I spoke with PL this weekend to get my questions clarified - so I can "color in" the lines and to strengthen my model a little more.
Again, I want to stress, these are my points of view and not those of PL/PAM. I wanted to clarify what was put out in the PR of the Tama-Atacama acqusition and corporate presentation. I also want to point out that this is the "Bull Scenario" as the "Bear Scenario" is rather simple ... Hilix is non-commercial.
This analysis includes learnings from Noram Zeus Project, which IMO is the best valiable benchmark for Hilix, as well as from Lefroy's Llamara project. Also a couple of things in the acquistion announcement and subsequent corporate presentation were unclear (to me). That would be slide 28 (Corp Pres) and page 15 of the Acquisition PR. After discussions I expect the following:
(a) MRE "Near Term" ... expect by end of 2023
(b) Drilling Rig "being organised" .... expect to start (and finish) in Sep (for Hilix)
(c) "40 - 50m depth" ... expect most holes as <40m and ~200m/day drilling (so ~5 holes/day)
(d) "About 15 holes as a first pass" ... expect ~500m spacing first up ... in the center blocks ... to confirm prospectivity. The area to the west of the road is off limits - basically environmentally sensitive. Based on results then its "infill" to 250m and 100m. It might be possible to get a Indicated Resource from a 100m x 100m drill plot given the simple geology of clay.
What I've done is estimate an MRE based on Noram’s Zeus Lithium clay deposit in the Clayton Valley, NV USA and Lefroy Resources earlier drilling on and nearb Hilix. I calculate an Inferred MRE of about 50MT – 55 MT per Km2, assuming uniform distribution across 13Km2 at 50% prospectivity, 25mdepth and using density factor of +/- 5% on 2.1g/m3 Li - so when you look at the tenement map those "blocks" are 1Km2 and using 50% allows for sensitive areas and then 25m "depth" is the expected overall average thickness. The density I'm using is the average from Noram (1.87) and Lefroy (2.33)
Now we apply the prospectivity adjustment (50%) and grade (I'm using 1,000ppm as the average grade) to estimate that Hilix may contain 1.73 - 1.91MT of LCE
Now there is some "value" in doing the above exercise. LCE is the "common ground" metric that can be applied across projects (not companies per se). It's that elusive EV/LCE(t) ... The argument is how much should you pay (I'm talking stock market value) for a tonne of LCE. Why does it differ between companies. Well obviously a company can have more than 1 asset (PAM now has more than 1 asset). Assets can be at different stages - purely exploration or in production. Investor also pay more for a "less risky" asset (e.g. proven tech spodumene in WA) than say a "risky asset" (unproven tech clay in Chile)
To illustrate ... Latin Resources (hands up those who own it - I do) has a hot spodumene prospect in Brazil and in June 2023 released an updated MRE which gave them a multiple EV/Li2O = AUD$1,648/t or an easier to compare EV/LCE = AUD$676/t LCE (US$440/t LCE). The number to keep in mind here is 1,477,000 tonnes of LCE. That's what you get buying LRS for its MC of AUD$998MHilix at my estimated midpoint has 1,820,000 tonnes of LCE .... 23% larger ...
and trades at 4% (yes four) of LRS MC (valuing PAM SEA assets = $0)
This is a matter of expectation and risk. There are NO PRODUCING LITHIUM CLAY ASSETS ANYWHERE ON THE PLANET. The market almost sees Lithium from spodumene assets as "riskless". LRS has a large asset in Brazil which has just seen the really large Grota do Cirilo spodumene asset brought into production by Sigma. Lithium Americas with its Thacker Pass project will put Lithium from clay on the map (one way or another) but that's not targetted to be in production until H2 2026 (phase 1 producing 40,000 tpy LCE).
These are the hard yards. Noram with Zeus (NV USA) has a MRE of ~2.55MT (M&I) of LCE @1000ppm (from 82 holes) and this project started in 2016!!! They are well advanced having testing various processes to produce BG LCE. Nothing on funding, OTA's or partners (critical IMO). No target production date yet. Noram MC of US$35M means a EV/LCE of <US$14/t!!!Keep in mind how much further ahead Noram is (not spruiking Noram BTW as it also has its share of problems not the least of which is access to water which Albemarle has rights too). At AUD$20 per LCE/t we are adding just $36M to PAM EV. How would you rationalise that risk v reward to say LRS.
Now keep something else in mind. If PAM scored a MRE of 1.8MT LCE ... thats a 60 year mine life producing 30Ktpy of LCE (ignoring recovery factor for the moment). And lets face it ... who cares after 20 years ... not I ... as in a discounted PV model any financial value after 20 years is just about $0.
Something else to consider - Benchmark Minerals 2030 demand forecast with a base case at 2.9MT LCE and high case at 5.4MT LCE. That puts a 30Ktpy LCE operation as ~1% of global demand. Below is the chart I'm referencing. Kind of concerning that, even in 2030, it appears as though only half of that base demand comes from operating projects (also pretty sure that a project like Hilix does not even make the lightest gray "Possible" projects)
Anyway back to PAM. What I really wanted to discover is could Hilix support 30Ktpy LCE production. What does that approximately look like? It looks something like this. The key is figuring out how much Ore is needed at what grade (ppm) to produce 1t of LCE at 100% recovery - which is of course impossible. So that gets adjusted by the recovery rate factor. And while we'll have an average grade (ppm) for the property it is going to be variable (and again I'm looking at Zeus where they have a clear high grade area which they would develop first - the higher the grader the less ore you need to process and can start with smaller Capex). I've made a KISS assumption that the first 10yrs will process high grades then next 10 years mid grade and last 10 years low grade. This was only done to provide a LOM average and also a total estiamte for the amount of ore needed - 260MT - which is easily supported by the 324 - 358MT estimate.
I then used "stale" numbers for pricing ... but more because I was interested more in the margin than the absolute dollars shown above. Pretty comfortable with a 75% Gross Margin .... so pick your long term ASP for LCE ...US$30K??? If so then that's ~$675M in EBITDA and at a 6X multiple thats an implied EV of US$4B or ~AUD$6B. But don't forget ... PAM wont be able to pull this off without a partner (and with Chile being a FTA country that plays very well into the USA market). So I would assume we'll retain 50% of the asset as the most likely non-dilutive method to get Hilix into production.
Which just leaves when ...
When MRE ... Dec'23?
When PFS ....
When Permitted ...
When Partner ...
When Financing ...
When Construction ...
When First Production ... Mid 2026? Is it possible? 3 years from now assuming successful Sep drilling?
Could be a very interesting next few months with Hilix MRE, VinES and RKLP partnering.
(20min delay)