Member Info for observer842

My takeaway points from a quick reread:

"Security of supply for the European battery market" (14th December 2018)
https://www.europeanmet.com/wp-content/uploads/2018/12/Shard-Capital-EMH-Dec-2018.pdf
===[
We model the economics of a lithium hydroxide scenario and the results are transformative.
...
Our base case valuation at $12,000/t lithium carbonate, 1.0x NAV and 8% discount rate increases to 137p/sh, fully funded.
...
Our base-case indicative valuation for European Metals is 45p/sh fully diluted
...
Our fully diluted risked NAV under a lithium hydroxide scenario increases to 80p/sh
...
If we remove our 25% escalation but retain the 15% added capex, our NPV10% [Note, 10% not the usual 8% used for beauty contest comparisons in this sector] for Cinovec hydroxide increases to $856m and our sum of the parts NAV to 95p/sh (117p/sh at 8% discount rate) fully diluted.
...
Any further move towards hydroxide will favour hard-rock producers, either those producing a spodumene concentrate for downstream processors, those producing or planning to produce hydroxide on site, or companies like EMH with a nonspodumene resource but ability to build conversion capacity at the mine site
...
Hard rock lithium producers (pegmatites etc.) tend to have a smaller resource base and generally produce a spodumene 6% Li2O concentrate. This concentrate requires further processing in order to produce lithium carbonate or hydroxide.

As hard rock resources tend to be smaller (Cinovec being noticeable exception) it is harder to justify or fund the capital outlay and indeed many projects cannot support the resulting capital intensity.
...
At face value, Cinovec’s resource grade (0.46% Li2O) appears low and the deposit is often perceived as a large tonnage, low-grade deposit. However, with lithium deposits, in-situ resource grade is not always king given the range of metallurgical characteristics and recovery of various ore types. Two points;

1.) EMH’s projected overall lithium recovery is very high - c.94-95% in recent test work and

2.) Cinovec ore is a lithium-bearing mica and EMH’s test work indicates that the ore is readily concentrated via magnetic separation from 0.41% to 2.7% Li2O.
...
Spodumene conversion involves a relatively complex chemical process and expensive reagents. EMH’s PFS in 2017 indicated that based on a conversion price of $365/t for a Chinese-based conversion plant and a spodumene concentrate price of $905/t, that the total cost per tonne of LCE would be $11,240/t. This compares to Cinovec’s total cost of $3,583/t.
]===

Ob

You closed already @Strongman? ;-)
===[
Anyway, no more from me on here, have a good weekend to all. Will post back on here only once I close.
]===

@news
===[
3)Alan Green cites that KDNC owns some 19% of EMH and by extension = 19% of NPV at $540m. He also said it could increase.
]===

It's worth taking a read of the recent Shard Capital report on EMH:

"Security of supply for the European battery market" (14th December 2018)
https://www.europeanmet.com/wp-content/uploads/2018/12/Shard-Capital-EMH-Dec-2018.pdf
===[
We model the economics of a lithium hydroxide scenario and the results are transformative.
...
Our base case valuation at $12,000/t lithium carbonate, 1.0x NAV and 8% discount rate increases to 137p/sh, fully funded.
...
Our base-case indicative valuation for European Metals is 45p/sh fully diluted
...
Our fully diluted risked NAV under a lithium hydroxide scenario increases to 80p/sh
...
If we remove our 25% escalation but retain the 15% added capex, our NPV10% [Note, 10% not the usual 8% used for beauty contest comparisons in this sector] for Cinovec hydroxide increases to $856m and our sum of the parts NAV to 95p/sh (117p/sh at 8% discount rate) fully diluted.
...
Any further move towards hydroxide will favour hard-rock producers, either those producing a spodumene concentrate for downstream processors, those producing or planning to produce hydroxide on site, or companies like EMH with a nonspodumene resource but ability to build conversion capacity at the mine site
...
Hard rock lithium producers (pegmatites etc.) tend to have a smaller resource base and generally produce a spodumene 6% Li2O concentrate. This concentrate requires further processing in order to produce lithium carbonate or hydroxide.

As hard rock resources tend to be smaller (Cinovec being noticeable exception) it is harder to justify or fund the capital outlay and indeed many projects cannot support the resulting capital intensity.
...
At face value, Cinovec’s resource grade (0.46% Li2O) appears low and the deposit is often perceived as a large tonnage, low-grade deposit. However, with lithium deposits, in-situ resource grade is not always king given the range of metallurgical characteristics and recovery of various ore types. Two points;

1.) EMH’s projected overall lithium recovery is very high - c.94-95% in recent test work and

2.) Cinovec ore is a lithium-bearing mica and EMH’s test work indicates that the ore is readily concentrated via magnetic separation from 0.41% to 2.7% Li2O.
...
Spodumene conversion involves a relatively complex chemical process and expensive reagents. EMH’s PFS in 2017 indicated that based on a conversion price of $365/t for a Chinese-based conversion plant and a spodumene concentrate price of $905/t, that the total cost per tonne of LCE would be $11,240/t. This compares to Cinovec’s total cost of $3,583/t.
]===

Lots of potential upside for EMH wouldn't you say? ;-) Assuming all the political shenanigans can be resolved...

