If
@8horse wants to run some numbers that will be great. I ran some numbers at the time of the SS and actually got to their numbers in the SS. Now the way to read the tables below is the construction period is 2 years and the income period is 20 years (obviously we are expecting more than 20 years production but from a discount rate perspective everything after 20 years is heavily discounted in any event). Due to the HC system can't put the entire workings but basically the nominal numbers are the same in the income years after year 5 etc if anyone has the beer drive to replicate etc etc.
At a high level,
1. For a 2mtpa ore feed plant AVZ will get 20% more revenue than PLS at the same price assumption, simply because the grade of AVZ's ore (1.5% Li20) is greater than PLS (1.26% Li20).
2. At the actual mine, AVZ also will have a lower opex cost than PLS because it has a far better strip to ore ratio than PLS. AVZ has a resource that goes 200 metres in some places whilst PLS has a resource over a wider area with in between the pegamatites layers of overburden/waste which will need to be removed as well. The higher grade also helps opex costs for AVZ.
3. Transport costs are always the key here, and the impact of the tin/tantulum credits a key. If all goes well then the transport cost will be around the US$100 - US$150 per tonne mark (but is likely to be as low as US$100 per tonne).
4. A key issue is the price, and on that front need to understand what a converter can afford. If you look at conversion costs for carbonate they have been quoted at around US$3,000 per tonne so a US$900 price for spodumene means an input cost of US$6750 for the spod alone. Add to converter costs and the costs facing converters is around US$10,000 per tonne, and not much wiggle room for carbonate producers to make a profit if the carbonate price is say US$11,000per tonne. Anyone interested in what I have said refer to this post I put in the PLS thread the other day - Post #:
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5. The key for AVZ in seeking to get a higher price is actually targeting the hydroxide market where prices for lithium hydroxide monohydrate are higher than carbonate so if can get that market well can get yourself a higher price for the spodumene sales - again refer to this post Post #:
37277249 The key too is hard rock deposits are also best placed to serve the hydroxide market as I posted many moons ago in AVZ threads etc - Post #:
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6. Timing to market for AVZ is actually impacted by the transport route issues. Capex costs for AVZ in the SS and below are really based on China/others ensuring the transport corridors/routes that AVZ and other DRC producers use will be enhanced by the time AVZ comes into production. If AVZ needs to contribute to such capex - which the indications are it does not - then its capex budget will be much higher than estimated in the SS hence the catch 22 issue of timeframes to market.
7. The capex estimates in the SS are very similar to PLS, so you can hypothesis that the extra cost to recover credits will probably add US$30 million to capex at best IMO when you compare to capex costs of PLS and BGS for 2mtpa ore feed facilties.
So from the above we start with what AVZ did in the SS - showing the 90% pretax IRR and US$1.6 billion NPV at the 10% discount rate. Basically, I can replicate their work their results for the whole project on the data they provided in that SS, and I posted as such a while ago too - Post #:
36063871 And also, I am still a little critical of the pricing assumption in the SS in any event, but I might be less critical if AVZ's buyers are actually in the hydroxide market (refer above) as I stated herein - Post #:
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Now lets reduce transport costs to US$100 per tonne and increase capex to US$220 million, but leave the other assumptions alone in its SS around price of US$920 per tonne. IRR increases to about 94%, but in effect whilst doesn't look a large increase, in NPV terms (10% discount rate) it actually increases pre tax cash by some US$300 million. (Note modeled at US$220 million capex not US$190 million)
The price assumption is also a key assumption so if the average price for AVZ is US$700 per tonne over project life this reduces IRR to 69%, still very very solid. NPV falls though to US$1.3 billion over project life (Note modeled at US$220 million capex not US$190 million).
Now to the discount rate 10% is probably on the low side, and I think the max bet is 13% which I posted on the AVZ thread a while ago to - Post #:
37137404 Keeping the US$700 per tonne assumption but now discounting at 13% gives a NPV of about US$1 billion.
Now obviously the quantums will be greater at 5 mtpa and 10mtpa, so assuming AVZ can keep its mine costs on schedule (and that transport costs can be reduced to say US$150 million) then IMO all well here.
What I am indicating is that the issue here IMO for AVZ is timing to market since it doesn't have effective control of the transport solution and upgrades which impact timing.
The other issue of any modelling exercise is that as a 60% SH in the JV, from my understanding the 30% owned by the govt needs to be free carried by AVZ to production, so that means AVZ will need to stump 90% in its own accounts of the capex but keep 60% of the profits only. Without anything else that will certainly reduce the NPV for AVZ in all the tables above, when converted from a project whole to AVZ company specific, but what I would be expecting is a quid pro quo through tax holidays/royalty discounts to make it worthwhile for AVZ to proceed with any development itis required to almost fully fund and that is also the unknown here. But indications I have read on these threads is that a tax holiday/discount is certainly in the mix and that will stabilise the IRR to SH, assuming the above assumptions come in to the IRRs/NPVs in the tables above for AVZ's share of profits in the developments etc etc.
So IMO timing to market is how I would explain the SP events, but I will refine my view once we get a PFS and recheck these numbers as I am working from the SS and how some of these numbers were revised thereafter with that transport Ann.
Been locked into someone else upgrading the transport infrastructure and giving you the route to port is the real issue here IMO. The other question is there room for AVZ to enter the market by 2022 - 2025. At the end of the day, the delays in AVZ producing have meant new greenfields projects have come into production, such as PLS and AJM, and these hard rock projects and then GXY and Greenbushes are already foreshadowing expansions. So the question then becomes is there enough supply shortfall left for AVZ to enter production. I am saying it is very tight IMO now, especially with Albermale buying a stake in Wodgina (meaning another potential new competitor in the hard rock space and this is before KDR comes onstream). The resource is great, but it is no point having a great huge resource if cannot enter the market to extract its full benefit. Two years ago I stated the following in this post and still stick to it - Post #:
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Another way to say it is if AVZ's resource is 10 times that of PLS it doesn't matter from a valuation sense if the only viable production profile for AVZ is only slightly bigger than PLS's planned production profile."
I personally believe that the market is underestimating lithium demand, but notwithstanding timelines are tight and AVZ need to get cracking. The SP state at the moment is due IMO largely to the market thinking that AVZ will not be able to enter the market until way after 2025. The recent SPP and continued missed deadlines are also not helping the market in reliking AVZ either. My view only.
Obviously, I have been drinking VB and all the above might be nonsence LOL. If you got this far maybe you have been having a few beers too many too.
All IMO IMO IMO IMO
