AVZ 1.54% 32.0¢ avz minerals limited

Hi all, It's been a few weeks since I've posted anything of...

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    Hi all,

    It's been a few weeks since I've posted anything of substance so thought I'd provide an update on the current state of play as I see it.

    AVZ snapshot vs select peers

    Please see the latest AVZ snapshot (as at Sept 7) vs major Lithium peers PLS & LAC, as well as nine spodumene development peers (note: most are hidden on the table below due to space constraints) used to determine the current Lithium hard rock development peer EV average.

    AVZ Snapshot & Peer Comparison 07092021.png

    Reserves and resources comparison notes to the above

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

    Due to a surging demand outlook for Lithium hard rock (note: PLS being a producer & LAC (brine/clay) are not included in this calculation), the above table shows the current EV/t peer average for Spodumene developers is at record levels at A$1046/t Li20 (as highlighted in yellow).

    Note: this figure would have been higher, however due to the recent integration of NAL's spodumene resources into both SYA's (75%) & PLL's (25%) operations, this adjustment has dragged the overall peer average down considerably. Nevertheless, it's a big result and one that is certainly needed if Big Auto are to achieve their  electrification plans this decade. I expect the value of in ground Lithium resources to continue to grow in order to fast track and further incentivise spodumene production.

    To illustrate, the below is an EO 2020 - 2021 evolution comparison of spodumene development projects on an EV/t basis including the latest update (it's a bit messy due to all the overlays but you should be able to get the point)

    As we can see in both the above and below tables, AVZ continues to trade at a heavy discount (~84%) to its spodumene development peers (average). Interestingly, and for the first time since I've been compiling this data, AVZ is trading at a $34 discount (on a EV/Resource tonne basis) to ASX listed African development peer Prospect Resources (PSC). Note: PSC not illustrated however it is included in both peer average calculations to maintain a balanced & more representative 'global' average.

    AVZ vs other Lithium hard rock developeers - GXY Nov presentation V6 - Elpha Sept 7 2021 update.png

    Spodumene developers - 2021 YTD performance chart 07092021.png

    2. AVZ vs Pilbara Minerals (PLS)  - reserves and resources comparison

    I've updated the PLS resources and reserves to include a) Altura's assets and b) this week's PLS resource update. As you can see, AVZ (at 75% of Manono's resources & reserves) has a similar JORC tonnage to PLS in the Measured & Indicated category. However, PLS have curiously reported their M&I resources at a 0.2% cut-off grade. so in reality their M&I resources are a lot less at the standard 0.5% cut-off.

    PLS did however, indicate what their total overall resources would look like at a cut-off grade of o.5%, so I have used that figure (with a grade of 1.22%) as an apples vs apples comparison to AVZ.  As you can see, AVZ has a slightly larger total JORC resource by about 24mt, so fairly comparable in that regard.

    However, that is where the similarity ends, as AVZ's vastly superior grade of 1.65% means that its deposit contains much larger quantities of Li, Li20 and LCE. An example is the Lithium Carbonate Equivalent measurement (LCE), where AVZ JORC resources contains 12.3mt LCE. However, PLS due to its significantly lower grade Pilgangoora deposit, contains close to 4 million tonnes less than 75% of Roche Dure. Hence, why the importance of high grade deposits cannot be overstated IMO.

    On an EV/Resource tonne basis, AVZ trades at a staggering 91.2% discount to PLS, and on a EV/Reserves tonne basis, a similarly ridiculous 86.2% discount.

    PLS MRE as at Sep 2021.png

    AVZ MRE as at May 2021.png

    3. AVZ (2017) vs AVZ (2021) - resource (then) vs resource (now) valuation comparison

    To clarify the AVZ columns in the above table, I've added an 'AVZ 2017' column to compare the 'then' (column 3)  vs 'now' (column 4), with the main adjustments being the no. of shares on issue and AVZ's share (%) of the Manono project.

    Although AVZ hadn't yet reported a maiden JORC compliant MRE in 2017, I've used the August 2018 Maiden MRE (60% of 260mt) to extrapolate an indicative EV/ Resource tonne Li20 valuation for the 2017 column. In doing so, what becomes clear is that AVZ's current SP is trading at a significant EV/Resource tonne Li20 discount vs 2017.  

