AVZ 0.00% 5.3¢ avz minerals limited

NF interview podcast April, page-68

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    I am not expecting Hauyou to convert.

    The interview was interesting in that they believe their is scope for them to enter the market at 5mtpa ore feed facility, for just over 1,000,000 of 6.2% Li20. This is also the other interesting aspect, as the initial Scoping Study was for 5.8% Li20, so moving to 6.2% Li20 a good thing.

    The second thing of importance is the fact they are thinking about a ‘hydroxide’ facility. This actually confirms that the ore grade and iron content make Manano a resource for targeting the growing hydroxide market, and in the “Understanding Lithium Demand” thread, you’ll get the flavour well it is hydroxide that is the growing market as hydroxide makes better EV batteries than lithium carbonate. And furthermore, in hydroxide this is where hard rock is far better and cost effective than brine and furthermore not all hard rock deposits (read low grade ones or ones that have high iron content) cannot be in the hydroxide space. Whether AVZ can produce hydroxide at mine site or in a regional centre is dependent on finding a cheap and reliable power source as the conversion process is very energy intensive. But been able to target the hydroxide market means better leverage to get better prices too (i.e. read slightly higher prices for your spodumene sales than those that can only sell to lithium carbonate producers).

    Now, whilst NF yabbered about transport, not much was really said. The flavour I got was they are still looking at transport options and the short term transport option may not reflect what they might do longer term. This continues to remain a watch this space here and probably is the driving factor IMO as to where the SP is at. Everyone knows the resource is fantastic and minesite costs would be low, but transport is a post minesite cost and continues to remain uncertain. Despite transport costs now estimated to be much less than US$200 per tonne, including credits, the fact of the matter is they a hopscotching around the issue of whether the existing transport routes can carry just over 1,000,000 tonnes of 6.2 % grade spodumene in 2021/22, and if they cannot who will be upgrading those routes so they can carry that, or whether they will enter the market at a much lower production target (which is what I suspect they will do). Any capex we put to a transport solution does reduce NPV, albeit moving to 6.2% grade might counter that additional capex cost if AVZ stumps up some funds on the transport front.

    I guess the DFS will give that information, but a positive here is whilst before the perception was they were totally relying on others to deal with the transport solution issues in full (i.e. like DRC getting funding from the Chinese Belts program to upgrade transport corridors) it now appears AVZ is starting to step out in this space and may put some capex funds down to meet ambitions, not a lot btw I suspect but enough where bottlenecks need removing to facilitate their production, on getting the required transport solution, albeit it is a fine balancing act between increased capex and maintaining a viable project. And I note the interview didn’t say much about what they were budgeting in this area, so i’ll give a figure as I suspect it might be in the vicinity of US$100 million to US$150 million capex (as anymore than that will start to adversely impact NPV depending on price assumptions). The fact is the initial SS had not a bad IRR outcome, albeit it was a little high IMO as I posted thereafter because of the price assumption (but even at US$700 per tonne spodumene price NPV and IRR will be good IMO).

    Certainly a viable project IMO with AVZ using the infrastructure and paying a transport charge, but doing that puts you in someone else’s timeline on when they will get around to building the infrastructure. This is where the main issue for AVZ has always been - can AVZ enter the market in 2022 to 2025 based on the transport routes available or proposed to be built by that time. My view is yes, but suspect they will need to enter the market at a ore feed facility of 2mtpa, producing 400,000 tonnes of 6% grade spodumene, with this ramping up as new transport routes become available and/or existing transport routes are scoped up to handle grater tonnage throughput. What AVZ does in this area, especially around capex funding, might become the key on scoping up to a 5 mtpa ore feed facility.

    All IMO IMO
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