Investor Teo Luan Boo (photo) last week sent the following email to Mark Calderwood (MD of Tawana Resources and CEO-designate of merged Alliance Mineral Assets-Tawana Resources) and Mark Turner (non-executive chairman-designate of merged AMA-TAW).
Hi Mark Calderwood & Mark Turner,
I have been an AMAL & TAW investor for 2+ years and have witnessed & stuck through the ups and downs of the JV companies. I observed that AMAL/TAW and Pilbara Minerals (PLS) are highly similar in business/situation.
AMAL/TAW had started shipping high quality spodumene concentrate since early May 2018 while PLS had just started shipping spodumene concentrate in early Oct 2018. So why is AMAL/TAW still lagging at approx. market cap (MC)=$425m (merged company pro-forma estimate) while PLS is running ahead with MC=$1.5b?
Below are our humble opinions that I would like to present them to the AMAL/TAW merged co management/board of directors for consideration (Note: I currently host a few active whatapp groups of about 50+ AMAL/TAW long term shareholders from Singapore & Malaysia and I regularly discuss these over Twitter with 5 TAW shareholders from Australia). I am rather new to the mining industry so please forgive me if I get any part not correct. I'm just a very involved long term shareholder and would like to be engaged. 
Mark Calderwood, MD of Tawana, in a meeting with investors in Singapore. NextInsight file photo.1. Lithium Resource / Reserves / LOM – many early investors know the AMAL/TAW approach well, which is to start small (with a small resource, skip the lengthy DFS/BFS process, build a DMS with minimum capex at double quick time), secure a quick win, use the cashflow generated to expand further, as opposed to the traditional approach that PLS had taken which took them 4 years from discovery to 1st shipment and in the process incurred much larger capex with loans & shareholders dilution.
We are fully aware of the pros and cons of the differing approach and are 100% supportive of the path that we have taken. The inherent disadvantage of our quick-win approach, that with the small JORC resources / reserves / LOM, our company will not get a high valuation from the market at this juncture. Hence, our share price will be temporary curbed.
However, we sincerely hope the merged co do put some priority in the exploration (drill & drill & drill) of the remaining vast areas to prove up & upgrade our reserve / LOM significantly. We believe that PLS had been trading ahead of themselves largely because of their much larger reserves / LOM.
|
|
AMAL/TAW |
PLS |
|
Lithium Resource |
26.5 Mt at 1.0 % Li2O (using 0.3% Li2O cut off) |
226 Mt at 1.27% Li2O (using 0.2% Li2O cut off) |
|
Lithium Reserve |
11.3 Mt at 1.0 % Li2O (using 0.3% Li2O cut off) |
108.2 Mt at 1.25% Li2O (using 0.2% Li2O cut off) |
|
Life of Mine |
9 years, based on 1.2Mpta DMS |
23 years, based on 5Mtpa DMS |
2. Offtake – AMAL/TAW currently has only 1 offtake partner (Burwill) while PLS has 4 offtake partners (General Lithium, GanFeng, Great Wall and POSCO). With multiple offtake partners, PLS has managed to diversify their offtake partner risk while AMAL/TAW carries the concentration risk of single-point-of-potential-failure. 
Spodumene which contains lithium piling up after being processed at the Bald Hill project of AMA and Tawana. Photo: CompanyBesides, PLS offtakers are seemingly financially much stronger than Burwill. Hence, the risk of defaults or delayed shipments (ie. unable to regularly book revenue) is somewhat weighted against us. I do believe this factor is contributing to the market’s higher valuation of PLS.
We do know through recent shareholder engagements that the management is working towards bringing at least 1 more highly reputable offtaker onboard. However, we also know that we are somewhat constrained by the “mistake made” in earlier offtake agreement terms & conditions (committing all our output), restricting our ability to take on other offtaker(s). Hence, once this risk is mitigated, our market valuation will likely improve.