Ob.

@news
===[
There is the CRITICAL POINT. The BCN 19 Year Mine Life as per their presentation ONLY INVOLVES THEIR OWN LICENCE area. Then, in the NEXT 50 year mine life, it is the JV with K D N C.
]===

This isn't the case. See page 137 of:

http://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf

There is a small amount from the JV mined in year 3, small amounts in year 9 & 10, with significant amounts in year 11 to 19. In total 88.05% is from BCN's LV. Meaning 11.95% from the JV = 3.585% attributable to KDNC.

In summary, you are right, the vast majority of the 19 year mine plan is attributable to BCN, it's later years, or with an increased production rate where that attributable to KDNC increases to 30% (assuming 0% direct holding in BCN).

Ob.

@news
===[
2)If anyone attends the KDNC AGM, could they ask informally whether in general, is it not the norm for BCN to offer shares to KDNC in return for the JV? This is in order that before funding is done, institutional investors + funds know that BCN owns the licence of Sonora in its ENTIRETY legally? If not, then this is an anomaly? So, KDNC or Kiran is not discussing anything other than norm.
]===

I'd not really considered this as a possibility for our Sonora JV's. I don't think I've heard anyone else mention it before either, but it could be on the table. I'd say its possibility increases the more we sell down our current holding, as it's probably not desirable for KDNC to end up owning more than 20% of BCN... e.g. When we held over 15% of BCN, accepting another 5% for the JV's would have been deemed too low offer. But now we own less than 5%, perhaps accepting 15-20% (depending when) to take us to around 20% would be deemed a win-win by both parties, and certainly so for KDNC if that were the after funding percentage we held in BCN ;-)

Ob.

@news. Since I posted about IRR earlier you might be interested to see that the increasing CapEx of the Yangibana project has resulted in the post-tax IRR reducing significantly from ~78% to ~28%, though the post-tax payback period has only reduced from 2.3 to 2.6 years.

@news
===[
I note that they have cited their NPV and more critically, brought down the CAPEX cost.
]===

Unfortunately the CapEx of the Yangibana project has increased from A$335m to A$427m

"Mine Development Capital Costs revised for the Yangibana Rare Earths Project " (11th March 2019)
https://www.asx.com.au/asxpdf/20190311/pdf/443c9n7lyhmz7l.pdf
===[
Since the DFS (November 2017) pre-production capital costs has increased by approximately A$91 million
]===

Fortunately the NPV has only reduced by 4% from A$466 to A$447 due to improvements made elsewhere.

@news
===[
1)The IRR of BCN [KDNC owns <5% + JV] is at <30%. I looked at Lithium Americas [JV with Ganfeng] and it has a high IRR at some 40%?
It was in the night so this is from recall. Yes, I realise BCN is clay. From recall, analysts look for 30% IRR as the minimum in an ideal situtation not necessary lithium co*s? So, can this be improved?
]===

In terms of beauty contests with others, BCN didn't do themselves any favours using a 19 year mine life. The Lithium Americas projects:

Conventional Brine:
http://www.lithiumamericas.com/cauchari-olaroz/#project-summary

Clay:
http://www.lithiumamericas.com/thacker-pass/#project-summary

used 40 & 46 years respectively. This doesn't impact the IRR but it does increase the NPV of the project.

In terms of the after tax IRR which you are interested in, the LAC projects are 28.4% and 29.3% based on an LCE price of $12,000/t, BCN is 21% off $11,000/t. This is increased to 30% off $14,300/t LCE. Keeping the LCE price @$11,000/t but reducing the capital costs by 30% also increased the post tax IRR to 30%. Page 208 of the Feasibility Study:

http://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf

Bear in mind Thacker Pass is currently at PFS. When Sonora was at PFS its projected IRR was 25% off $6,000/t LCE. The reduced IRR is mostly due to the capital costs increasing substantially from $240m to $420m for stage 1 of the plant.

Ob.

