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28/03/19

08:51

Post #: 37908865
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Originally posted by SeeTheWorld ↑

I have nowreached my 100^th contribution since joining HC, and it has almosttaken me 6 months. In most of my posts I mention the importance of learningfrom history, so what better to do then reflect on matters at this milestoneover that time period, a summary of my perspective on the various majordiscussions. The situation with the current share price hitting new lows alsobrings about a need for reflection. These are just my reflections, so pleasedon’t take offence if you had made different observations or have differentopinions. As always happy for others to question my thinking with strong,respectable arguments. None of this is advice, just an insight into how I thinkbased on my time on HC. The funny thing is before GXY I never devoted so muchinformation interest in a stock before. Remember DYOR!

Share Price:
So my firstpost https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-107?post_id=36105173 was back in October at a share price of $2.37 outlining my GXY journey outlining my strategy and my happiness to buy at these low prices. In fact, it was such an honour to be able to buy a parcel at 1.83 yesterday, but I had expected it as I had been holding off accumulating for a while (building cash) with a feeling the market was going to push down harder. It was this post https://hotcopper.com.au/threads/new-lithium-related-article.4211527/page-1006?post_id=36145850 in which I outlined my expectations of the share price journey. My forecast was and remains that we won’t see any real price appreciation until at least after July 2019 and that it won’t be until at least July 2020 until things really bubble.

The morethat I have read, the more I believe this is the case. We are only now startingto see the release of many EV models to the market, especially models thatpeople want to buy. What is increasingly becoming clear is that the majorbottleneck is becoming the supply of batteries most evident with the HyundaiKona and Telsa purposely slowing down parts of the business due to lack ofbatteries. For Hyundai, the waiting list is growing, but the company isstruggling to get enough batteries to produce as many cars as they want. While,I have heard about this for a while I couldn’t re-find the article, but the onelinked here https://insideevs.com/video-kona-ev-sales-down-tesla-turmoil/ while speculative does suggest that this is the case. The recent increase in South Korea prices could possibly be further evidence https://hotcopper.com.au/threads/hydroxide-prices-up.4688179/?post_id=37896017. The problem that we have is that there are so many Gigafactory’s in production, just not enough are ready yet to really suck in all the materials that the miners are ready to throw at it (demand substantially increase beyond supply) and the car companies need https://www.bloomberg.com/news/articles/2018-10-01/for-now-at-least-the-world-isn-t-making-enough-batteries. Once this bottle neck is overcome, you will also find then that the number of cars on offer from traditional companies will start to come on board full steam. This combination is what is going to make lithium owners handsome rewards. The other nice problem is that manufacturing of the actual vehicles is not at the stage that it can keep up with demand, this infrastructure is being built around the world right now and the results will start to be seen in mid-2020. For example: http://www.thedrive.com/news/26851/porsche-taycan-already-has-20000-preorders-set-to-go-on-sale-by-years-end

The story basedon my post https://hotcopper.com.au/threads/new-lithium-related-article.4211527/page-1006?post_id=36145850 is this, if you purchased above $3 you based your decisions on ultra-positive expectations and slightly got ahead of the curve (I believe it is worth more than $3, but knew the time was not right and never purchased above that level). If you did research it is correct, just the timing was a little wrong. The sequence of events to push the price higher and higher and keep it up at those levels had simply not occurred yet. GXY has a good future ahead, you just need to realise that you got your timing wrong and need things to play out. A much higher price is ready in the wings when all the stars align. I do feel sorry for those that purchased many years ago, as your intentions were correct but you were just too early to the party. Investors like myself are using this opportunity of low pricing to accumulate. Right now, is the best time to buy if you are an accumulator. The more you slowly accumulate during this oversold opportunity the better off you are as I indicated here https://hotcopper.com.au/threads/marked-to-market-valuation-today.4501381/page-74?post_id=36239761. The longer it stays down before jumping back to reality, the better you are off if you are an accumulator. Different story for other trading approaches obviously, but I am a long-term holder and write in terms of such an approach. At the end of the day, nobody really knows what is going to happen to a share price on any given day. All you need to do is look at the recent example of what happened with iron ore. Basically overnight, with an accident and a court decision supply was cut and prices surged. Any incident like this could happen at any time. An earthquake, cycle, flood can change dynamics very quickly. Manipulation can continue to drive the price even further, how far I have no idea. The only thing I can do as an investor is recognize that the SP is below what I call far value, it is oversold and accumulate at a sustainable pace. The way I see it is that the chess pieces are slowly being put in place, when ready it will be check mate and we will go from oversold to bubble. All you need to do is be aware at where we are in the timeline of progress in an electric world.

