I would certainly not question Micon's work re. costing of mine development, etc. Whether its 'conservative' or not depends on your assumptions regarding the market potential.
Inter-related factors to be considered:
1. Overall market size
2. Capture Rates/Market Share
3. Price required for market penetration
4. Product substitutability and customer preferences (lithium carbonate, SQUI, spodumene, petalite)
5. Price competitiveness (Li from brines vs. hard rock sources).
By example, note the impact on Sons of Gwalia's SQUI (often incorrectly referred to as spodumene, but SQUI is in fact a petalite equivalent). According to SOG, "Quantities, prices and margins suffered in the 1997/98 year due to an aggressive pricing strategy by a new entrant in the associated lithium carbonate market, which has had a direct impact on the Company's lithium business. The Greenbushes lithium operations, however, remain both profit and cashflow positive, and efforts are now underway to recapture market share." My industry source tells me SOG continues to loose market share to Minsal because they can't compete on price (and they are practically giving it away).
Its fair to say that new entrants will have to: compete on price and quality; and either target niche market opportunities, or displace a current producer in order to achieve the sales volume required for profitability.
DRT |
