#3
Graphite and Gold Assets Hold Big Potential
The major opportunity awaiting Sayona Mining shares (ASX:SYA) is monetizing and developing its gold and graphite assets.
Graphite is a very exciting opportunity for the company as the material is another key material used in lithium-ion batteries along with lithium.
Graphite is used to make lithium-ion battery electrodes.
At present, graphite is almost completely dominated by China, and given its vitality in battery production, the opportunity for players from Australia is immense.
Not to mention, having both lithium and graphite will give the company a differentiated offering with better pricing power, particularly when the company builds its lithium carbonate refining plant.
The Kimberley region, where Sayona Mining shares (ASX:SYA) owns 100% rights to 4 tenements, is home to multiple high-grade graphite deposits.
The company, however, has not commenced any scoping work on the site yet.
The company also owns gold assets, mainly the Mt Dove project in Pilbara, which is adjacent to De Grey Mining’s mega Hemi gold discovery.
Gold is a very interesting proposition as the weaponization of the dollar post the Ukraine war, spiraling US debt, and uncertain global macros are pushing central banks such as those of China and Russia to hold record levels of gold.
To add to the fire, US and China face serious conflict over Taiwan, and China dumping US Treasuries for gold is a reasonable probability event should the conflict worsen.
Further, global gold production by investment in new mines has been on a downtrend over the past decade due to environmental concerns.
If the value of gold skyrockets on the back of geopolitical turmoil or macro-issues, Sayona Mining shares (ASX:SYA) valuation may be re-rated regardless of where it stands on the execution timeline.
Sayona Mining (ASX:SYA) - Project
Source : Sayona Mining
Recession and Lithium-Ion Obsolescence Are Threats
The two main threats facing the company are a severe recession in the developed world and the demise of lithium-ion battery technology.
With inflation abating but slowly, central bankers are to keep rates high if not hike further in the developed world.
China, one of the biggest lithium and graphite markets in the world is reeling from its own real estate and economic crisis, while Europe has entered recession.
The US which is the largest market for Sayona Mining shares (ASX:SYA) is holding up well, but the Fed’s pursuit of bringing inflation to 2% may eventually break the economy.
Not to mention that higher rates are already killing purchasing power of consumers due to higher financing costs, particularly for large items such as cars.
Secondly, the two biggest drivers for the company, namely lithium and graphite are completely dependent on lithium-ion batteries being the dominant form of energy storage in the years to come.
However, due to high costs and supply chain constraints, a serious amount of effort is underway worldwide to replace lithium-ion with cheaper, more environmentally friendly, and abundant battery chemistries such as sodium-ion batteries.
Pilbara Minerals (ASX: PLS) - Reasonably Priced In Context of What’s In Store
Should a new battery technology emerge that is cheaper or better, the company could face existential risk.
Sayona Mining shares (ASX:SYA) Financials
There are no operating financials available for the company at present as it has not yet commenced full-fledged operations at its North American Lithium project, its first operational project.
Earlier in the year, the company raised C$50M in Canada through dilution and that was followed up by a recent A$200M fundraise at A$0.18/share.
The A$200M fundraising was mainly done to finance the final stages of the Northern American Lithium and Authier projects, assess plans for downstream lithium carbonate production, and exploration/development projects in the Northern Hub while the remainder will be used for working capital needs and minor exploration in Australia.
The company has about A$98.2 million cash on its books.
Sayona Valuation: Downside Capped
Unfortunately, the same problem as financials persists with valuation.
The lack of operations prevents earnings and efficiency ratios.
The diverse mix of assets prevents book value comparisons as there are no miners with like-for-like assets.
However, the Feasibility studies show that the market capitalisation of A$1.59 billion at the current SYA share price is only about 5% higher than the NPV of its Northern American Lithium project (A$1.52 billion/C$1.357 billion), representing a bargain for all its other assets.
The study assumes a very modest US$1352/tonne of spodumene price over the life of mine, partly due to the Piedmont offtake which has a ceiling of US$900/ton.
However, it still has market pricing power on half the production and the study price is a fourth of the current prices being realised by Australian miners.
Sayona Mining (ASX:SYA) - DFS Highlights
Source : Sayona Mining
The downstream expansion into lithium carbonate by FY27 will vastly improve the operations and earnings as Sayona won’t be bound to the offtake to Piedmont and will be able to exercise full market pricing power for all its production plus the value added by refining it into battery-grade lithium carbonate.
Lastly, the company has a spodumene stockpile of 181,000 tonnes in inventory.
Even assuming a modest US$900/tonne, its Piedmont offtake price and about 78% off the current China CIF prices, that’s another A$240M (US$900/ton x 181k tonnes) on its books, bringing the total value of the NPV + inventory to A$1.76 billion (A$1.52 billion NPV of project + A$240M).
The A$1.76 billion figure is about 10% higher than its market capitalisation of A$1.59 billion at the current SYA share price and doesn’t take into account any value of its other projects under development or the potential growth in earnings from going downstream into lithium carbonate production.
While investors may face some dilution as the company develops its other assets, the dilution should come at a higher valuation as operations grow, particularly if spodumene prices stay strong.
Sayona Mining (ASX:SYA): Very Attractive In Context
Sayona Mining owns a portfolio of top-tier assets in geopolitically stable regions with a high probability of ore quality discovery, significant regulatory incentives, and market tailwinds.
The company is also primed to serve the market of green ore due to the availability of cheap hydropower in Quebec, where it is on the verge of commencing its flagship NAL project.
The stock is currently priced rather conservatively given the current lithium gold rush as it represents minimal downside and a big potential of a re-rating once margins improve from downstream processing and other projects are developed.