At the endof the day what we are seeing at the moment is all about the herd mentality.When the herd moves in one direction you don't need common sense or valuation,you just need momentum. The best example of this recently was Bitcoin. Iremember December 2017 I couldn't get away from people trying to convince methe need to buy as it kept racing higher and higher. It did not matter what Isaid to them they purchased into the moment not because of value because of theconfidence the herd provides. This is now happening to GXY and other lithiumcompanies. No reason or value or logic is needed. Those that feel safe byselling with the herd will do so, until things turn around. Funny thing is whenit does they will continue to make even bigger mistakes. As the price continuesto go down, those that connect with the herd mentality and not the valuationmetrics will sell because that is how they justify their decision, playing intothe hands of those that want people to sell.

Communication:
This hasbeen a major gripe throughout the falling share price fall. Really, this can bebroken down into two camps. The first believes that a major reason for theshare price falling the way it has been is due to a lack of communication fromthe company. Do I think the company can do better yes, have I had concerns attimes, yes. Do I think more communication would do any difference to the shareprice? No! Apart from GXY I also hold PLS (within the Lithium space) and followtheir thread and price. The PLS management style is to announce and promote andbe proactive, but what is the result? The same thing, a price that does nottruly represent the value for the company. While GXY threads are like nocommunication equals bad price, at PLS the theme is we have another greatannouncement but why does the market not care. E.g. https://hotcopper.com.au/threads/ann-pilbara-completes-ganfeng-equity-placement.4687579/page-14?post_id=37892743
In fact,the more great news that has been presented by the company, the greater thenumber of short positions https://www.shortman.com.au/stock?q=PLS. I have come to my own conclusionthat the market major players have an agenda and that will play out regardlessof what GXY management says or does. Therefore, if AT and the team want to usetheir time to concentrate on more important components of running the business,let it be. Should great things happen on the ground at some point that will berecognized and this will be reflected in the SP. It comes down to your tradingstrategy and timing. If AT can come out with a mega announcement out of theblue and stun the market I will take my hat off, what a better way to say thankyou to an unprepared market driving the share price down so hard!

If youspend some time reading posts for other lithium stocks you will find something veryinteresting. The names from the posters is different, but across the board theconversation is almost identical. You could simply copy paste and change thestock name in the text to GXY and readers on this forum would most probablynever be able to tell the difference. The problems are sector wide! Acomparison of all pretty much tells the same story https://hotcopper.com.au/threads/sp-tumbling-is-there-a-agenda-and-how-low-will-it-drop.4687443/page-117?get_post=true

Lithium Price:
This issomething of great importance sector wide, but on the thread this can be themost boring thing to read about due to the repetition of wrong and countercorrect info. The way lithium prices have been misunderstood and usedincorrectly has been a laugh and their have been hundreds of posts to set therecord straight if anyway was bothered to listen, e.g. https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-2390?post_id=36942463

For me themost important information comes from the feasibility study, the documentthat’s say hey this is why we need to build SDV https://hotcopper.com.au/threads/ann-sal-de-vida-updated-feasibility-study.4191382/ and a key principle for that document is a long term lithium carbonate price of US$13,911 per tonne, equating to about US$360 million in revenue annually at 25kpta. So where is the price today? We all know China spot is irrelevant, but let’s use the most pessimistic data the average of what is being reported here https://do not advertise external sites/Article/3861005/GLOBAL-LITHIUM-WRAP-Sluggish-demand-for-lithium-hydroxide-in-China-pushes-price-lower-again-other.html at a value of $11,500. So if we assume a 20% cut on forecasts plus a bit more fat to be further pessimistic that still leaves the company with at least US$250 million a year in future revenue. Let’s use a pessimistic US$50million in revenue from Mt C and we have $US300mil in worst case revenue, a future ratio of 300 / 600 a ratio of 2. I know what I have just done is over simplified everything in terms of calculations (the true impact of a 11.5K price is actually outlined in the feasibility study) to get a point across, but I just can’t see how those numbers just don’t scream – the current price is way oversold, there is potential for a huge rerating here. In other words if people want to buy and sell the stock based on the fundamentals today that is fine, there are actually a number of posters that tell it day in and day out on how the market perceives the fundamentals and how it is driving the price. If you believe in that approach and style I think it is wise to follow them as they have played the game fairly accurate, even though the information may not be accurate. But in this downwards market correct information is not the name of the game, but this is not long term it is just the game of the day. I am happy to buy based on the fundamentals I expect tomorrow. I am positioning for the future, using information I trust, applying the CRAAP test to it all https://youtu.be/EyMT08mD7Ds. Of course, there is risk involved, especiallyin terms of things being executed the way they need to be, impact of tradewars, major recession etc. But as I keep saying never invest more than you canafford to lose! This of course does not take into consideration the impact ofany possible JV.

