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tsibis - you can put some boundaries around the price CEZ might offer using a real options model.
The lowest boundary we can take to be the latest PFS ... entering those numbers gives a price of £2.91.
The highest boundary needs to make some assumptions ... we assume that CEZ would only want to consider what has been committed for production so far, i.e. 29,386 tons per year. Why give consideration to larger volumes if they don't want EMH around for the ride? So either they make the offer before the DFS, or the DFS doesn't commit to larger volumes of production and they ramp up in later phases. Then it just comes down to the long-term predicted cost of lithium hydroxide. At different price points this would be:
$30,000 ... £6.62
$40,000 ... £9.48
$50,000 ... £12.34
And so on.
You can make up your own numbers for volume and price here:
https://docs.google.com/spreadsheets/d/1oa0lU3qMthSZalALvaAJh8UQr5T3XAu3cmEboCrGXV4/edit?usp=sharing
Livent is a better comparison for what Cyrani is saying. They had 1,109 employees in December 21 for the capacity to produce 25,000 tons of Lithium Hydroxide and 18,000 tons of Lithium Carbonate, although actual production was between 60-80% of this. Again from brine. It seems fair that 1000 mining employees in Czech would be needed for the capacity of 29,386 in the PFS, especially starting from 0 with new processes.
Additionally - can't get the talent to operate the mine - the skills have been absorbed by other projects and training is hard to come by.
Fingers ... giving the opposite side of the business case a go:
- Lithium extraction from Lepidolites is still seen as an unproven technology and therefore higher risk, as far as I'm aware there's only one Chinese mine with debatable success ... therefore makes guarantees to clients impossible, or project not fundable or costs to raise are too high
- What to safely do with the radioactive fluorine byproduct in a way that is acceptable for environmentalists ... although the latest PFS might be addressing this by backfilling the tailings
- The opex costs might have risen significantly enough, e.g. with the increase in gas prices for roasting stages, that the expected long-term prices for lithium call the profitability into question
- They view the environmental assessment isn't likely to pass due to whatever, NIMBYism ... although the community will recall it as an operating mine in the 80s
- Political issues that we can't see, either at EU or Czech level
- Russia invades Czech Republic
- Any combination of the above
Anything else I've missed?
To be honest, I don't see any of the above as insurmountable bar a hot war. As Howard Klein says, we just have to be patient...
For some measure of comparison - in 2020 SQM had 5,507 employees through its parent and subsidiaries to produce 72,200 tons of Lithium Carbonate, and work on increasing to 180,000. However, they are brine, produce both other commodities including fertiliser and iodine, as well as market and sell directly around the world. The company structure is a maze... (https://minedocs.com/21/SQM-AR-12312020.pdf).
Fingers - additional capacity don’t come free - from 2022 PFS: “Additional mining capital of $32M was estimated for an expansion from 1,680,000 tpa nominal ROM to 2,250,000 pa ROM … Additional capital of $141.5M for a process plant expansion from 1.68Mtpa to 2.25Mtpa was also estimated…”
RK Equity’s model backs this out as a Capex per tonne, which is $21,908 for 2022 PFS - add capacity, add Capex - unless you believe Keith has a direct line to the North Pole to call up Santa’s Little Helpers…
@Observer - good question, you should be able to download the sheet and play with the numbers - as Fingers notes, the shares need updating. For minimal share dilution just increase the starting loan and/or grant numbers.
By organic growth, you mean reinvesting profits to fund additional capacity? Just add Capex in later years without increasing loans and equity, and then model increased revenues from the additional capacity in subsequent years.
Here's your numbers in RK Equity's model Fingers - £20.55 / 37.07 AUD even with the generous numbers...
https://docs.google.com/spreadsheets/d/1SlsjOWqmTa6R42lZN8KwWd56WqtoBSrd/edit?usp=sharing&ouid=115714781831026487296&rtpof=true&sd=true
Fingers ... those are aggressive numbers, even though we could get significant grants and prepaid offtakes, plugging those into RK Equity's model updated for the 2022 PFS numbers doesn't get us to 115 AUD.
Fingers ... where are you getting the Capex from for capacity of 80-100ktpa? You'd need to raise at least an additional $1bn for that run rate. Shares on issue would need to be about 500-800m if building capacity upfront.
https://www.wired.com/story/biden-plays-a-national-security-card-to-fix-the-lithium-shortage/
Prompted by the various methods for valuations posted here and reading https://masterinvestor.co.uk/latest/how-to-value-junior-mining-stocks/amp/, I've created a series of pricing models to help understand what is a fair price and where EMH might go from here. You can download the Excel spreadsheet and enter your own numbers here: https://docs.google.com/spreadsheets/d/1r-6z3lFXkRApw6m-3gNweQuKn0g7MsRh/edit?usp=sharing&ouid=115714781831026487296&rtpof=true&sd=true (Errors will be shown in Monte Carlo Simulation unless you have the Excel Add-In).
Topline conclusions:
1. EMH has settled at a fair price relative to a typical junior mining project (~10% NPV)
2. In the absence of announcements from EMH or CEZ, pricing indicates the market gives a 30-40% probability of construction
3. There is a conservative estimated upside potential of 7.5 times (£5.23) if Cinovec finishes construction and reaches nameplate capacity (at least 5 years from today)
4. If double capacity is announced, then 15.5 times (£10.91) upside potential from here
All of these are highly susceptible to the price of lithium, how expensive to shareholders the Capex raise is, and the relative valuation of Cinovec’s speciality chemical processing business.
KC mentions "it focusses the attention of the governments of the EU on assisting us in developing the Cinovec project" - probably why everything is taking so long, the EU is involved and everything is being dragged out - hopefully for the best as capital is secured for construction.
Finally, European ministers waking up… https://www.news24.com/fin24/companies/white-gold-europe-wants-to-to-get-in-on-lithium-rush-as-cars-go-green-20220113 2022 is EMH’s year…
Agreed - it won't affect Cinovec but is interesting to see the new government's positioning.
If you missed it, Rodney Hooper's view on upcoming Cinovec news: https://mobile.twitter.com/PanDan02216285/status/1470722547125833730
Czech government has been sworn in: https://www.theguardian.com/world/2021/dec/17/czech-republic-new-government-sworn-in-petr-fiala
I give it 3-4 weeks for the PFS to be released to get it on the new government's agenda...
Full transcript: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_21_6117
European Raw Materials conference "Access to raw materials is at the core of the EU industrial leadership ... and the European Union needs to be more assertive ... Lithium and synthetic graphite is indispensable for batteries .. demand from Lithium could increase 10 times to more than 400,000 tonnes by 2050" Thierry Breton, European Commissioner for Internal Market
https://mobile.twitter.com/ThierryBreton/status/1460998993568223235