HG
I thought I might put together a back of the envelope basic JV structure on the most conservative basis for current TLG holders and what each party to the JV might bring to the table. TLG currently have 303.23 million shares outstanding. I think it would be fair to say that the LKAB/Mitsui could lay claim to a 20% stake in TLG production venture @ over 100,000 tons. This would represent 75.77 million shares for which LKAB would provide the mining expertise, infrastructure and equipment, likely to be fully electric mining vehicles, probably sourced from Volvo Scania or a Japanese supplier. This would be funded by Mitsui as would the US$ 484 million capex for the plant on a non recourse project finance basis supported by the EU. The electric mining vehicle fleet would be funded on an asset lease basis without recourse to TLG. The mining crushing infrastructure would use existing LKAB assets.
On the basis of the lowest Niska scoping study valuation underpinning 104,200 ton production, excluding Talphene, where Talnode C sells for an absolute minimum US$ 7,500 a ton giving a post tax NPV of US$ 1,610 million for a maximum 400 million shares outstanding gives a US$4 per share, Australian dollar 5.55 per share at current exchange rates. Should Talnode C sell at the top end of the range around US$ 12,000, all the parties to the JV would enjoy a 60% upside. The capex on the processing plant would be repaid from cash flow derived from operations together with the leasing expenses for the mining fleet. This very simple structure would represent a win win for all parties involved. The additional upside between the current market capitalisation and this most basic valuation is there for all to see.
The suggested expansion to 14 times the DFS production level equates to 210,000 tons offering further upside in excess of 100% over four years, this would represent nothing short of extraordinary growth on the capital committed, whether it be by LKAB or Mitsui, plus the income derived from funding the project. In addition, this would represent a complete transformation of LKAB's operations towards its stated goals for the decades ahead.
Now it might be argued that consideration needs to taken for the execution risk, but with LKAB/Mitsui fully on board that would be significantly derisked. Some of you may have totted up the difference between 400 million shares used in my calculation and the 379 million shares to give the LKAB/Mitsui their 20% stake. Those 21 million shares would be available to OEMs such as Northvolt and/or the UK government backed gigafactories, locking in those users until say 2030, at an entry point prices dictated by the JV parties allowing for some profit taking by either LKAB or Mitsui. It is unlikely those 21 million shares will be placed at any thing less than US$ 4.
I will let everybody do their own math on the potential and undertake their own research. Naturally the blinkered approach of purely focussing on the near term permit situation misses the point at this juncture, in my opinion. The probability of a refusal in the context of where Europe and, in particular Sweden, sees itself in a green economy transformation favours the granting of the necessary permits with the conditions already outlined in the application submission, where the competing issues have been addressed.
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