So there you have it folks. After the issuance of the top-up placement shares and days of speculation prior as to what would happen (particularly the numerous posts from various non-holders waiting / hoping for a cheaper entry point) the SP has held comfortably above the SPP and placement price.
Congratulations to those who were able to participate, and I'm genuinely glad that these new shares (at least) are showing green for you all. To those ever vocal non-holders, sorry to say (but not really) it looks as though you'll have to pay at least a 10% premium to own a part of the largest known and most exciting spodumene resource on the planet.
But like I said in a couple of posts last week covering both AVZ's FA and TA (see below), why would anyone (who is remotely sane) sell their placement allocation for a 0 - 10% profit when a conceivable target of 75 - 100% profits awaits the patient over the next couple of months (IMO) ?
Note: this conceivable target is based on the heavily oversold SP (due to the recent CR with no floor price and the uncertainty / negative sentiment it brought) and aligning Patto's options targets and imminent news flow including 5/10mtpa SS, JORC update, transport update and further met / field updates necessary to complete the DFS.
https://hotcopper.com.au/threads/running-discussion-on-sp.4111732/page-257#post-37603841
https://hotcopper.com.au/threads/running-discussion-on-sp.4111732/page-258#post-37614721
Furthermore, it is worth considering the current market valuation for AVZ. Pure explorers, for example, are generally valued on their in-ground resources and resource potential, and so far AVZ has a mammoth >400mt t of Lithium confirmed at Roche Dure (RD). As for 'potential', one needs to look no further than Carriere De L'est (CDL).
However, NF mentioned to me several weeks back that he believes RD may contain up to 800mt alone. Now if CDL (with these latest stunning drill results) end ups containing as much Lithium as RD's potential 800mt, then these two pegmatites alone could contain ~ 1.6 billion tonnes all said and done.
Remember that this doesn't include the other known pegmatites at Manono, nor consider the growing possibility that all of the known pegmatites may be contiguous in nature. i.e. Are we eventually looking at a 2 billion tonne resource at Manono?
But for arguments sake, let's assume that the resource upper limit for the Manono project is 1.6 billion tonnes of in-ground Lithium. Based on today's issuance of new shares and subsequent M/Cap of ~$96m and Enterprise Value of A$82m at the opening bell, then each tonne of Lithium that AVZ holds (with it's current 60% share) is valued at A$0.085 or US $0.06.
Based on the above one could ask him/herself the following two questions:
1.Where else can I find/own a tonne of in-ground Lithium for sale at (or even close) to US$0.06 p/t?
2. Given that Wodgina's in-ground resource was recently valued at US$8.90 p/t, what is the potential upside for AVZ and its shareholders over time, particularly once the sector and sentiment for Lithium not only fully recovers, but booms a second and third time as part of Lithium's longer term
supercycle?
https://www.edelsoninstitute.com/wealth-wave/is-sleeping-lion-lithium-ready-to-wake-up-and-roar/
'The supercycle in lithium is undeniable. It is big, it is powerful, and it’s going to transform the transportation industry.'
'Albemarle’s latest lithium demand number is 1.2 million metric tons per year by 2025. That’s 50% HIGHER than the company’s forecast at this time last year.
And the company’s 2018 estimate was higher than the 2017 estimate … which was higher than the 2015 estimate.
There’s one inescapable fact about the lithium business: Forecasters, buyers and producers have consistently underestimated growth in demand over and over again.
Anyway, Albemarle sees NO macroeconomic headwinds. It says there is NO decline in customer demand forecasts. Boy, it’s nice to have a business that’s potentially recession-proof, eh?'
Final note: In late February 2018, Wall Street Investment bank Morgan Stanley released a very bearish report on Lithium entitled
'The Long Term Pain Of New Supply'. This extremely bearish report was a depressing read, and IMO was the catalyst that triggered a massive correction for the Lithium sector throughout the remainder of 2018. Some stocks (including AVZ) are only now beginning to recover, such was the extent of the correction.
Morgan Stanley analysts opined that the high demand for EV's wouldn't last and that an avalanche of new supply would swamp forecast demand growth from 2019 until at least 2025. The net result being that Lithium prices would decline by 45% in 3 years, falling from a peak of US$13000 p/t in 2018 to US7000 p/t by 2021.
However, in the coming weeks and as part my ongoing research and analysis of the Lithium sector, I will post a series of factual numbers, reports, updated forecasts (including those in graphic form) and recent events that re-affirms Lithium's extremely robust fundamentals over the next 6-10 years.
This evidence - built from the latest data available - IMO categorically proves that Morgan Stanley's analysts (and a number of their cohorts) are so far out of touch from reality, and either do not understand the Lithium market and/or have comprehensively miscalculated both supply (overestimated) and demand (hugely underestimated) for Lithium over the next 6 years.
Now conspiracy theorists may ask was this report a deliberate ploy by MS to send prices crashing across the sector? And were the Chinese somehow involved with the lackluster spot pricing thereafter, perhaps in an attempt to put a lid on surging
contract prices?
We will probably never know for sure, however there's a growing consensus among leading Lithium industry figureheads that Morgan Stanley will need to update the market in 2019 (conceding defeat post their flawed analysis from early 2018) and revise their supply and demand forecasts in line with more recent events and current trajectories.
If they don't, then IMO their silence will further damage their reputation and signal to the world that their analysts are out of touch and have little idea how to forecast critical element supply and demand, particularly those used to create disruptive technological events.
Stay tuned and GLTA
Cheers
Elpha
