I understand that due to legacy contracts, LGO gets nothing like the (average) market price for their sales. However, from next year, some significant portions of those old contracts start to fall away and we will really start to see what sort of money a V company can make in these soon to be extra-ordinary times.
I still think LGO is cheap and it will be C$6 by end Q1 next year at which point it's market cap should be well north of C$3bn. Largo is our peer. By mid-2021, we will produce more vanadium at similar prices to Largo. If the vanadium price remains at these levels (or higher) over the next 3 years (why wouldn't it?) then imagine where the TMT share price is heading.
It's difficult to calculate how many shares will be on issue by mid-2021. But lets say they can fund the development debt:equity 50/50 (with the sort of cash flows I'm expecting it could be 60/40, but lets be conservative). With off take agreements still to come, lets say the equity portion is done at $1. Half the capex is $190m to that's an additional 190m shares to be issued. On top of current shares of 83m (fully diluted) that's 273m shares on issue.
If TMT has a mkt cap half of LGO, say A$1.2bn that gives a share price target of $4.40ps.
If the V price is at least at current levels in mid 2021 (my view) then a market cap around LGO's current level is not out of the question i.e. A$2.64bn. Using this number gives us a share price target of $9.70.
This is not investment advice, it is simply food for thought, nothing more. But what if I'm right?
TMT Price at posting:
52.0¢ Sentiment: Buy Disclosure: Held