Cheers @tomcat! Relevant calculations from below amended where appropriate. ;-)

The "worst case scenario" (for existing investors not invited to join in) issue price of raising the required $100m to get the project going by issuing all of the 500m shares the BoD have authorisation to is:

$100m * 0.77 / 500m = 15.4p

There would be around 635m shares in issues at that point, and the market cap of the company would be around

635m * 15.4p = £97.8m

and with a finger in the air and a quick peer at the peers in similar situations post funding, I'd expect a re-rate to £200-300m. i.e. a 2 to 3 bagger for PI's buying in at 16p. Overnight.

The last I remember hearing in relation to hydroxide was in their annual accounts at:

"Final Audited Accounts for the year ended 30 June 2018" (15 October 2018)
https://polaris.brighterir.com/public/bacanora_lithium/news/rns/story/x5yk32w
===[
The Group has fully impaired capitalised amounts in relation to a lithium hydroxide test work asset due to the decision to not pursue lithium hydroxide processing in favour of lithium carbonate. Furthermore, the Magdalena Borate property has also been fully written down. As such, the Group recognised a total impairment of US$0.6 million during the year.
...
As at 30 June 2017, assets of value US$28,723 were held within MSB relating to lithium hydroxide testing. Given the management's change of focus to lithium carbonate production, indicators of impairment are present as per IFRS 6. Management deem the recoverable amount to be nil therefore have recognised an impairment charge of US$28,723.
]===

I'm going to change the question to, what would be the issue price, and how many shares would be issued to raise £77m which would result in a final market cap at that issue price of £250m?

Total number of shares in issues is 134,464,872, call it 135m.

(135m * X) + (Ym * X) = £250m
Ym * X = £77m

X is the share price in pounds
Y is the number of new shares.

(135 * X) + 77 = 250
X = £1.28

Y * £1.28p = 77m

Y = 60m shares

Repeating for an estimated post funding market cap of £200m:

X = £0.91
Y = 85m shares

For an estimated post funding market cap of £150m:

X = £0.54
Y = 143m shares

Solving for Y = 365m shares results in:

X = £0.21
Market cap = £105m

A market cap of £105m for a *funded* project of this nature would be ridiculously undervalued. So IMHO, it's more likely that there will continue to be no raise, or a raise in the 50p to pound region (when funds are available and sentiment support it!), rather than a giveaway raise at 21p or below for a kick in the teeth to existing holders.

Ob.

I'd say not so fast @tomcat ;-)

The "worst case scenario" (for existing investors not invited to join in) issue price of raising the required $100m to get the project going by issuing all of the 365m shares the BoD have authorisation to is:

$100m * 0.77 / 365m = 21p

I'm pretty sure no matter how far the actual share price falls below that, if there is sufficient interest for $100m worth of investors to come on board, they'd jump at the chance to do so at 21p! because they know a re-rate would happen pretty much overnight. A raise @21p when the share price is on its knees below that might even be seen as a success. (it isn't! **)

There would be around 500m shares in issues at that point, and the market cap of the company would be around

500m * 21p = £105m

and with a finger in the air and a quick peer at the peers in similar situations, I'd expect a re-rate to £200-300m. i.e. a 2.5 to 4 bagger for PI's buying in at 16p. Overnight.

Just my thoughts. Happy to do some valuation work to support that £200-300m. Wait a minute. @news already did so the other day on the old REM board... ;-)

**In my opinion a successful issue price to raise $100m would be such that the share price rose only marginally (10-20%) in the following days and weeks - i.e. only slightly below fair value (with funding)!

So the question is, what would be a fair issue price, say 15% discount below post-funding market cap of say £250m?

Calculators at the ready ;-)

Ob.

@Barksy. Sonora (BCN) is polylithionite and hectorite clays.

Zinnwald (BCN) and adjacent Cinovec (EMH) are zinnwaldite.

San Jose Lithium project in Spain (Infinity Lithium Corporation ASX:INF) is zinnwaldite.

Electra project adjacent to Sonora (Infinite LIthium Corporation TSX:ILI & Lithium Australia ASX:LIT) is hectorite and montmorillonite clays.

Having two very similarly named companies (Infiite/Infinity Lithium Corporation) doesn't help matters! ;-)

Beware: in that video the x-axis is million tonnes of ore (not tonnes), and the resource stated is a factor of 10 too small. I checked 3 of the largest 4 resources: Cinovec, Sonora & Manono...

In terms of comparison to peers. Worth a watch of this 4 minute video:

"Hard rock lithium grade/tonnage distribution - how does your investment compare?" (8 March 2019)
https://www.edisongroup.com/edison-tv/bitesize-briefing-hard-rock-lithium-grade-tonnage-distribution/
===[
In this video we look at the grade/tonnage distribution of hard rock lithium projects so that individual assets can be compared with the wider peer group, giving interested investors some much needed context.
]===

Just exactly how big is Sonora?