    The main changes since 2017/18 are;

    a) substantial increase in JORC resources since 2018 (from 260mt to 401mt)

    b) a further 15% increase in the Manono project (recently acquired from Dathomir) partially offsetting the negative/dilutionary effect of a higher no. of shares on issue (approx. ~1.07 billion added since 2017 - fully diluted)

    Therefore, at today's price of 25.5c per share, AVZ's $ value in terms of per resource tonne of Li20 is trading at a $90/t or 35% discount to that of 2017s indicative valuation. A like for like valuation in today's terms (at $256/t) would imply an SP of 39c. So AVZ's current significant discount (vs AVZ in 2017) is truly remarkable IMO, not only given how much the company has achieved since 2017 (see milestone update below), but also how much closer the company is to finally achieving a ML, FID, Project Financing, SEZ with incentives etc. before moving into its long-awaited construction phase.

    AVZ 2020 AGM Major Milestones edited Sep07 2021.jpg

    Furthermore, looking at the market caps of several major Lithium developers like LAC (A$3.7 billion), LTR (~A$2.17 billion) and PLL (~A$1.2 billion), and its clear to see that AVZ can, in the very short term, IMO easily justify a re-rate to 38c - 61c per share (A$1.25 - $2 billion fully diluted) on a Lithium development peer vs peer basis.

    4. AVZ vs LTR - reserves comparison

    The fifth column in the peer comparison table (above top) highlights AVZ's SP potential in the short term i.e. ~$1.04 per share to match LTR's current Enterprise Value per tonne of Li20 reserves. Therefore, the $1 AVZ party proposed at the beginning of the year (refer to bottom of post 49963859 ) is looking more and more achievable IMHO as we draw closer to some game-changing announcements IMO.

    Note: LTR holders may argue that LTR also have a Nickel/Gold/Copper project and therefore the company should have a higher value than AVZ.
    However, I would argue that Manono's 130,000 tonnes of Tin reserves and counting - among (if not) THE largest Tin reserves for any project on the planet when all said and done) - more than counter balances;

    a) the estimated value of LTR's Ni/Au/Cu project with ZERO reportable (JORC) reserves.


    b) AVZ's country/project risk discount i.e. as mentioned above, AVZ still trading at a whopping 84% discount on a resource EV/t Li20 basis vs hard rock development peers, as opposed to a standard 10-15% - refer to the table below

    Country Discount Rate Risk Premium table.png

    AVZ vs LIT ETF vs 82 Lithium stocks around the world - YTD performance

    AVZ vs LIT vs Global Lithium stocks 010121-070921.png

    What AVZ is currently, and what AVZ is destined to become very soon IMHO.

    PLS Presentation - Spodumene resources by size and grade - Sep 2021.png
    Source (minus the green edit): PLS Sept 2021 Presentation

    THE BIG PICTURE - Monthly HA Candlestick charts -  2018 >> Present Day

    Spodumene developers

    Monthly HA charts 2018-Sept 2021- AVZ vs Hard rock developers.png

    Select relevant Indexes & ETFs

    Monthly HA charts 2018-Sept 2021- Indexes.png

    At home in the DRC. Attention Glencore, Ivanhoe, Alphamin etc.
    Where are your 84% Country Risk discounts vs international peers?
    LOL and shame on you ASX / AVZ sceptics.

    Monthly HA charts 2018-Sept 2021- DRC players.png
    ML & MSEZ

    In my last post dated 14th August, I raised the question about whether a recent Minutes of The Council of Ministers meeting (photographed and tweeted on the official DRC Presidence Twitter site) was THE meeting that AVZ was waiting for re: Collaboration Development Agreement >> award of ML>> HEPP agreement etc.

    Alas, it was not. However, we now know that these Council Of Ministers meetings are scheduled on a regular basis (pretty much every Friday).

    And so putting 2 & 2 together, only three of these meetings will likely be held prior to the 2021 DRC Africa Forum which kicks off on Sept 28, and where it appears that the AZES will present some level of detail of the MSEZ.

    It's also worth remembering that AVZ have stated that the Council Of Ministers meeting to deliberate on Collaboration Development Agreement is expected to be held by the end of this month.

