Zim15 Oct 2023 10:01
Ors, it is easier to post here and then others can see it too.
The plan as outlined in the recent RNS and interview is very different from the plan outlined in January in the FEQ report. https://www.rrrplc.com/wp-content/uploads/2023/01/FEQ-Red-Rock-Resources-19-01-23-Buy-Note.pdf
The plan then was initially to sell to local offtakers, generate some cashflow, get some beneficiation kit in place, beneficiate and then sell into the export market via South Africa.
As such it was a fairly leisurely exercise and no mention was made of other sites at that time.
One thing I pointed out was that selling ALR would be a bad idea because of the discount to the NAV needed to secure a sale. In my view Prospect sold out very cheaply. On the other hand operating the assets over say ten years is risky because things may change on the ground.
If however ALR intends to go full bore on exploiting the assets and make the sales over the next three years then the discount factor reduces considerably and the risk reduces considerably.
For instance, in the FEQ report Tin Hill was valued on the basis of 60k tpa for five years. If ALR now intends to exploit that asset over three years then it is 100 tpa over three years and at export pricing. The NAV has just become materially different.
EG., 100k tpa at $1,000/t is $100mil pa of sales for three years. FEQ used a price of about $130/t net and put the NAV at $39.2mil. Lets suppose the net price is 5x that would put the NAV at $196mil but we need to adjust for the 3 year production profile rather than 5 years. So that takes the NAV to maybe $250mil (NB not the same as what you could sell ALR for).
We now know that Tin Hill is much larger than thought back in January plus we now have the other licences. So at Tin Hill they now know that Peg 1 continues into the hill and probably to depth: previously it was thought to be 300kt. What is it now 600k tonnes or 900k tonnes? Additionally, they have detected two other pegmatites at Tin Hill and think there is a 4th.
So what does that take the NAV to? What was a relatively small operation has become a lot bigger hence why they taking on a Zimbabwean mining operations specialist and hence the large team in place doing the operational planning for Tin Hill and the other sites.
As to your point about RRR and being vulnerable to a low ball offer: as it stands it looks to me that the market values RRR's ALR holding at close to zero. So probably the cheapest lithium ore in the world can be had by taking RRR over. If you were just interested in ALR you might buy RRR, sell the other assets to get your cash back and then hold circa 50% of ALR for nil cost or negative cost.
We should know more maybe later this week coming or early the week after. Key points:
Detailed ALR presentation
Offtake agreement
Export permit
Start of production
Start of delivery
As I have been saying for months, ALR is worth a serious multiple of RRR's MC: sooner or later tha
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