Figures from the Feasibility Study:

Measured + Indicated: 5,038kt LCE contained in 291Mt of ore (1.73%)
Inferred: 3,779kt LCE contained in 268Mt of ore (1.41%)

Total resource: 8,817kt LCE contained in 559Mt of ore (1.58%)

In the first 19 years 819kt LCE contained in 37,058kt of ore (2.21%) is mined, of which 603kt is recovered.

From the above is it fair to say that if all of the current resource were mined at a production rate to off-takers @17.5ktpa LCE then the total resource could potentially last:

(603kt / 17.5ktpa) * (8,817kt / 819kt) = 371 years

or at a rate of 300ktpa LCE:

371 * (17.5ktpa / 300ktpa) = 22 years

Obviously I'm not suggesting building a 300ktpa plant on day 1! ;-) In practice production would be ramped up to meet the increasing demand from the EV + Energy Storage revolution.

And there is much more of the JV areas yet to be explored should lithium demand exceed all expectations, and other sources are unable to ramp up as quickly as Sonora is able to: by its nature Sonora is very scalable.

Ob

@1 hour 9 minutes and the run up to it.

"Prospectors and Developers Association of Canada (PDAC)" (5 March)
https://www.facebook.com/thePDAC/videos/821204668227845/
===[
Make no mistake, big oil is watching these supply chains very closely, for a couple of years now. When an oil major comes into this space, they will just go big. And that is something that eventually will happen. It's just a question of timescale.
]===

"2019 Lithium Themes To Watch Out For" (Mar. 8, 2019 )
https://seekingalpha.com/article/4247506-2019-lithium-themes-watch
===[
Or thinking further ahead perhaps 2019 will be the year the big diversified miners (BHP Group (BHP), Rio Tinto (RIO), or Vale (VALE)), or some oil majors (Shell (NYSE:RDS.A) (NYSE:RDS.B), Chevron (NYSE:CVX), BP (BP), Eni (NYSE:E), Total (NYSE:TOT), Sinopec (NYSE:SHI), Exxon Mobil (NYSE:XOM)) or the Saudis make a big move into lithium. Certainly if the latter happens, it could be a huge catalyst for the sector.
]===

Bearing in mind the Sultanate of Oman (which is next door to Saudi Arabia) has already entered the market, through BCN no less ;-)

"Corporate presentation" (March 2019)
http://www.bacanoralithium.com/investor-relations/restricted-company-presentations/
===[
Strategic partnerships
• Offtake agreement and equity partnership with Japanese trading group Hanwa for initial 10 years of Stage 1 production
• Strategic Investment Agreement signed with SGRF, the sovereign wealth fund of Oman, for conditional $65M equity investment and 10,000tpa Offtake Option, subject to final project financing
• RK Finance providing $150 million debt finance facility available in 3 tranches subject to CPs
]===

I've heard the Saudis mentioned a few times with respect to Lithium over the past few months. I wonder if commentators have got wind that discussions are taking place across the lithium world?

If they enter, they'll enter big - and Sonora is huge, with potential to be a world class leader! And at these prices, ripe for the picking I'd say... Although it's almost inconceivable to me that existing holders would let a third party pick it up for anything like these prices unless they (and ideally PI's too!) were all given an option to join in with the funding.

As to whether the shorts will get their 10p before news strikes? That's the risk they take! Been right so far - just as a turkey in the run up to Christmas ;-)

Ob.

@dougal66 depends what you mean by "Certification must have started". Sure, we have been on the path to certification for some time, but the actual process of employing a third party to certify the designed for manufacturing model to be used in trials has yet to be start - we would have been told via an RNS. The latest we know is from the tail end of last year:

===[
The Group is currently in discussion with a European company that may carry out the certification process with the new cheaper but robust material employed in the latest model.
]===

Although that statement was made in the July 2017 - June 2018 accounts, the start of the discussions may have happened as late as the day the results were published on 28 Dec '18.

But I agree, nowt like an unloved share! ;-)

Ob.

Website still not working:

http://www.inspiritenergyconsulting.co.uk/

and now confirmation statement overdue...

"INSPIRIT ENERGY CONSULTANCY LTD"
https://beta.companieshouse.gov.uk/company/11190342
===[
Incorporated on 6 February 2018
First accounts made up to 28 February 2019
due by 6 November 2019

Confirmation statement overdue
First statement date 5 February 2019
due by 19 February 2019
]===

Our interim's are due this month. I wonder if we'll be thrown a bone?

A still believe we'll see over 0.1p in time due to the terms of the CLN. Perhaps very soon. That's over two bags from here making this a continued Weak (speculative) Buy from me.

Beware anyone thinking about taking a punt - this share requires the patience of a saint! ;-)

Ob.