Esh, some of your post is ok.
Where I disagree with you is on the issue of sovereign risk given Chinese involvement. I also think the discount rate deals with this issue in any event as I posted previously - refer post and this comment to you actually in it - Post #:
37782143:
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Sovereign risk is dealt with in the discount rate to evaluate projects in the DRC compared to say Australia. I personally feel a more appropriate discount rate is closer to 13% for DRC investments in project assessments than the 10% often used........................................
But sovereign risk works both ways because anyone been around in WA for a while would know the WA government during the Barnett government increased, for example, the fines rate for iron ore royalties from 5.625% to 7.5%, whilst at the Federal level the likely incoming ALP government will do a few changes that will also impact companies, especially in the CGT area which will impact the cost of capital for companies as in effect reducing the CGT discount means equity agreements need bigger share price discounts for companies seeking finance through share placements etc.
But back to WA the latest brain fart from the WA EPA, albeit they now have backed down, would have impacted lithium developments, and especially their wish to start producing lithium chemicals instead of solely exporting 6% grade spodumene.
https://www.abc.net.au/news/2019-03-14/epa-scraps-carbon-emssions-guidelines-for-wa-resources-projects/10901574
Using a 13% discount rate reduces AVZ's Sept 2018 Scoping Study NPV by $400 million btw - refer Post #:
37783431 Remember the discount rate would essentially be US based variables since the functional currency I suspect here would be in US$ btw (given end prices are also US$ based - refer Post #:
34527760). Further discussion of sovereign risk here - Post #:
37137404
Where your argument has an element of merit is around the concept of Chinese involvement and what that may do to the SP. My view is that to maximise value here AVZ need to either take this to mining itself and/or at least ensure that if it develops the mine in a JV arrangement that one of the players is an non-Chinese entity. Or at least, if it is a Chinese JV partner at least ensure a contestable market is put in place so that it can maximise the strategic advantage of having such a large resource. (Ditto for a takeover scenario too - competition between the Chinese and say a European buyer would maximise that price too).
The Chinese IMO can play AVZ well, and that is why I think we need a good Chairman who knows how to deal with them. As stated in the embedded Post #:
37820554:
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The new Chairman must open up discussions with Chinese and non-Chinese players for equity for Offtake Agreements so also wrest control of the resource development to under its control (rather than IMO how they are currently been played by Chinese players). And that IMO is part of the reason where the SP is at - lack of direction and strategy."
Focusing only on one market, been the Chinese market, and not seeking to diversify discussion elsewhere is relevant here as well. The Chinese will use their influence as best they can to neutralise price growth, and only having a contestable market (i.e. options of selling outside China) is a key to price and SP growth IMO. IMO for long term lithium average prices to remain in goodstead more demand must come from outside China (and that will then provide the basis for the Chinese to stop playing games in seeking to control commodity prices through their purchasing power and the fact a lot of their industry is State owned and therefore can wear losses in the stare down stakes battle between sellers of commodities and China). If there are alternate buyers of spodumene outside China, well China's control of markets is reduced because the Chinese (partially to fully govt owned) industries, while they can bear losses for a while, can't bear them forever when China seeks to flex its muscle in commodity markets with the intention of controlling prices.
Commodity sellers need to think about the broader strategy of selling outside China to underpin price growth. China on the other hand is seeing this coming hence why they are starting to buy up certain producing lithium mines, and mines in other commodity spaces, or have stakes in them too (which is a second based policy to control prices of commodities btw IMO).
The interesting thing over the next few years will be how much lithium carbonate and hydroxide is produced outside China, and at this stage there seems to be some evidence that new hydroxide facilities are also been built outside China. But China will remain the largest player in the lithium carbonate and lithium hydroxide production market so strategies to leverage the best prices need to be worked out and limiting your discussions to Chinese players or Chinese equity participants can adversely impact the prices you attain (but entertaining alternate non-Chinese players in negotiations is a key IMO to leveraging the best lithium prices). And obviously if the power requirements in the DRC improve, then leveraging through saying you will produce hydroxide at the minesite instead of selling spodumene would probably give you access to better prices as the Chinese may decide that offering you higher spodumene prices is better than you producing hydroxide and competing with them. I did a few posts a while ago on hydroxide production and energy requirements: Post #:
34095243
At the end of the day we know the AVZ resource is good, costs at the mine are good but a transport solution is required. Manano will be developed, the question, as per the other thread I created, is whether it will be developed this side of 2022 - 2025or thereafter. As to sovereign risk, the factthe Chinese are pumping billions of $ into the DRC economy suggests that is teh Chinese take control of AVZ or are in JV with AVZ there will be no issues. The DRC is a significant cobalt and copper producer btw, so mining there is a proven possibility already.
Looking at the recent PLS Ann, it would appear too me PLS is now more bullish on the outlook than what they were in the Stage 1 and 2 DFS btw. By 2025 I expect AVZ to be in production at a 2mtpa ore feed capacity facility (producing about 400,000 tonnes of spodumene concentrate) and thereafter look at options for increasing production (which obviously depends on the demand outlook and the EV outlook, as everytime new demand forecasts comes out they seem to suggest upward revisions in the EV outlook etc.
All IMO IMO IMO
