RE:AGM reportExcellent report Thinker.
I was at the AGM. I would like to provide some more information to complete Tinker’s great report and help to better understand what is going on with CRE.
1- The BFS of phase 1 and the PreFS of phase 2 may not be released at the same time, that is in May 2017 (or around this month), as said by JSL. So the total NPV of CRE’s Rose project will not be known by the BFS of phase 1 alone. If the PreFS of phase 2 is not disclosed at the same time than the BFS of phase 1, it will be disclosed shortly after.
2- If JSL and JFM did not disclosed the selling price of the Lithium Carbonate Equivalent (LCE) used in the BFS, they mentioned that it would be an “average” selling price, citing LAC’s price of 12,000 $US, Galaxies’ price of 11,000 $US, and NMX’s price of 9,000 $. I expect a price between 10,000 and 11,000 $US.
We have to be aware that the NPV from phase 1 might be somewhat smaller than we expect (based on a LCE selling price of 10,000 – 11,000 $US) because the CAPEX of phase 1 represents 60% of the whole project (40% for phase 2). This is explained bythe fact that the entire infrastructures for the mine will be included in the BFS of phase 1, increasing the amount for phase 1 CAPEX. The expenses for these infrastructures are not included in the phase 2 CAPEX. However, the OPEX is lower for the phase 1 operations than for the phase 2.
3- A few weeks ago, I think that Tinker, or someone else, asked on this board the question “Why build a phase 2, if the margin for phase 1 is higher?” Following Tinker's questions, JSL provided the explanation at the AGM. Here it is.
CRE will extract material containing lithium from the ground. From this material, following a flotation process, they will get Lithium Spodumene (LS). LS has two grades: Chemical grade (LSC) and Technical grade (LST). The difference between these grades was well explained by Thinker and is mostly in the purity of the Spodumene.
The selling prices for both grades are different. LSC sells for about 1,000 $US per ton (/t). LST sells for about 1,500 $US /t. However, only the LST price is based on the LCE selling price. For example, since it takes 8 tons of LST to obtain, after processing, 1 ton of Lithium Carbonate (LC), if the LCE price is 12,000 $US, the LST price will be close to 1,500 $US (12,000 / 8). If the LCE selling price increase to 20,000 $US, the LST price would follow to 2,500 $US.
Accordingly, selling 8 tons of LST is equivalent to selling 1 ton of LC. Since there is a cost at producing the LC, the margin is decreased when selling LC instead of LST. CRE will sell directly all LST they will produce in phase 1. If CRE is to produce from the ground only LST (which is not the case because of the variability of the purity of the material in the ground), CRE would not need to build a plant to produce LC.
Only the LSC will be transformed into LC. And transforming LSC into LC is more profitable than only selling LSC, even with the extra cost of transformation.
As mentioned by Thinker, the average purity of CRE’s material provides LST, which means that more than 50% of the production of phase 1 will be LST. Since CRE expect to produce 26,600 tons per year of LCE, this is equivalent to 212,800 tons of LS (26,600 x 8). More than 50% of these 212,800 tons will be LST selling for 1,500 $US. The remaining LSC will sell for around 1,000 $US (since this LSC cannot be transformed into LC before the construction of phase 2 plant). This provides a gross revenue of close to 271 millions $US (212,800 tons x 55% x 1,500 $US + 212,800 tons x 45% x 1,000$US) (I used 55% of LST in this calculation, that is a little bit over 50%), before expenses for extraction and transformation. This is based on a full production capacity, which may not be reached the first year.
I expect a net profit close to 150 millions $US per year since the OPEX is lower for the phase 1 operation. This would provide the sufficient funds to build the phase 2 plant within less than two years since the CAPEX for phase 2 is close to 120 to 140 millions $US (40% of 300 to 350 millions $US).
4- Concerning the involvement of Invesment Qubec, someone mentioned that CRE’s management was concerned by the percentage of royalties asked by the government, citing the recent increases in royalties by some South American countries (up to 20% royalty), indicating the royalties at a comparable level than that of the South American countries might represent some 50 million $US of lost profits per year for CRE. Accordingly, they are not looking very much into that.
I will add that indeed Mr. Haber is an excellent addition to CRE. His expertise about the lithium market is exceptional.
That’s it for now.
JMHO
PADAP23