View profile

ASX just the tip - Issue #15

Revue
 
So markets have been abit dodgy right now, we have two options time for a vacation till after June 30
 

ASX just the tip

February 19 · Issue #15 · View online
ASX just the tip -Companies I am buying and my reasons for doing so.

So markets have been abit dodgy right now, we have two options time for a vacation till after June 30th or look for some bargains with news flow within next 2 months before the May/June slow down.


I am taking the bargain hunting approach, the hardest hit space I saw looked like the lithium space, it’s been suffering from a broker push against it and a funky market, the market I dunno what will happen who does if we could predict things like that we would be billionaires, as for the brokers they are mostly completely full of shit.
Cannacord put out a glowing note on TAW with a lofty price target, who is a big seller since….. Cannacord.
I remember in 2016 when Macquarie were pushing their “lithium will be significantly oversupplied from 2017” narrative, well it’s 2018 and offtakes are still being signed at record high prices….BMW are apparently looking to sign a 10 year deal and rumors are about tesla maybe courting asx plays for lithium offtake aswell.
My first choice for a bargain without question was TAW and I did manage to scoop some cheap on melt down day, but only a small trading parcel in the scramble, before it quickly popped back, at this point, it’s held up too well it’s not currently in deep bargain territory, so I started looking at everything else.
At the current state of play, just looking who is down what recently it pointed to an obvious first port of call and I liked what I found.
So BGS I am sure most people have heard of it, if you haven’t pretty simple.
BGS have a 32Mt high grade lithium project in Mali.

Recent events are:
August 2017 reinstatement to trading with new management, with that came the release of new auger sampling, this is sampling which indicates where is prospective to drill in the future.
This is what they came up with targets significantly larger than the original resource area.

Next came the PFS which was a disaster in my opinion. It should never have been released as it was a terrible representation of what the project could be.
Why they rushed out a PFS where the mine life was too short, the costs were not well thought out and the price assumptions were too low I will never know. Maybe it was a legacy PFS started before their time, if it was me I would have canceled it.
I was not impressed by it at all, but it’s water under the bridge now as they have smartly decided to revise the PFS now to address some key issues.
But first they need to do what they should have done from the start and just drill drill drill, so how has that gone.
First they attacked Yando the biggest target.
My own rough inaccurate personal estimations are as follows:
• 1.5km strike
• 98m of combined lithium bearing pegmatite
• 150m drilled depth
• 61Mt estimation
• Weathering subtraction 20-30m which is 13% - 20%
Danaya
• 600m strike
• 85m of combined lithium bearing pegmatite
• 150m drilled depth
• 21Mt estimation
• Weathering subtraction 60-65m which is 40% -43%
Sangar
• 900m fresh strike
• 125m of combined lithium bearing pegmatite
• 150m drilled depth
• 47Mt estimation
• Weathering subtraction unclear seems low
Additional exploration potential:
So all the major bodies are still open along strike and most at depth, 2 major auger finds have yet to be drilled properly. 

Airborne survey is scheduled to help further define targets in the area, permission to go through and search the other adjacent tenements is being sought.
Cut through the blah blah only question that matter is how much exploration potential does BGS still have besides what’s being drilled right now?…………To be blunt a shit ton.
Now I do have to throw a little cold water on myself after all that heat we cannot expect BGS to be drilling that all out in the next month, few issues:
1. I assumed to 150m they haven’t drilled that deep yet, they aren’t drilling that deep yet, so while the tons are there we aren’t going to see them on paper for a while.
(To temper that though I am more than sure they have a lot more than 150m there, but I am only interested in what I think they can open pit, those are mine plan tons, not tons for the sake of tons.)
Look at KDR for example 126Mt big deposit, question though how much of that is in the current mine plan? What are those low strip tons, they only add up to 47Mt.
Is it nice to have all those extra tons? Sure why not but is it necessary to go beyond 150m right now? No absolutely not, its waste of money and time. BGS can leave those tons undrilled as far as I am concerned if it’s not going in the mine plan leave it.
2. Weathering. The weathered section is rubbish overburden that needs to be stripped, especially in yando there is some weird weathering going on we will not know the extent till more drilling is done, it might get better it might get worse.
To temper this I have to point out it’s not an uncommon problem. When I was drawing up my AVZ estimates they also have 50-60m zones of weathering and overburden, I am sure other companies are also dealing with this to different extents, it’s not unique to BGS, just needs to be factored into resource estimations in my opinion. A lot of people like ignore it and put on their ‘max hype everything is super awesome’ glasses I don’t see a point to ignoring it, just factor it in.
In the near term I can see potential for BGS to upgrade the JORC to 70Mt-80Mt range, by years end that target I feel could get to 120Mt all real mine ready open pit tons.
So that’s a lot of lithium what’s the deal with the PFS?
Here are BGS costs and my preferred production option.

Lets have a look at what are the competitions doing costs wise?

PLS and KDR are of similar scale to where BGS plans to be and their costs are so low they are going to be printing money.
With these kinds of costs lithium projects just make more sense than anything else in the market to develop, just look at gold companies vs lithium companies, easy to see why one is more popular than the other, it’s the margins.

So how does BGS costs compare in the current PFS?

It’s running above your average gold plays we see out in the market, it’s making a return at a rate enough to justify production in its current form. In a large scale and long mine life, but it’s a gulf between it and other plays.
So what are the major issues? First big issue is transport costs.

Here is a comparison between BGS and TAW, $219 vs $51 that’s a huge difference, I can’t find written estimates of PLS transport costs, but from memory PLS are around $30/ton.
What so obviously $219 is just too high it’s eating all the profits what are they doing about it?
Combined cost reductions in fuel, power and transport, if they achieve those reduction levels we are talking $100+ reduction right off the top, that’s straight into the bottom line.
I am think with correct optimization that the AISC can get to a $300-$400 level, now how would that look?
With due to PLS being close to port we going to be hard pressed to ever match those costs, but we don’t need to, getting to an AISC cost basis anything in $300-$450 range is already a home run, when you consider these top companies like PLS are going to be worth many billions when they hit production.
When you look at the comparison on revised costs BGS is in there with them.
Of course it’s in Mali, it doesn’t have a financed plant like PLS or a major partner like KDR, but that’s the potential value creation point isn’t it.
So knowing all this I was surprised seeing BGS recent smoking drill results not create more noise, they have been ignored due it seems due to a market wide pull back.
What does the immediate future look like?
Looking at all the options available, I also saw some value in PLS with their 5Mtpa expansion option, I see potential in KDR refinery option if SQM elect to proceed, but I think considering market caps I see the most potential in BGS with their reduced cost 2Mtpa plans and their 4Mtpa expansion option.
Cheers T54
Did you enjoy this issue?
If you don't want these updates anymore, please unsubscribe here.
If you were forwarded this newsletter and you like it, you can subscribe here.
Powered by Revue