Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
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Progressing but behind expectations
"Current commissioning works have progressed to a semi-continuous operations phase, with planned upcoming works targeting to achieve continuous operations and leading to ramping up production operations during H2-CY2023."
Earlier they led the market to expect that the plant would be fully operational in FY23 but it's slipped. As above, they are not even committing to achieve a rate 2000 tpa in the next 6 months, merely "ramping up". To what?
Total production to date, 17.5 tonnes - about 3 days of nameplate production.
I'm losing patience with this mob. Maybe the technology is harder to scale than they thought?
Still haven't heard anything about an offtake agreement. Are they going to sell it all on the spot market? At least prices have stopped falling.
Link to ann: 05q7rw17cz0vk0.pdf (asx.com.au)
The latest operational update was a bit disappointing. I had been hoping that they would get up to nameplate during FY23Q4 but no, it looks like commissioning is taking longer.
It's great that they've produced 10 tonnes of 99.7% lithium carbonate but really, that's less than 2 days of nameplate production.
I see risk of further delays and a good chance that they don't produce 500 t in the September quarter. Also lithium prices continue to tumble which hits revenue and profit directly.
And I haven't heard anything about an offtake agreement. Are they going to sell it all on the spot market?
I'm really hoping or approval of the expansion which should make the share price pop. No news there either.
2,000tpa operation commissioning and ramp-up phase works progressing, with full ramp-up toward steady-state production operations targeted from end Q2-CY2023
Current production trials produced over 10 tonnes of battery quality lithium carbonate product (average 99.79% purity) from batch operations during commissioning and ramp-up phase works
Carbonate Market:
a quick look at the chart
Lithium Carbonate 99%Min China Spot Chart - Investing.com AU
Overview
Argosy is extracting lithium from brine in Argentina. The brine is pumped out of the ground into large evaporation ponds to settle out mud and concentrate it. They have chemical processes to produce high quality Lithium Carbonate. Will be a low cost producer with a low carbon footprint.
2000 tpa Plant Valuation
The 2000 tpa plant is in commissioning phase. AGY's production is ramping up in early 2023 - assume 500t production in FY23 (Q4) and 2000t in FY24.
Lithium Carbonate is roughly $US 44 / kg which is ~ $65k / t AUD.
Note, AGY will only own 90% and I've taken out 25% tax. Assume $15k/t operating costs (above their estimate of $12k due to inflation.)
So 2000t @ (65-15) -> $100M net profit, less 10% external interest and tax gives me $68M PAT.
Based on FY24 and Using 8x PE and 1.4B shares gives me 39c
Plant Expansion adds 10k tpa
The above gives no value to the planned plant expansion to 12,000 tpa.
Assuming $300M capex for the expansion, funded by 500M shares and some profit/debt. Assuming the additional production comes online in 2027, a NPV calc with a 10% discount gives me a valuation of about $0.85 / share but with approval risks, execution risks, sovereign risk plus cost and price risk
Between 39c and 85c sems fair. Weighting towards the near-term production -> 50c
Other Thoughts
I haven’t tried to value their Tonopah project – most likely that will increase volumes in the far future when prices are lower so who knows?
Update Mar 2023 - prices for Lithium Carbonate 99.5% are softening, have trimmed the estimate a lot.
AGY's share price has crashed over the last two days on no news at all. Even Hot Copper has nothing credible to say except short sellers and BEOT (big end of town) which is a vague conspiracy theory about price manipulation. What's really going on?
The price of lithium carbonate is definitely down and hasn't yet found a floor. AGY has no offtake agreement and are not producing at anywhere near capacity yet. This means that all of their production is exposed to the falling prices.
China is suffering a whole heap of flu - not surprising after the lock-down, so that tends to counter the "China reopening" thesis and sap hope of a short-term lithium recovery.
Lastly, there are still some question marks over AGY. They are a bit light on JORC and their process is unproven at volume. It's better than DLE which is touted by other brine players. AGY seem to be scaling up to commercial production right now.
I'm sticking with my original thesis that they have a good resource, enough cash to commission it, will be cash flow positive in 2023 and have some substantial upside with the possible plant expansion (which is not approved or funded.)
I'm going to be greedy while others are fearful.
