Resume of our meeting with managementFirst of all, once again I would like to thank many of you for keeping this board alive. These past months/years have been a real roller coaster of mix emotion with this stock. We have been earing so many things from management and busted so many timelines that I have stop counting. We may not always agree on everything and we may have different opinion here and there but at the end this board remain amazing!!!
I have been trying to get that meeting with management for a while. It might have taken some time but at the end Matteo01, Montreal1010 and myself were very pleased to finally be able to speak with them. It was very nice of Jean-Sbastien to make the necessary arrangements to include Steffen Haber and Eric Zaunscherb to the conference. We must say that they have been very generous of their time and they tried to answer all of our question as much as they possibly could (legally) and the best they could. DR Haber is as always so knowledgeable and he was as ever very interesting to converse with. It was our first time to talk with Eric and we can say that he definitely is a top-class person. He is a great addition to the team.
There has been a lot of frustration from many shareholders (myself included) surrounding this stock recently. With reason or not that could be another debate. As you will see, most of what you will read here is not new as they can’t reveal anything that is not already public. Nonetheless, I must say that it did ourself a lot of good to ear from management and get some questions answered.
Without further ado here is what we have gather from the meeting. It is a pleasure to share it with this great board, but mind you it never is the same as to ear it directly from the management themselves. I encourage you to contact them if you feel the need.
General sentiment of the market
We started by asking Steffen questions about the lithium market in general and current prices. As we all know, the demand is strong and keeps growing. EV sales keep beating estimates which currently stand at 4% in the US and 15% in Europe. It seems that most OEMs have been caught by surprise. As an example, Porsche sold more Taycans than 911s last year. A shortage of supply is still looming ahead but for some reason, we are still not seeing enough money being injected in the system towards the miners. A few years back, Steffen was talking about a learning curve. Though it has improved, it appears OEMs continue to believe that a period of 6 to 8 years is necessary to go from a discovery to production and that if prices move up, projects will attract investment, and everything will be fine. Apparently, having been let down in the past, OEMs feel uneasy when it comes to trusting mining companies and unfortunately, there have been examples of that in Quebec.
OEMs know that they can’t rely 100% on one deposit for their supply chain, they have to diversify geographically. Steffen and Eric explained that the European commission already expressed that they will have to rely on countries like Australia and Canada (North America) to get the needed supply. Consequently, we should see the battle for the supply chain intensifying with OEMs and battery manufacturers investing in North America soon, if not now.
The shortage is there, the investment should already have happened but the OEMs don’t plan ahead far enough, usually only 2 years out. The prices should continue to rise as the demand grows faster than what the supply chain can deliver.
We asked if the current prices could start hurting sales, the answer was no and they could go much higher. Some of the spot prices that have been posted on this board seem to outpace spodumene prices. Steffen did a reverse calculation with us to demonstrate that a ton of LCE at $35K = spodumene prices of +/-$2500, which is equivalent to the Pilbara auction spot prices.
Increase of FS
Following Steffen’s calculation, we then asked if they would eventually re-evaluate the FS with more up to date figures.
According to Jean-Sbastien, they are indeed looking into it. They must also consider that there might be a small increase in CAPEX with the recent inflation and they need to look at the long-term price not the spot prices. We shouldn’t either expect that they will do an update using $2,500 per ton of spodumene concentrate. (obviously)
Eric said that there has been a lot of scrutiny following the filing of the prospectus. They have a great deal of attention on them from the regulators; they must be very careful with what they say and the numbers they use. Clearly put, they would rather be on the conservative side and meet the requirements of the regulators than have to retract later. They are unable to make further disclosures at this time.
Eric also mentioned that it takes time to redo the FS, it’s not something that can happen in a week. He talked about the fact that there has been some criticism around the $1.75/share PP but on the other hand it allows them to do certain things including re-evaluation of the FS. Further studies in that regard are part of the mandate with the additional funding.
We talked about the Cantor report and asked them if those numbers are realistic and in line with what they are aiming. The Cantor report is lengthy but to sum it up, they have a target price of $2.40/share. According to Cantor, a 10 % increase in the commodity price would increase their target by 32 %. Example: with a 1,000$/ton concentrate instead of $750 it would bring the SP in the 5$/share range ($4.75).
Eric mentioned that as a company they are not allowed to endorse the research reports. They are not even supposed to quote the price target. However, they are allowed to quote the company’s FS. If we would increase our concentrate price by 10%, we would be able to see an increase in the NPV in the range of 20% just on phase 1.
I guess all will depend on what number they decide to use as an adequate long-term price for concentrate. Anything above $1,000/ton (which seems to be more then reasonable in the current market) would mean a substantial increase in our valuation. (We personally really hope they won’t use anything less than that.)
Mine Construction
The funds raised in the recent PP will be used on the Front-End Engineering Design and Detailed Engineering Design for the construction and to update the CAPEX.
For those of you who were wondering about the max price that we originally got from Primero, well it has expired. Primero has since been bought by an Australian company and most of their staff is based in Australia now. Jean-Sbastien added that Metso will have the people to train the staff and that it will come with the Detailed Engineering.
