Bradda Head Lithium exceeds targets, secures US$3 million royalty and moves closer to production. Watch the video here.
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I did think the auditors may have said something.
SCE now teetering on the unthinkable.
Does anyone have a positive case for this going back to 2p? Or is this now in terminal decline and destined for the bin with the massive increases in research costs, scrappage, decrease in margin due to sub-contracting and the inability scale production? I did have a large investment in this and have switched off, should have sold out ages ago
I not only have a positive case for this share to return to 2p, but to go back to 3p or 4p in relatively short order. We all knew these 2023 numbers were going to be a bit of a horror show (the non-cash impairments aside) given the raise then the panic emergency raise that followed. My case comes from a single paragraph in the update, and it's where I'm pinning my hopes for the future of SCE.
1) The claim that "The Phase 2 £50m sales capacity was progressively installed during the year and into 2024. With one exception, the £50m notional capacity has been achieved in the first half of 2024".
I know that the board will be reading these posts (and I also know their NOMAD / Broker will be telling them not to) and I hope they see this. Please make sure you draw out the production improvements and show them on an ARR basis, smoothed using 2 or 3 month rolling averages if needs be, but SHOW US that you are getting to the £50m capacity, and what proportion of that capacity you're actually able to output. The COO made the case that scrap rates were down significantly in Q2 when they did the webinar on 9th May - I'd implore the board to focus on this, after all there's little point in spending money on investing in capacity if the furnace then either malfunctions and is written down (like the old one) or if scrap rates negate the capacity altogether.
2) The follow up that "The outstanding item from this £50m programme is one furnace that is now expected to be installed at the end of the year."
Time for some clarity as to what the delays are (we've had scant little detail from what I can see) and how they will be overcome, I'd like to hear about exactly what has stopped them installing the last furnace, and how long it's been on site awaiting installation (note there have been no comments about delays to delivery, just installation). It was ordered in 2021, presumably has already been paid for (with interest running on the financing) and as such every additional week that goes by is not only wasted potential, but it's burning cash. I have my own theory as to what has held this up, and if it's not clarified by the AGM, I'll be attending in person to put that theory to them and get an answer there.
We are constantly told that the £50m capacity will be fully installed by the end of 2024, as such all of the blockers to that need to have been cleared before the AGM, or it won't happen in that timeframe.
£50m turnover at consistent 50-55% margin gives £25-27.5m gross profit, overheads in 2023 were £15m even with the massive R&D spend (but excluding the non-cash impairment) which would give £10m+ Operating Profit. From that I'd infer that the Break Even level of production is £30m, so the allowable scrap rate / shortfall allowable is 40%, well above the 25% mentioned in the webinar. I see break even in H2 (depending on the 2024Q2 run rate) and profitability and cash flow generation in 2025 - 4p here we come!
This was in the the April 9th RNS.............
"The issue with the last furnace relates to our site expansion rather than the machine itself. The protracted negotiations regarding the site expansion have now been concluded enabling the last furnace to progress"
I remember that however there's been little update since other than the comment that "it is expected to be installed by the end of 2024". I would infer that there are other issues which have still not been resolved, otherwise we'd have had a "the installation and commissioning of Furnace X is progressing to schedule" update - perhaps with a comment on the stage of the program (I've no idea what's involved, but you get the picture).
We haven't had that, as a result we need something concrete from the board about the installation progress of the furnace, especially given that the last one took a full year longer than expected.
Having clarity of precisely when this furnace will not only be installed, but will be adding to production is absolutely essential if the board wants to build confidence in their investor base that break even, then profitability and finally regular cash generation is coming soon, otherwise the cash in the bank won't last until Christmas and this thing either goes pop, or gets picked up by Brembo for a song.