This is super annoying. Jerko flat out denied on multiple occasions that they would need to do a capital raise, so I will be extremely disappointed if (and it seems highly likely) they will. Jerko spoke about numerous times that they would secure a partner to develop the expansion. Makes me think they could not secure anyone or agree to terms with interested parties and now looking to shareholders.
AFR is saying an investor roadshow is being organised which suggests a cap raise coming.
Could be to fund the +10ktpa expansion. Could be an acquisition. Could be a cost blow-out of the 2ktpa.
We haven't got approval for the expansion and no ann on anything else. If they get expansion approval the SP should rise - massive NPV in that - but I'd like to see the 2k plant finished and operating at nameplate first.
Fun and games. Could present a buying opportunity if you are brave.
Operational Update
Latest update 45kbmbxl0kvrbh.pdf (asx.com.au) is a real "steady as she goes" release. Nothing market sensitive about it.
Have produced 1 tonne of Lithium Carbonate which is not much. will need over 5 tonnes per day to hit 2000 tpa
"Ramp-up phase of continuous lithium carbonate production operations scheduled during current quarter and advancing toward steady-state production operations by end of Q2-CY2023"
Nothing new here. Maintaining my production estimates.
We look forward to achieving many more significant milestones in 2023 as we transform into a cashflow generator, capitalising on lucrative lithium carbonate prices via upcoming product sales revenues, leading to a significant near-term growth phase for the Company.”
Strong cash position, to be boosted by sales at record lithium prices from 2,000tpa production operations Building a team of experienced and proven lithium sector operators in Argentina, combined with key executive appointments in Australia Becoming only the second commercial lithium carbonate producer on ASX Clear growth and development pathway with strong strategic interest to fund 10,000tpa expansion operation
slides: Investor Presentation - Macquarie WA Forum 29/11/22 08:14
1/11/2022 announcement: Rincon
Almost ready- production 2924-02592166-6A1119893 (markitdigital.com)
24th Oct 2022 Broker Analysis below:
promise 40% upside for the share price = 85cps / 60cps
Market Data 52-Week Range (A$) : 0.22 - 0.61
Market Cap (A$M) : 750.3
Shares Out. (M) : 1,389.4
Enterprise Value (A$M) : 727
NAV /Shr (A$) : 0.85
Net Cash (A$M) : 23.1
When? ; Argosy move to the status of producer in Fy2022, with 2ktpa battery grade lithium
The 2,000tpa lithium carbonate operation construction works in-progress, with first commercial production of battery quality Li2CO3 product targeted during Q4-CY2022;
No Dividend yet,
Announcement this morning.
Drilling recommencing at Rincon.
The company has announced 90% total development works are now complete. Company is on track for its target of first production in Q3 CY.
See here
Thanks for a great meeting yesterday with AGY CEO, Jerko Zuvela @Strawman.
My notes and takeaways from the meeting are as follows:-
Rincon - Initial 2,000 tpa Li2CO3 production From Q3-CY2022
Then 90% ownership at 10,000tpa ..Then 12,000tpa
Some slides below:
For the carbon neutral theory:
Interview with CEO Jerko Zuvela
Not much new news but a good introduction and summary of companies strategy
https://www.youtube.com/watch?v=JCj7YpThZJ0&t=574s
Lithium Carbonate at depth of 102.5m to 300m below ground level ..507,000T to 724,000T
see how AGY trades today..
At current level 47K Aud lithium carbonate price less 12K cost- my estimates ( company estimates only 5K) will give 35K gross profit. At 2,000 ton per annum will give 70 million profit. The company aims to start processing next FY. If i say their first full production year is FY24. And based on the above NPAT is approx $45m aud. At a rough market PE of 15x thats $675m market cap. Currently they have 1,267m shares outstanding. If i factor in a cap raise with 15% dilution, thats 1,457m shares. Discount back 15% to FY22 price target of 35c.
Still risks company is still under 50% complete of their processing facility, licensing, supply deal risks and geopolitical risks. However i believe it trades at a discount to other lithium stocks.
Upside is if lithium continues to push higher. The company is also looking to expand to 12,000 ton per annum, so it could trade at higher multiples factoring in the expansion. Assuming price and assumptions the same. Gross Profit will be $420 m at that point. However, im trying to be conservative with the speculative nature and all the risks.