS in excess of AU$100mpa conservatively, which could add an extra AU$800m-1b to the enterprise value.
So it is possible for a SP approaching AU$2 per share in the next 24 -36 months from a financial pov. Keep in mind that the whole sector has denonstrated that hype is the primary force behind SP movements. That said I cannot write that without pointing out an observation that the market does not easily distinguish the good company's from the lesser. I expect this to change as analysts gain a stronger grasp on Lithium and the wheat is sorted from the chaff. I believe firmly that PLS is now the most solid non integrate Lithium producer by a long way. Hard to tell if PLS is currently undervalued or others are way overvalued. I am leaning towards the latter.
Back to the original point. Yes the pricing of chems and concentrate has increased dramatically past 6 months or so, but I believe we haven't found PLS in a situation where it is no long keeping up with movements, rather the market is looking so far ahead for PLS and the industry at large that reported pricing for SC6 in the low US$500s is too far below future expectations and dismissed as not particularly relevant at this stage: the market is pricing in much more already.
Best of luck to all.
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