Back tospot price, what we have learned is that it is basically useless for trading.Lithium is not something that can simply be swapped and used. Consistency iskey to making good batteries. This was even pointed out by Pranav “as most consumers remain supplied by theirlonger-term contracts with little need to shop for material on a spot basis”https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-4568?post_id=37782932. But, if you really want to understand the need for long terms supply contracts you MUST watch this video https://youtu.be/YipKMeXH5lA that talks about how hard it is to obtainconsistent high quality and the timeframes required. For example, that Mt Csample POSCO purchased towards the end of last year might only be ready for amuch bigger production run in the next couple of months. Personally, I thinkChina has been ignoring this a bit and they have been using spot material withoutthem really understanding the consequences and it has led to some very badquality batteries making for bad customer experiences https://www.bloomberg.com/opinion/articles/2019-03-20/quality-issues-plague-china-s-electric-car-industry. This is typical China small players trying to get skin in the game with a game plan focused on price overlooking quality (predominately the smaller players trying to get into the game) and it will come back to bite a lot of the players. Once the word comes out that your selling crap batteries, you won’t be able to find customers and customers will be prepared to pay a higher premium from ex-China countries that are known as reliable. So, I think it is inevitable that spot will go down and become useless in many cases for battery grade production. The battery makers that will survive the reputation will be the big players (including in China) and there focus will be to source material with long term contracts with constant characteristics that can be controlled. It is very obvious, for example that South Korea will be needing a lot of good quality product https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-3000?post_id=37098574.

Demand Forecasts:
This shouldbe a fairly easy one and that is that demand is going to be much more thanexpected. It pretty much does not matter what you read and by whom withexamples including: https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-3797?post_id=37522068 https://hotcopper.com.au/threads/day-to-day-discussions-on-s-p.4207629/page-8160?post_id=37715696 https://about.bnef.com/blog/behind-scenes-take-lithium-ion-battery-prices/ but most importantly lithium is going to be driven by EV demand (many other segments are growing well above forecasted rates as well) and I really believe that the Osborne effect will be a key catalyst that will continue to increase the pace of transition as I explained here: https://hotcopper.com.au/threads/day-to-day-discussions-on-s-p.4207629/page-8220?post_id=37736289. In terms of supply no need to reinvent the wheel and lots of charts that explain the demand/supply situation can be found here https://hotcopper.com.au/threads/re-lithium-demand-surge.4468460/page-1678?post_id=37743567

Capital Management:
This is theone topic that really separated the for and against camp. There is a group thatis strongly for and a group strongly against. In my opinion timing and othercomponents of the strategy coming together are crucial to a yes or no. In termsof a dividend some believe that this is a good way to reward loyal investorsand encourage the participation of investment funds that have dividends as apart of their investment criteria, pushing up interest and the buy side ofshares. Airconditioner strongly supported the case here https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-3038?post_id=37102447.

The othercamp believes that it is too early for dividends and money should go into otherareas such as completing SDV/JB or a buyback. Those that are against a buybackare in favour of completing the mine sites as a priority and state no shareprice advantage. For me, the way that I read the argument it is a complete nofor a dividend until our growth story plays out a little more (or a SDV JV isannounced) and most importantly we move away from oversold status. If we areoversold, and we do have spare cash that does not need to be immediately usedthen I do see merit in a buyback even if it does not improve the share price.This is because there are less shares on issue and that means that every singleshare that you own represents a larger percentage of the company, regardless ofhow small that increment may be. A buyback of just $50mil is 6% of the companyat current prices and sends the message that the company is undervalued and isa very easy way to improve EPS and most importantly put the SP on an uplifttrajectory even if short term. While the entire lithium sector is being kickedin the guts, if the company could move the price significantly higher than thesector even if short term that would provide a good opportunity for an allscript strategic takeover (should one make any sense).

