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I am optimistic for this quarter, not because of anything KC says particularly, but because of the news coming from Czechia. That news says that the testing is (or was) at the final 5% of the process and that offtakers will soon have their samples. VW is supposedly on the cusp of making their gigafactory decision (end Sept mentioned) - and that may be linked to offtake samples. The CRMA is now coming into being. CEZ (not just KC) have confirmed end Q4 for the DFS. Most importantly the political music is now wholly positive, which is critical in getting the permitting sorted. I am also from Wales, so the rugby is adding a positive gloss to life generally at the moment!
At the moment they are still going through the start up phase so lots of one off costs that will distort the picture, and sporadic revenues. Once the final smelter is online, and the granulator fully up and running, we should get to a position where we have a more stable cost/revenue stream when I would expect an updated research note clarifying FCF and profitability moving forward. That would give clarity on the case for continuing as is or investing for a powder product. Importantly will also give an indication of the case for a larger set up adjacent to the mine, and the sort of value another player might place on it. Lots to look forward to!
Also although we are told that whilst the DFS will stick to the 29kt originally planned, there is a separate work stream looking at the possibility of increased production. I am particularly interested to hear whether this is possible through working additional shifts (so just variable costs) or whether it would involve additional fixed costs in terms of infrastructure. An update on this could come at any time, and even if it is just in positive general terms could act as a significant catalyst to the sp. My feeling is that the sp will be moving up steadily ahead of the DFS, so those wanting to get in may regret delaying, but it is just imho, not advice.
Don’t forget that they will shortly (this week possibly) be announcing the results of the locked cycle testing (proving up the planned processing method and necessary for the dfs), and hopefully simultaneously announcing that the resultant production samples are being sent to potential offtakers for testing. Another milestone which brings the DFS and offtakes closer into vision. After that is the end July quarterly report, and perhaps an update at any time on another specific milestone in the dfs. For the patient who have waited for seemingly forever, October and the DFS are now just around the corner
Hi Antelope. As you suggest a buyout is fraught with problems, but not impossible. A more likely scenario imo is that VW fund part/all of the project in exchange for first refusal on all/part of the output at a discount to market price. At some point post DFS EMH will want to cash in their chips, and this sort of deal would give a clear read through to actual value.
Of course, in theory, but that was not my point. CEZ/Government who will be leading the negotiations will be seeking to leverage their stake in Geomet to achieve both their objectives - gigafactory and financing/offtake. If Volkswagen don’t bite they have secondary options such as LG for a gigafactory, and only if all options for a gigafactory in country are exhausted will they allow their lithium to go elsewhere in Europe (no shortage of potential buyers). Of course EMH have to agree any deal but they are a minority partner in negotiating terms. KC has said they are concurrently discussing both offtake and financing, and VW have stated that their decision on a gigafactory is due by end of this quarter, hence my view. Other interpretations also valid, and nothing certain until announced.
Ok Skelly, how about this scenario. Negotiations between Volkswagen and the Czech government for a gigafactory come to a positive conclusion before the end of March. Simultaneously, on the back of that deal, Geomet sign an offtake agreement whereby Volkswagen finance the the bulk of the cost of the mine/processing plant, in exchange for a substantive 10 year offtake at a set discount to market price. Obviously contingent on permitting and the shortly to be available production samples meeting quality requirements. Hypothetical, but compatible with the recent narrative, and is one of the more likely scenarios in my book.
….finalising……project finance matters. Radio silence is normally either the result of nothing new to report, or there is information to report but it can’t be reported as negotiations are “in commercial confidence”. My belief is the latter, and that those negotiations are with VW and linked to the gigafactory, decision this Autumn. Patience faint hearts! Imho, dyor.
LLInv factually correct but the politics are top trumps here. For the country (and by proxy CEZ) the big prize is the gigafactory and expanded EV production. In this context the local lithium supply is an important bargaining chip, so until VW/Skoda make their decision I believe an outside of country offtake is unlikely. But assuming the EIA passes muster off you are right that there is plenty of demand to support offtakes/production, so value will out eventually, it is just a question of timing.
Some observations.
