TBlive Note: The content of this article is excerpted from the tiger community tiger friend Tai, who is a senior mining engineer and has many years of investment experience in Australian stocks. Hope the content will help you.
While major global capital markets such as U.S. stocks and Hong Kong stocks plummeted, many Australian lithium mining companies rose against the trend, showing full resilience and gradually attracting more attention from the market.
Today we are sharing the topics that everyone cares about most, how to identify high-quality lithium mine assets, and what is the core investment logic?
Investment logic 1:
The growth of pure lithium mining companies is better than that of comprehensive lithium mining companies
This time, we have selected 8 representative lithium mining companies for comparison. The first 3 are comprehensive lithium mining companies that mainly focus on lithium mining business, and the other 5 are pure lithium mining companies.
Pure lithium mining company refers to the company's main business, which focuses on lithium mining and primary smelting. It not only involves upstream raw material mining, but also actively participates in midstream battery development and the development of other types of raw materials.
*Data as of 2022.10.19
$Sociedad Quimica Y Minera De Chile SA(SQM)$ ,$Albemarle(ALB)$ ,$Pilbara Minerals Ltd(PLS.AU)$ ,$Lithium Americas Corp.(LAC)$ ,$Core Exploration Ltd(CXO.AU)$ ,$Liontown Resources Ltd(LTR.AU)$ ,$Sayona Mining Ltd(SYA.AU)$
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Starting from the inception of the entire industry in 2020, and counting the company's growth up to October this year, it is not difficult to see that the growth rate of pure lithium mining companies is much better than that of comprehensive lithium mining companies, with a difference of 9 times.
However, the two types of companies have grown from 2020 to the present. Compared with other industries, the prices increase is very huge, and it is also much higher than most mid-stream and downstream companies.
Especially after 2021, the downstream new energy industry led by Tesla will perform very unsatisfactorily, reflecting the strong strong cycle and large cycle characteristics of the upstream; in addition, we have also noticed that more and more pure lithium mining companies have chosen Listed on the ASX.
Investment logic 2:
Companies in the development period have the fastest growth rate, and the exploration Period has the greatest development potential.
The market value of the company tends to be smaller from the production period > the development period > the exploration period, and the production period is much larger than the market value of the company during the exploration period.
*Data as of 2022.10.19
Conclusion:
1-Market value: Production period (P) > Development period (D) > Exploration period (E)
2-The size of the company in the development period is proportional to the reserves
$Pilbara Minerals Ltd(PLS.AU)$ ,$MINERAL RESOURCES LTD(MIN.AU)$ ,$IGO Ltd(IGO.AU)$ ,$Liontown Resources Ltd(LTR.AU)$ ,$Leo Lithium Limited(LLL.AU)$ ,$Global Lithium Resources Limited(GL1.AU)$ ,$Minrex Resources(MRR.AU)$ ,$Lithium Plus Minerals Ltd(LPM.AU)$ ,$Eastern Resources Ltd(EFE.AU)$ .
When comparing companies, first look at the development stage of the company as a whole, and then look at the resource reserves if they belong to the same stage.
Take three developing companies as an example, $Global Lithium Resources Limited(GL1.AU)$ 、$Leo Lithium Limited(LLL.AU)$ 、$Liontown Resources Ltd(LTR.AU)$ , it can be seen that with the continuous increase of resource reserves, the market value of the company is also increasing. In addition to reserves, what other important parameters should the company at this stage pay attention to?
The main experience in the development period: from the initial PFS (Preliminary feasibility study), to DFS (Definitive feasibility study), and finally FID (Final investment decision), the process of continuous improvement of the company's value is the production capacity. The ability to confirm the continuous improvement, so the market value of the company closer to the production stage is larger.
Taking $Core Exploration Ltd(CXO.AU)$ and $Global Lithium Resources Limited(GL1.AU)$ as examples, the resource reserves of the two are equivalent, but GL1 has just reached the PFS stage. CXO has entered the transition stage from the development period to the production capacity period, and the uncertainty of production capacity has been greatly eliminated, so the market value of CXO far exceeds that of GL1.
What other metrics should we focus on in the transition from PFS to FID?
For example, in the PFS stage, the main task of the company is to prove the total reserves and resources that can be developed. The indicator to measure the efficiency of resource smelting is the recovery rate. Higher than 80% is considered good, and 70% is the basic industry standard.
The mining capacity of a company mainly depends on the mode of mining, such as fast aboveground mines, slow underground mines; low cost of aboveground mines, high cost of underground mines, and the designed production capacity is also affected by the throughput capacity of the smelter. These factors will determine the capital intensity of a company. That is, all the investment to realize production capacity, compared with the ratio of its resources, the lower the capital density, the stronger the competitiveness of the mine.
In addition, it is also affected by factors such as the climate of the mining location, industry regulations, the degree of perfection of the industrial chain, and ports. For example, the mining time in extremely cold regions is limited, so some mines located in the extreme cold regions of northern Canada, in fact, the annual mining time is less than 6 months, which will seriously affect the development of their production capacity.
Finally, there are geographical factors. Obviously, the industrial chain of developed countries is more mature and stable, and developing countries are relatively more vulnerable to policy influences, such as changes in tax rates, or some sanctions and strikes from other countries.
Investment logic 3:
It is important to keep up with the "leading trend" if you want to obtain greater returns
Exploration period minerals: focus on high-quality resource belts and geographic locations. The geographic location determines whether it has input and output transportation resources, such as: highways, railways, ports, airports, etc., whether the industrial chain in the country is developed, the development team, surface exploration results, Mining area and financing.
Minerals in the development period: Keep up with the reserves of JORC Code, whether it is PFS or DFS, FID stage, as well as NPV (discounted future cash flow), IRR (internal rate of return), which will directly determine whether the minerals in this period are competitive. It will also be a good bonus if you sign a strategic partnership agreement or an underwriting agreement with a mid-to-upstream company.
Minerals during the production capacity period: mainly depends on the price fluctuation of lithium ore, lithium ore shipments, quarterly and annual revenue, dividends, etc. Comparing the three, companies in the production capacity period have the highest certainty, companies in the development period have the fastest growth rate, and the exploration period has the greatest development potential and has the greatest development space. Most of the company's indicators are not quantifiable, and its future development is similar to opening a "blind box", but the risks and uncertainties are also the greatest.
How to identify which are high-quality resources? Keeping abreast of the "leading trend" is relatively better at reducing its uncertainty. However, the stock market is risky, and investment needs to be cautious. Everyone must be able to arrange investment plans reasonably according to their own return expectations and risk tolerance.
Summarize
It is difficult to achieve homogenization, standardization and marketization of mineral resources exploration and evaluation, so it is difficult to obtain financing through bank loans, and it is highly dependent on the investment and financing market.
At present, mining enterprises have high return on investment and large economic profit margins, which are continuously attracting new funds and practitioners to join. The problem of insufficient production capacity has not been solved, and it is difficult for the price of lithium ore to return to a reasonable position from a high price, and the strong cycle of the industry will continue to exist.
However, as new mines continue to achieve production capacity in the future and the relationship between supply and demand is improved, the price of lithium ore will eventually fall naturally.
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