Q: Is there a risk that the CAPEX could increase?
Eric referred us to the sensitivity table (page 347) of the FS, pointing out that even if there would be a 20 % increase in the CAPEX (witch they consider overly conservative), it would change the NPV from $726M to $673M. It’s a small change in the NPV for a big change in CAPEX. Jean-Sbastien also pointed out that Allkem’s CAPEX in the 2021 Feasibility study for their James Bay project is almost identical to CRE’s at $285.8M USD x $1.25CAD/USD = $357.25M CAD. Also, concentrate prices are not where they were in 2017.
We were under the impression that we needed to have more accurate figures and revised CAPEX to get the financing and start construction, but they said that they don’t have to wait until the engineering work is completed to get the financing. Eric also added that if we have our permits and financing in place, the goal is to start the construction by summer 2022.
Permit
Q: Are there potential obstacles that could explain the delays?
Jean-Sbastien mentioned that it is a long process and that there are no issues. He referred us to the Comex website where all the questions are listed. The questions are simple and management doesn’t see any problems. The fact that it is a governmental institution, that it is a process done with different parties, that Covid happened, it all made the process even longer.
Eric added that some of the people of Comex were involved on the Federal process, so we may suppose that Comex feels comfortable with the project. It’s just a question of finishing the process on the provincial level at this point. According to management, it is common for projects to go through 4 to 5 rounds of questions with Comex these days.
We are now at round 5 and all questions have been answered. CRE doesn’t have any questions pending, issues to be resolved, or testing to do. Everything has been submited to Comex. It’s now up to them to come back to CRE, hopefully, with a recommendation and not another round of questions. Management has no control over that.
Eric pointed out that, as excruciating as the wait for the process to conclude with Quebec is, at least once the permits are granted, we can rely on it, as opposed to other places in the world (protests in Serbia and politics in South America).
With the provincial permit in hand, it would seriously de-risk the project. Considering our low market value at the moment, we asked if it could make CRE a potential target for a bigger company such as large miners or OEM for example.
Their opinion is that once the permits are in, there should be a considerable re-rating associated with it. They don’t seem concerned by a take over.
They indicated that in December, CRE received calls from institutions wondering if there were issues concerning the permits. This rumour could have been the cause of the hit on the share price. While they don’t know where that rumour came from, except perhaps from the people who overplay the short game, they are very confident that we will get our permits.
CRE’s advantages
There are other great deposits out there, but not many that are located in a safe jurisdiction and as close to production as we are.
Eric mentioned that Frontier is an excellent deposit, but they are in pre-FS, they have no infrastructure, no permit and no agreement with the First Nations. Manono in Congo is another very good deposit, but they have no infrastructure at all and it’s potentially one of the worst mining jurisdictions in the world.
He mentioned that it is hard to compare other projects to one like Rose that has great metallurgy, a robust internal rate of return, electricity (93% from renewable sources) on site at a very competitive cost and in one of the best mining jurisdictions. The Ecologo certification is a good asset as the ESG score matters when speaking to potential partners / customers.
Q: This brought us to ask management why our SP is lagging in comparison to Frontier’s price?
After all the positive key points mentioned above, it just doesn’t make sense!!
Eric answered spontaneously. He explained that people have been hearing about CRE story for a long time and there is a lot of investor fatigue which is a real challenge for any company. Frontier is a newer story and he acknowledged that they have been good with their promotion.
That being said, he added that when you promote, you can sometimes run into problems and be forced to retract at a later date. As previously mentioned, CRE is more on the conservative side. They want to avoid having to retract information and find it better to proceed this way. Eric also mentioned that Quebec had its share of strikes (Nemaska, North American Lithium) in the past and the investors around the world are cautious because of that. CRE is very careful as they want to avoid making the same mistakes. They want to be the first successful story and it starts by making things right from the beginning.
Eric said that the management knows the market very well as they each have their expertise. He stated that CRE might be quieter or slower than others, but in the end, all will be done properly.
Promotion
They mentioned that they have hired Patrick Laperrire, an institutional investment professional. Patrick is coming up to speed and we can expect great things from him in the near future.
We asked when we might be able to see a major promotion boost to make this company shine as it should and mentioned that at the end of the day, what counts is the SP!
They are aware that they need to do more promotion and they agreed that the SP is also what is important for them, being shareholders as well.
On that note, Eric said that we first need to see the permits. Jean-Sbastien added that they are presently working on a plan with Patrick. There are upcoming social media coverage and interviews. They are also doing a lot of marketing with different brokers. In fact, part of Patrick’s job will be to increase visibility. Jean-Sbastien said that having the permits will trigger more promotion (provincial permit is really a key milestone for the rest to unfold).
USA uplisting
Q: Are they planning to list on a US exchange?