3. Mid/Long Term Plan – Currently, we are aware of the company’s short term (12 months) plan to optimise the existing Dense Media Separation (DMS) plant and build a fines circuit to enhance the recovery rate, and significantly increase the output from 155kpta to 260ktpa. And to the disappointment of some investors, we were told that the plan for the 2nd DMS will be shelved, with no good explanation of the rationale for scaling back. Many are hopeful that we can continue to make aggressive plans to expand our output to 500-600kpta with DMS2. What we lack are plans on what’s beyond 2019.
Since 2016, I have listened to Ken Brinsden (CEO of PLS) sold the PLS story a few times in investor seminars and the story is compelling with their stage 1 (2018, 2mpta DMS+FC, SC6=330kpta) and stage 2 plans (2020, 5mtpa DMS+FC, SC6=800-850kpta). And I believe the market is giving them a much higher valuation because people are excited with their huge potential – it’s true that the market trades ahead of the actual business performance. Nevertheless, I believe that the AMAL/TAW story is even more compelling but largely “under the radar” to the market (traders, investors & funds) for the time being. In other words, we are really undervalued temporarily.
I sincerely hope that once the merger is done and dusted, the board will put some priority to finalise & communicate the mid/long term plan of AMAL, which will then help the market “see” our huge potential. That will convince many that are still sitting on the fence to take action and invest in AMAL/TAW.
4. External Communications – it’s not good to make plans without getting our story out to the market. As mentioned earlier, I see Ken (PLS) presenting their story regularly (almost every mining/resource investor conference) but nothing from AMAL and once for TAW (Low Emission & Technology Minerals conference in Nov 2017). In Singapore, I understand that AMAL previously used Financial PR and currently using Waterbrooks. In Australia, I do see Canaccord putting out research reports regularly.
I don’t see any actions/efforts of Waterbrooks IR/PR activities to engage existing & potential shareholders. I also don’t see any PR plans to engage analysts to cover our stock in Singapore, in Australia and in the world, after merger. It is really a pity that only few people know of such a solid good company.
I sincerely hope we can engage a good IR/PR firm that can help us make a good plan to promote the company. Also for those who are already invested in AMAL/TAW or in their watchlist to invest, I hope the merged co will do more to drive constant news flows and timely updates (including wider use of social media such as twitter & facebook), such as
| ♦ Production progress – shareholders are starting to get more such information recently because of a few shareholders engagements sessions meant for the merger. I hope the company will organise regular monthly/quarterly online sessions, where all shareholders from Singapore/Australia/world can attend and get the official updates. ♦ Shipment information, which is critical, as revenue are booked upon shipments. Shipments are currently rather adhoc and irregular at this moment. Officially, we were told that Burwill had some difficulty securing ships. Unofficially, rumours are flying around that Burwill does not have the funds and intentionally delaying the shipments. Such rumours are unhealthy. ♦ Quarterly revenue/profit guidance – many fundamental investors will only invest in companies that produce profit. Hence my belief is that our share price will rerate when we attract many fundamental investors when we start to show positive P&L. We have commenced production and shipment, but shareholders are still blind-sided and do not even know when the company will be profit positive. We know it will be soon though. ♦ Mid/Long plans – as mentioned above |
Having said all these, I would like the management to know that shareholders are highly appreciative of the entire AMAL/TAW team’s hard & great work. We all know that everyone is already working their butts out to deal with the many many activities going on to rollout excellent quality products within record time. It may at times seem that we are expecting too much by suggesting more for the team. We are just attempting to lay out our observations of what we believe caused the market to value PLS at 250% more than AMAL/TAW.
We do have full faith in the excellent delivery capability of the team and will be willing to support the company wherever and whenever we can. Please read this as an opinion/feedback piece from the shareholders to reiterate our views & our hopes, rather than a criticism of the company. Let me know if there’s anything shareholders like myself can contribute to the company, and I will be more than happy to do my part.
Thank You & Best Regards,
Teo Luan Boo
14 Oct update: Reader responds: ALLIANCE MINERAL/TAWANA: Investor shares insights into downstream market in China