Anotherpossibility is if GXY buys cheap today and if there is no JV partner than theymight need more cash in 2+ years. If my predictions are correct and in 2020 wereally see the price take off then we could sell equity at say maybe around $6(to some that would be conservative). So if GXY purchased $50mil shares todayat $2 and then sold exactly the same equity in 2+ years at $6 that would givethe company $150mil to play with to finish off construction. If that is not winwin I don't know what is. When could you get that sort of money from leaving itthe bank for 2+ years waiting for the point of time of needing to spend it? However,under that scenario an equity raising may not be needed if cashflow from MCincreases to the point of providing the money needed. If there is a JV partnerthen this is all redundant.

Takeover:
This isdiscussed a lot. In terms of GXY being taken over a lot of HC members fearthis, they see this as the ultimate goal of the share price manipulation. Forme, I see the large shorting position of the company as an actual protectionagainst a takeover. If one was to happen, what would occur? Shorts would needto cover and if 16% of shares were to be covered could that be completedwithout spiking substantially above the takeover share price. If that was tooccur then the chance for a takeover would be very slim. I don’t think acompany would publically try it, but I think alot of companies would be dreaming of doing so and trying to work out how it could be done. Time will tell. Would GXY takeover another company? Even Ihave talked about it on many occasions. I think if a great opportunity comes upyes, but most likely with so much at the plate we won’t see anything in thisspace until we see clarity on a number of fronts.

SDV:
The jointventure has definitely been an interesting talking point. Expectations for anannouncement was pretty high at the end of last year and even I have to admitthat I made some extra purchases in the expectation something was coming. Adeal still has not been done and one may not be done, but it is pretty clearthat the company does not actually need one. As outlined by Subs and Thesi,things are going well for the company financially https://hotcopper.com.au/threads/viva-sal-de-vida.4636669/page-117?post_id=37840169 https://hotcopper.com.au/threads/ann-posco-transaction-complete.4649977/page-346?post_id=37609525 and the satellite images https://hotcopper.com.au/threads/viva-sal-de-vida.4636669/page-91?post_id=37706833 show that construction is moving full steam ahead. In my view as long as construction is moving forward then there is no reason to rush a deal. Progress will not be hampered if construction is at full steam, and if anything it sends a strong message to the companies that we don’t really need you, the ball is in our court not yours. If GXY do it on their own that is great, if someone gives them something special to join then fantastic. The reality is if someone does not do a deal today, they probably will have wished they did in a few years’ time. Apparently some big companies will regret their decisions not to do a deal now https://hotcopper.com.au/threads/banter-and-general-comments.4474625/page-2872?post_id=37085557. The power is in GXY’s hands tomaximise the opportunity. Also, for some reason, probably due to the talks Ireally believe that the company is delaying an announcement of a massive bigresource update as well.

Final Thoughts:
There aremany other angles of discussion covered over the last 6 months including POSCO,LPD and yield optimization. There has been lots of discussion on true valuebased on the 3 mines plus cash on hand etc. At the moment compared to the otherfactors I highlighted I think they are important, but more of a side topicshort term. I could have gone more into the discussions about manipulation andshorters but I purposely left that out as to me it is irrelevant as I am happyto buy the opportunities they provide. I am in this for the long game. I havemy expectations and now I just need to wait and see if my research that formedthe basis of my expectations was correct. I watch the herd being directed downand wait for tomorrow to arrive.

Regardless,I wish everyone all the best with their trading strategy. Do whatever worksbest for you!

I wonderwhat this summary would look like if repeated in 6 months’ time? Hopefully somenew battlegrounds for discussion will be found.

The onlything is don’t forget the transformation and what is coming (something I like to rewatch alot). It will benefiteveryone on this planet

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Raise the bat centurion!

GXY Price at posting: $1.84 Sentiment: Buy Disclosure: Held
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