AVZ 2.63% 19.5¢ avz minerals limited

Morning all, Hope everyone had a great weekend. Nice to see AVZ...

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    Morning all,

    Hope everyone had a great weekend.

    Nice to see AVZ close 'the week that was' last week at 20c, representing it's highest close since April 2018.

    Monthly, weekly, daily, intraday (you name the timeframe), all finished on a high and on strong volume. That in itself is a bullish sign of things to come IMO. Judging from the large consecutive on market purchases last week (and indeed prior), it appears that at least a couple of early birds / smart money with deep pockets IMO have considered the binding OT with Ganfeng as THE green light to accumulate.

    From a valuation perspective there appears to be of plenty of unfinished business however, and the FA should provide plenty of juice for AVZ's re-rate run to continue towards 30-40c IMO.

    To refresh what was summarised in my previous post 49963859 last week entitled 'Future World No.1 lowest cost SC6 producer'.

    Ten or so potential early 2021 catalysts for the SP:

    * Coverage from 'respected' specialist Lithium commodity/chemical analysts.
    * Further coverage soon to be initiated by prominent/general 'commodity' analysts IMHO
    * Tin OT (current Tin price is US$11,092/t above DFS LOM price estimate = additional US$836m in Gross Profit. As by-product credit, drastically reduces OPEX of SC6 production - again refer to post 49963859 for more info)
    * Canadian Sulfate Testwork results and update on potential OT suitors. (Canada back at work this week)
    * Completion of Pit floor drilling (1.5 holes remaining last time I checked) and confirmation of drill core samples being sent to Perth.
    * General onsite & early works update.
    * Project Finance update - indicated by NF to be 'early in the New Year'
    * 2nd and possibly 3rd Lithium OTs
    * SEZ update (post recent ministerial reshuffle etc.)
    * Left field announcement? (my spidey senses are tingling again, and come to think of it I do wonder if any of JC's connections - one specifically mentioned in posts 43621057 & 43614193 earlier in the year - have either started or are close to completing their due diligence via AVZ's data room?)

    Global X LIT ETF vs AVZ chart update Note: The red lines in the below AVZ vs LIT ETF chart (used as a sector proxy) are of equal length and help illustrate AVZ's previous record gap (July 2020 & new sector uptrend confirmed) and AVZ's under performance ever since. Despite AVZ's significant appreciation last week, note the short term SP target has been revised to 36.5c - up from 30-31c last week - just to maintain (not bridge!!) the July 2020 gap and revisit the all time high of 36.5c on a closing basis.

    AVZ vs Global X LIT ETF Jan 2018 -Jan 9 2021.png

    AVZ vs selected Spodumene development peers (5th January commentary as below)

    'A little over 3 years ago the SP was 25c (Nov 2017 average) and there were 2,216,539,071 shares (fully diluted excluding performance rights) on issue valuing AVZ at A$554m (though at one stage in January 2018 the company was valued at a record ~A$800m).

    In the below table I've added an 'AVZ 2017' column to compare the 'then vs now', with the main differences being the no. of shares on issue and AVZ's share (%) of the Manono project. Interestingly, the negative/dilutionary effect of a higher no. of shares on issue (approx. 750m higher vs 2017) is almost completely negated /offset by the addition of a 15% increase in the Manono project (option to acquire from Dathomir).

    For the purpose of the exercise, I've also assumed that AVZ had a JORC resource & DFS in 2017 so as to compare apples with apples on an NPV and EV/t valuation basis, though in reality AVZ didn't yet have a 2mtpa PFS (let alone a DFS) nor had it begun it's extremely successful 30,000m drill campaign which then paved the way for a mammoth JORC resource of 400mt at 1.65%. And of course, back in 2017 AVZ didn't have a game-changing binding OT with Ganfeng.

    Nevertheless, and keeping the above facts in mind, a 25c SP in 2017 terms equals 24c in today's terms when comparing values such as project EV/Resource tonne and attributable premium/discount to project NPV. And yet, clearly the market has only just begun factoring these comparisons into AVZ's current market valuation of A$504m fully diluted (exc. perf. rights), or 17c per share which represents a significant discount of ~30% vs AVZ in 2017,

    The other points to make with regards to the below table is that even at 24c per share, AVZ would STILL be trading a 32% discount [correction 49% discount] to attributable NPV and a whopping 72% discount to ASX hard rock development peers on an EV/t basis, or a 57% discount after a 15% country risk discount is applied. Furthermore, looking at the market caps of LAC (A$1.85 billion), LTR (~A$800m) and PLL (A$575m), and its clear to see that AVZ can, in the short term, easily justify a re-rate to 20 - 30c per share (A$600 - $900m fully diluted) on a main peer vs peer basis.'

    AVZ vs selected Spodumene development peers (11th January update)

    AVZ Snapshot & Peer Comparison 09012021.png

    1. Current market valuation of A$594m fully diluted (exc. perf. rights), or 20c per share still represents a significant discount of ~20% vs AVZ in 2017.

    2. At 20c per share, AVZ trading a 40% discount to attributable NPV (USD) and a whopping 80% discount to ASX hard rock development peers on an EV/t basis, or a 65% discount after a 15% country risk discount is applied.

    [ sidenote on Country Risk discount: A question in this thread was raised as to how I 'got' to a 15% discount rate for Country risk? I covered this topic many months ago (as have others I'm sure), however please refer again to the following minewiki link and graph below.

    Country Discount Rate Risk Premium table.png
    Discount rate - QueensMineDesignWiki (queensu.ca)

    As you can see, the country risk discount rate for Africa region is 10%. However, and to be conservative, I've increased the 10% discount rate up to 15% in the AVZ snapshot & peer comparison table (above), taking into account that the DRC and the perception of additional risk there maybe higher than the average African country, albeit indeed certainly lower than in some other regions of Africa - with South Africa traditionally being the lowest and West Africa eg. Niger, Mali, Burkina Faso etc. (due to extremist/radical influences in that region) being the highest area of instability, not to mention a less attractive region for investment in general (and as confirmed by Deloittes in a recent article / survey below).

    DRC Deloitte Top 10 African country most attractive investments Sept 2020.png

    source: https://zoom-eco.net/a-la-une/afriq...les-plus-attractifs-dinvestissements-en-2020/ ]

    3. Market caps of main Lithium development peers in table, like AVZ, have all increased since 5th Jan, with LAC (from A$1.85 billion to a whopping $2.5 billion), LTR (from A$800m to A$840m) and PLL (from A$575m to $675m) all showing strong gains. Thus, its clear to see that AVZ can, in the short term, easily justify a re-rate to 30-40c per share (A$900m - $1.2b fully diluted) on a main peer vs peer basis.

    4. AVZ vs Global Sample of Spodumene Projects ( x 9) in Development (update)

    The above snapshot and main peer table also shows the current EV/t peer average for Spodumene developers at A$571 /t Li20 (as highlighted in yellow), up from A$506/t a week ago (a rise of A$65/t). By contrast, AVZ has risen from A$98/t to A$116/t (a rise of just A$18/t). So the gap on a EV/t Li20 basis i.e. vs the spodumene peer average, continues to widen

    GIANTS of the Lithium for EV Supply Chain. Click on the bottom graph to enlarge for further explanation.

    Giants of the Lithium 4 EV Supply Chain  - elphamale tweet 110121.png


    Lithium EV supply chain giants 3 year perf chart Jan 2018 - Jan 2021.png

    GLTA and remember;

    Ian Cassell naysayers tweet.png


    Cheers
    Elpha
 
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