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Just the tip

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The piggy bank investment - a rare overlooked opportunity
 

ASX just the tip

September 14 · Issue #5 · View online
ASX just the tip -Companies I am buying and my reasons for doing so.

The piggy bank investment - a rare overlooked opportunity

Todays Tip is TAW, not my usual buy low show patience sell high play.
So why tip TAW? 
To understand the value I see in TAW I think it’s important to explain why I think TAW is undervalued I think it comes down to two thing
The first the market doesn’t understand the journey why do I think this, cause I myself didn’t understand the journey I repeatedly was told about it and didn’t buy it at 11cents so why buy it now at 20cents+?
I think it comes down to how things were done my biggest issue before 20cents was the lack of a JORC resource, I thought they wouldn’t have enough, that was incorrect they just went going about things a different way.
lets look at how standard lithium plays are developed be it PLS/AJM/KDR/BGS/AVZ or anyone else it goes something like this and lets put that next to how TAW have developed.

The focus for TAW from the get go has not been the usual drill out the biggest resource possible path, the focus has been beat the market into production, so it’s gone about things in unusual manner which has definitely caused some confusion towards it, but by using unique development path it’s ended up at the same destination as the others and actually well ahead of them all.

Second thing is TAW is not as well known as PLS/AJM/KDR/AVZ how do I know this? cause I ask people whats your opinion on TAW and I get a lot people saying what is that?
Where as I say whats your opinion on PLS or AJM I have yet to meet an investor who isn’t aware of those two.
It’s also roundly ignored by some lithium spinners, and I have seen articles from supposed “mining websites” stating AJM/PLS as being the next Australian production to hit the market, when TAW is well ahead.
It’s even ignored in some competitor peer comparison presentations, they put in obscure explorers but TAW is nowhere to be found, it is well and truly under a lot of peoples radar still and their ignorance is our opportunity.
So lets get into the numbers 

EBITDA $83million, IRR 185%, payback 12months and $150mill NPV it looks alright, would I buy based solely on these numbers probably not, so why are we buying? 

Well back to our development schedule we have something in there the market isn’t used to seeing between the PFS and production.
Resource upgrade….. that PFS is based on 3 and a half year mine life only, that takes the full brunt of initial costs with no fines circuit running, so what does a resource upgrade look like?

In this presentation the July time line got pushed back to October, so currently we are looking for anywhere between 20Mt – 40Mt, up from the current 12Mt.

But when mining reserves are all that matters this what you can actually put through the plant right now TAW have 4.7Mt, I expect them to be targeting 12Mt to give up a 10 year mine life.
So why will atleast doubling the mine life be such a big deal?
In 2021 total cash costs get slashed, so our updated PFS in regards to numbers like NPV will sky rocket, we go from projected $637 AISC first 3 years down to below $467 that’s a 26% decrease for 6 and a half years out of the proposed 10 years production.
That increase in mine life and decrease in AISC, that’s what the market is missing TAW is being valued on today’s numbers with no thought to tomorrows numbers.
Just last week there was a whole thread on BGS talking about how cheap they are compared to TAW and others, it got 100 likes all using todays numbers without even any discussion to the upcoming, resource upgrade other peoples lack of research and ignorance is our advantage.

So how does this affect the NPV, I am not an NPV expert I am not in love with just using it for valuation, but it seems to be how people and insto’s value a project, so lets have a look what kind of change will increasing our resource to 10 years will have on our $150Mill NPV.

Ends up being quite a boost, this is how I calculated the revenue from year 3 onward.
The main  change is they are introducing a fines circuit which will reduce costs, this could happen sooner year 1 or 2 which is more upside, but I went with what the presentation has.
Next thing I wanted to touch on was peer comparison, I feel like we have 3 relevant comparisons we can make and they are AJM/PLS/GXY.
Now before we look at this I first want to disclaimer:
I am not saying any of these other project is bad or expensive I believe all of these projects have their own unique individual advantages, I am not trying to be negative towards any of the other projects, I also own two lithium companies besides TAW.
My only purpose here is to highlight that the market has not priced in a resource upgrade to TAW’s price.
Now I am aware PLS is also going for a big upgrade of their own, with an expansion and if they had funding for that secured, I would have included it as well, PLS may well present a similar unacknowledged opportunity to TAW in that regard.
Another likely complaint is GXY I am very aware that GXY has some amazing development projects aswell, but you will see I gave GXY what I feel is a very fair 58% hair cut to acknowledge that, but maybe also be an opportunity there in the future.

Now why do I suggest the TAW opportunity right now, it comes down to time and risk, the time frame for it to start waking up is short, when is this resource upgrade again October that’s next month.
So what is the risk of them not increasing the resource, honestly I don’t know no one does, but since they delivered the initial resource in July they have been out the humming away, will it come in October I think so it has been on the schedule every time without fail, they must be confident of getting there or they would simply delay and drill more.
As you can see the resource is upgraded in October, but the drilling will never stop, if we look at bald hill only 20% drilled and the surrounding areas full of undrilled pagmatite outcrops, the game plan is to start producing and then drill drill drill, Bald hill has a 50Mt exploration target, but it’s only a matter of time until TAW joins PLS and KDR in the 100Mt+ club.
To steal a quote another hotcopper user who talked to Mark:
“There’s no point waiting until you drill out 50 million tonnes - the point is to get on and produce the stuff, because we believe we’ll continue to grow the resource quicker than we’ll mine it for a long time to come,” Mark Calderwood
Now buy price, I bought yesterday at 23.5cents I have bought 18cents I have bought 20cents TAW is like my piggy bank I swipe money from somewhere else I keep putting it in there, before resource upgrade I am comfortable being in up to 25cents the previous placement price.
When resource upgrade is successful I plan to keep buying right up to 33cents heading into February, then I plan to sell hopefully for between 42-45cents, thus avoiding commissioning risk, after commissioning risk if possible I will look to re-enter cause I see no reason why a fully functioning plant cannot achieve 70% NPV like GXY giving a 60cent price target.
Beyond that as resources grows, then who knows whats next.
Cheers to @SmallCaps_asx and @HC_Haplo, for their help with this tip.
T54

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