The following CEO interview was conducted by email in the two weeks ended August 18th. At a time when “battery metals” junior mining companies have been stalled, not just lithium companies, but cobalt, vanadium and other high-tech, “green” metals, Millennial Lithium (TSX-V: ML) has advanced its flagship project Pastos Grandes all the way through a Bank Feasibility Study (“BFS“). And, the company still has approximately C$30 million in the bank.
Millennial’s BFS describes a lithium brine project that could reach commercial production in 2021. A pilot plant will be up and running later this year. Off-take discussions are well underway, and management’s goal is to have project financing arranged by year end. These are exciting times for the team.
This morning (August 19th), Lithium Americas (TSX: LAC) announced the closing of a US$160M cash injection from Ganfeng Lithium taking Ganfeng’s ownership in the Caucharí-Olaroz JV project from 37.5% to 50%. US$160M for an additional 12.5% values the project at US$1.28 billion, 50% attributable to LAC. Great news for Lithium Americas and for other advanced-stage lithium brine projects in Argentina, including Millennial’s 100%- owned Pastos Grandes.
Please give us the very latest snapshot of Millennial Lithium.
The big news for us is that we released a Bank Feasibility Study (“BFS“) on our flagship Pastos Grandeslithium brine project. The after-tax NPV(8%) of US$1 billion was 25% above the NPV(8%) number in the PEA.
We are one of just three or four companies with BFS-stage projects in Argentina, putting us we think 6-18 months ahead of most peers, some of whom will never reach BFS stage. The other two publicly-listed players, Australian-listed Galaxy Resources and Lithium Americas, have much larger market caps than we do, even after consideration of other projects they own.
We are building a pilot plant that will operate at 3 tonnes of lithium carbonate per month, allowing us to build up an inventory of finished product to send to customers and for ongoing test work. With a BFS and pilot plant in hand, we will be well positioned to talk to prospective strategic & financial parties, as well as potential off-take partners. Those discussions are underway.
Almost everyone agrees that demand for lithium will be off the charts by the mid-2020’s, but investment in the sector has been anemic. Is there a disconnect?
Unfortunately, there’s a lot of confusion in the market, helped along by self-proclaimed experts, most of whom have little experience with specialty chemicals in general, or lithium in particular. Keep one thing in mind, the oversupply in spodumene concentrate is related only to the shortage of available chemical conversion capacity in China. It has nothing to do with global demand for lithium chemicals.
While newsworthy setbacks on lithium projects such as Nemaska’s has created a heightened degree of uncertainty, the market could consume four times as much lithium carbonate in 2025 or 2026 than was produced last year. Increases in supply this year and next come nowhere near meeting this scale of growth. I find it hard to believe that the entire market could be in oversupply in the medium-term, notwithstanding short-term oversupply in the near-term.
What are the most important differences between Millennial’s PEA and your newly released BFS?
Good question. A key difference was that production of 25,000 tonnes/yr. in the PEA (20,000 tonnes battery grade (> 99.5% Li2CO3) and 5,000 tonnes technical grade), has been enhanced. The production rate in the BFS is 24,000 tonnes/yr., but its now 100% battery grade. Also, life of mine was extended from 25 to 40 years. Importantly, the level of accuracy in our BFS is much tighter at +15%/-15%, versus +35%/-35% in the PEA.
The cap-ex number in the BFS is 9% higher than that of the PEA due to three items. First, the addition of a final purification stage to ensure battery-grade (99.5% Li2CO3) lithium carbonate production. Second, the inclusion of a photo-voltaic plant to provide low-cost power, and third, an operations camp, (the PEA assumed the use of a contractor).
Op-ex increased by 5% due to higher usage and cost of reagents, primarily soda ash & lime, and the inclusion of the purification stage I mentioned. The BFS also included a pond expansion beginning in year 5 to maintain production levels and improve product quality. So, an increase of 9% & 3% in cap-ex / op-ex, but an increase of 25% in after-tax NPV and a higher degree of certainty in project fundamentals.
What are the primary business catalysts for the remainder of the year? First half of 2020?
The primary catalysts are the construction and start of a pilot processing plant, approval of our EIA by Salta province officials, securing off-take agreements, obtaining financial commitments and ongoing discussions with prospective strategic & financial partners in the lithium & energy industries.
What are the main takeaways of the BFS?
We maintained and/or improved many financial metrics. We reported an after-tax IRR of 24% (before tax 28%), and NPV8 of US$1 billion (before tax US$1.6 billion). All indications are that Pastos Grandes can be a successful, high-purity lithium carbonate producer with cap-ex & op-ex in line with other low-cost brine operations & projects in Argentina.
The BFS has op-ex at approx. $3,400 per tonne of battery grade lithium carbonate, placing the proposed operation in the lowest quartile of production costs, making it less vulnerable to lithium pricing and more attractive to funding partners.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.