Ann: Trading Halt, page-45

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05/09/18

19:35

Post #: 35434833
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Originally posted by savvyinvestor ↑

ok so the accounting maths are a little tricky because the effect of inflation is hard to balance against the effect of peso devaluation against the usd, and the future of inflation and the peso over the next couple of years is difficult to predict.

at current lico3 prices of 14,000usd/t
previous costs were around 4,300 from memory
add 1120 new tax (8% of 14,000) giving 9580 gross profit as the new number.
45% domestic costs which when converted to usd will be lower according to the ore report due to the 90% peso devaluation: if inflation was not occuring they would be 90% lower ie usd 2000/t would be 200/t.

according to the ore graph, cumulative devaluation of 900% has been offset by 675% of inflation over the last 8yrs, thus net costs are likely to be down around 25% (675/900 = ~75%).

25% of 2000usd (the 45% of costs which are domestic) is 500usd.

so the net effect on the bottom line will be
1100 (tax) - 500 (cost reductions) = 600usd/t.

600/9700 = 6% decrease in gross profit.

this probably makes a 13% sp drop an over reaction however if the analyst dcf cashflow models factor in 6% over 5 yrs they may come up with a 10-15% downgrade for their valuation of ore based on current operations and stage 2.

the effect on borax and the implications for the viability of continuing the operation or suspending it im not sure of. this is likely to further damage the bottom line for ore but doesnt impact the bigger picture of stage 2 olaroz and the lioh plant.

unknowns / future issues to consider at this stage:
1. inflation may catch up with devaluation and thus the cost savings may reduce over time but we dont know what will happen
2. deepening of the economic crisis could lead to further unforeseen financial effects eg corporate tax increases
3. other lithium miners with current or future production planned in argentina will have to account for this in their feasability studies which could delay their ability to secure finance and enter production. this could tighten supply from 2020 onwards.
4. borax operations

i wont be selling any but i think ill sit on my hands rather than buy more niw and let the downgrade cycle, retail panic, capitulation and shorting all play out. if i can pick some more up in the low 3s rather than mid 3s then all the better.

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What about the analysts take 6% over 3 years instead of 5 years in their DCF models the valuation would be Much better. Please feed it in your model and see how it looks

ORE Price at posting: $3.62 Sentiment: Buy Disclosure: Held
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Ann: Trading Halt, page-45

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