They agree that the US market is very important, but there are a lot of requirements. One of them is the SP, it could be achieved by doing a roll back (RS) but generally the retail investors get hurt when it happens at the wrong time and they do not want to do that. They believe it’s better to wait and achieve certain milestones first, get re-rated which will put the SP in the right range. After that it might be more natural to think of listing on a US exchange. It is something that they will absolutely look at as long as it is in the best interest of the shareholders.
Partner
As we expected they are not able to comment very much on that, they must be careful with what they say.
An offtake agreement by itself is not going to happen. They are looking for a partner that will be tied to the investment either on the project level or the corporate level. The interests of the partner and the company must be aligned. They could have signed many offtakes in the past, but the prices would have been lower. The supply deficit is looming, and it has intensified the interest of other parties.
Eric repeated that the permit is an absolute key milestone, CRE is not interested in signing a deal before that. Having the permit will bring a re-rating that will increase our value and they will be able to sign a better deal because of that.
Intense and detailed negotiations with one or many potential partners (they were not specific) have already taken place. Interest have been ongoing for a while now. We can expect that once that permit milestone is achieved, some of these discussions can conclude. Will it happen fast, or will it take months? That remains to be seen. (They probably have a good idea but understandably, can’t talk about it).
Phase 2 (hydroxide)
After reviewing the latest corporate presentation, some shareholders were concerned that phase 2 was not going to happen anymore or to the least, didn’t seem as important.
They explained that it is still in their plan to go that route. As they have said before, it will depend on the future partner. Because of the regulators, they just can’t confirm that there will be a Phase 2 until they have completed the engineering study (which is still ongoing).
Life of the mine
Eric said that the 17-year life for phase 1 is completely arbitrary. Drilling was done to a certain point to demonstrate what was there, but then they turned to economics and the project switched to the feasibility study phase. There’s a possibility that Rose will be expanded (pegmatites were located on the North side). This would increase the valuation of the project for a small exploration cost compared to the gain on the NPV.
Q: Would we have to go through the same lengthy process (10 years) for a Rose #2 or #3?
Jean-Sbastien shared that if we are using the same infrastructure, the same disposal pad, and the same processing pad then it could be included in Rose 1. If we use a different pit, one that is a few kilometers away for example, then we would have to go through the process for the pit itself. On the bright side, it would not take as long as it did for Rose 1. It would also extend the life of the mine so that they would have the time to do it while they are advancing the rest of the project.
They are aware that increasing the resources would increase our value and it’s something they are considering. They already started last year with the AI which now allows them to do more work on that front. They are not able to share more information at this time.
$1.75 PP
Q: Why was there no hold period for this PP?
Jean-Sbastien said that in a public deal, it’s the way to go when done by prospectus. It was the way to get better terms for the deal. Also, when you put a 4-month restriction, a lot of the time the money won’t be available right away.
Eric added that if you want to expand the shareholder base to include US and international investors, a 4-month period in a PP immediately eliminates a lot of US investors. A prospectus deal allows to get more international exposure and larger shareholder base. The PP also put us in a better position for the future. It is also good to note that the international interest was and is significant in CRE.
Eric also said that it makes a huge strategic difference when you are sitting at the table to negotiate a deal. We can be grateful to have Marcus and DR Haber with their incredible experience on our side of the table when we are talking with strategic investors, but we are also in a much stronger position with those $30M in the bank as opposed to few millions running on fumes. We don’t look desperate and urgently in need of money. We are able to keep advancing the project and that brings a different negotiating perspective.
Q: Do we have enough money to last for a long time or should we expect another PP later on?
JSL said that if something would happen, we would have enough money to last for a long time. That being said, as underlined in the prospectus, the last raise really is to move the project forward. They are confident that they have what it takes to do what has to be done and be ready for the approval and the financing (partner, loan, etc.).
Conclusion
On a personal note,
I new for a long time that this lithium play could be one of the greatest out there. We have absolutely everything to become a successful story. The possible future valuation of this stock could be enormous. I still think we should be trading much higher, a lot higher as of now if some things would have been done differently but I also realise that there are a lot of moving parts to take in consideration and it must not always be easy. I’m not trying to find excuses, not at all, but I don’t want to put to much emphasis in the past as there is nothing we can change (plus I’m trying to remain positive…)
That been said after this talk with management, I personally regain some fait in the project, at least until we get the permit. After permit, the game is on, we better see some results fast, including a huge increase in the SP. Assuming life goes on normally, once we get the permit, nothing should be able to stop us…
In my humble opinion, the outcome of this stock rest on management shoulder. It mostly if not entirely depend on them doing the right thing and if they respect what they say they will do. PROMOTION, re-rating the fs, PROMOTION, expending resources, PROMOTION, etc (interchangeable order…) I’m intentionally not writing the partner here, as for me it will come naturally. Considering the present market, the looming shortage of supply and all plus everything CRE has going for them, I just don’t see how it would go differently. Management is not able to be specific in term of delays for all of this, lets just hope that when they say that they are looking at it, they mean within the next year or so, not in a few years from now…
We shall see…
Fingers cross for Comex to give the go at the next meeting…
I know we have been saying this for ages, but lets just hope that this time it really is our year!!!
Cheers to all.