    AVZ Q3-Q4 2021 milestones - steps required.png

    DRC Africa Business Forum Sept 28-29 2021.png
    DRC Africa Business Forum Sept 28-29 2021 AZES AVZ.png

    More on AZES: DRC: Haut-Katanga, Danny Kambo the designated developer of the Kiswishi Special Economic Zone | Zoom Eco (zoom-eco.net)

    To remind, key participants of the 2021 DRC-Africa Business Forum will, among others, include:
    • African governments
    • Mining companies: Gecamines, etc.
    • Development banks: Africa Finance Corporation, AfreximBank,
    • African Development Bank, World Bank, etc. (DFI's people!!)
    • Private financial institutions and pan-African banks
    • FEC – Fédération des Entreprises du Congo
    • African Business Networks: Makutano, etc.
    • Chambre des Mines RDC
    • Africa’s business leaders and captains of industry
    • Global industrialists in the battery, electric vehicles, and renewable energy sub-sectors:
    • Johnson Matthey, Umicore, BASF, CATL, LG Chem, Panasonic, Tesla, BMW, etc.
    • DRC authorities and relevant public institutions: Anapi, etc.
    • Development partners
    • Other International partners: The International Energy Agency, etc.
    • The African Association of Automotive Manufacturers

    Speaking of BMW.... 'it has boosted orders for battery cells to keep pace with accelerating demand for electric cars that made up more than 11% of deliveries during the half of the year.
    The German carmaker now has contracts for more than 20 billion euros ($23.8 billion) of batteries, up from 12 billion euros previously, Chief Executive Officer Oliver Zipse said in an interview. The cells are destined for i4 sedans, iX sport utility vehicles and other models BMW is producing through 2024. The company plans to start switching to a new generation of batteries the following year.
    “We’re following the market,” Zipse said. “The first half has shown that we’re growing and gaining market share. We’re right in the middle of electrification.”

    Carmakers are reeling from a crippling shortage of semiconductors that’s put the industry on high alert to identify other vulnerabilities in their supply chains. Access to enough battery cells and raw materials like cobalt and nickel [and of course Lithium] will be critical to established carmakers’ electric transformations. EV leader Tesla Inc. has gone so far as to clinch metal-supply deals with miners.
    BMW’s increased cell orders are spread across China’s Contemporary Amperex Technology Co. Ltd. and EVE Energy Co., South Korea’s Samsung SDI Co. and Sweden’s Northvolt AB.'


    BMW BEV sales growth forecast 2020-2030.png

    However, even with $24 billion in battery cell orders, BMW are still being far too conservative in their BEV sales forecasts if they hope to maintain their market share, especially given;

    a) the death of mainstream / volume ICE production (due to pure economics alone) by 2025-2026 IMO

    b) total BMW global automobile sales for 2020 = 2.3m units (vs 1.2m EVs planned for 2030)

    c) Tesla's annual BEV growth forecast to 2030.

    Tesla Annual Deliveries 50% CAGR 2019 - 2030.png

    That's right folks, ~30m Tesla deliveries annually expected by 2030. That's a shite load of Lithium required, and obviously that's just for Tesla!  Very ambitious but hey that's Elon for you.



    p.s. am all for rewarding AVZ management & staff with performance shares, as long as appropriate hurdles are in place to achieve those bonuses. By management overachieving where it matters, shareholders should ultimately reap the rewards (assuming those achievements are met in a timely manner).

    I believe in Reward for Excellence, as opposed to a free for all for 'business as usual' / doing one's job that he/she is already being paid to do.

    In addition to SP hurdles, post ML award, BFS, project finance & FID, personally I would like to see AVZ management rewarded for achieving excellence in both construction, commissioning and production phases. That means hitting their marks on time and within or under budget, with performance shares tied to aforementioned plus achievement of nameplate volumes, revenues and NPAT.

    And if when the share price reaches $1, not only have I committed to co-hosting a $1 AVZ party  i.e. once we're out of lockdown and for those who holders who entered the the multi-year Valley of disappointment, endured the pain (including the relentless commentary from short-term opportunists and non-holding naysayers) and came out the other side still holding, but I've also promised to hand-deliver a certain Mining Executive a +20 year old bottle of single malt Speyside.  Now how's that for putting my money where my mouth is.

    Valley of disappointment AVZ Jan 2021 update.png

    Ian Cassell naysayers tweet.png

    The Most Important Graph In Mining v4.png
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