1) Volkswagen have stated that they want to vertically integrate
2) Volkswagen have indicated their wish for a gigafactory in Czech R but have not committed yet
3) Volkswagen/Skoda have confirmed their plans to move quickly to EV production
4) The recent presentation reconfirmed much of this, delays due to the political/bureaucracy situation, but still hoping for H1.
So why the delays? Firstly be careful what you wish for - we have welcomed the stable political/legal environment as a positive for the project, so asking for political favours or corners to be cut because of the importance of the project is maybe unwise. Having said that their will be pressure to get a move on so why the delay? Apart from Covid, my money is on the EIA not being completed yet. The one big time sensitive issue (in the uk also) is the need to monitor wildlife populations, often with more than one survey, and for this spring is a key time as birds migrate inwards, great crested newts etc spawn, and other wildlife comes out of hibernation. So could that be the delay?
FWIW my limited understanding is that the sequence is EIA, then permits, then DFS. The BFS requires off takes which could come before the DFS (but would then be conditional) and KC has said he prefers an unconditional offtake agreement (also I guess preferred by Volkswagen).
Patience required, but H1 is looking both doable and probable IMHO.
A while ago someone posted about how it should be possible to value Aminex based on other company valuations, so here goes.
The nearest comparator to AEX is Wentworth Resources (WEN), which thankfully has a clean balance sheet and up to date reserves figures. Their share of 2P reserves is 135BCF with an after tax NPV10 of USD108m (see recent RNS). Their market cap is £38m, and as they are debt free deduct cash of (USD23m) £17m, giving a market value for the reserves of circa £21m, give or take (approx is good enough for these purposes). So WEN is currently trading at around 1/3rd the price of its stated NPV value (plenty of commentary suggesting that WEN is seriously undervalued at this level, hence the buyback programme).
AEX has its share of POTENTIAL (bear with me) 2P reserves of 1.25tcf, which if proved up at the 2P level would be worth £194m based on the WEN valuation above. AEX current market cap is £38m giving an implied value of 4.5 p a share (£194m/£38m x 0.9p).
BUT these are not 2P reserves, and need to be proved up in the 2022 drilling campaign, so you need to apply a risk factor, each to their own. I am using 50% as an approximation which gives me a current like for like value compared to WEN of 2.25p per share, slightly over double the current SP. My thinking is that the gap will start to close over the coming year, firstly as the seismic campaign progresses, and will reach 2p plus at the start of the drilling campaign.
Notes
WEN is significantly undervalued imo, should rerate on 2021 results
Above does now allow for Nyuni, and completely ignores the potential for oil in the basement which would be an absolute game changer.
The situation in Tanzania is changing positively. Politically it is more investment friendly. The recent increase in world gas and oil prices will massively benefit the country and create huge extra demand as energy intensive industries relocate there and through LPG (massive offshore reserves)
AEX is free carried for the drill programme
E&OE, apply your own analysis but I am comfortable with my present 2p target ahead of drilling.
Good analysis again, and the important point is that even if you majorly change the assumptions you still end up with a sp way ahead of where we are now.
I am hoping that a) there will be a gigafactory and offtake announcement in early October (as per the Babis/Diess meeting) and b) following on from this WHIreland will do an update that better reflects all current facts.
Three thoughts on the current situation.
First and most obvious is that interest in lithium is at a near all time high. The price of hydroxide is around 50% higher than that of the PFS and tin approaching double. The economics of the project have been transformed, and will be confirmed in the DFS notwithstanding conservative assumptions.
Second the Czechs have woken up to the value of the whole supply chain, and rightly so. This is not just about lithium extraction and processing, it is gigafactories and associated industries, and offbeat possibilities including cement as a by product. The competition for off takes has increased, but so have the timescales with the added complexity.
Third is that given the political interest in the whole Lithium supply chain I believe that EMH are right to keep their heads down, not rock the boat, and focus on getting the permits and delivering the DFS.
The slippage in timescales is hugely frustrating for investors, but I believe that the wait will be highly rewarding for those with the patience to allow the current fair wind to yield potentially stunning results.
Disclosure - (very) long EMH, and have been for some time
Rephrased we are in discussions with four potential partners for a new gigafactory in addition to Volkswagen who would bring their own partner. So intense competition for who will get the get to build the factory, and the potential for more than one.