Argentina has been in the news. 60% interest rates, a recession and a temporary 8% export tax are not good news for miners. However, at this point, David Sidoo, CEO of Advantage Lithium (V.AAL) is cautiously optimistic. “It’s effecting all the juniors working in Argentina,” said Sidoo. “it surprised the market and it is going to be painful for the next twelve months. However, we have built a contingency into our Preliminary Economic Assessment. But it is important to explain to investors.”
In fact, for a company at Advantage’s stage in exploration, this temporary export tax is not a major issue. What is much more significant are the actual contents of Advantage’s Preliminary Economic Assessment (PEA) which was released August 14, 2018.
Sidoo was very pleased with the drill program that “took the 477,000-ton resource to 3.0 million tons inferred, “said Sidoo. “and also our PEA, which speaks highly of our technical team: it’s a six fold increase in the resource and a positive preliminary economic assessment”
That resource and the relatively well understood extraction methods in the Cauchari basin allowed engineering consultants WorleyParsons Chile S.A. to calculate a US$830 Million after-tax NPV at 8% discount rate and IRR of 24.3 % for 20,000 TPY production of lithium carbonate. The CAPEX is estimated at $401 million with a mine life of 25 years on “present reserves”.
What is really intriguing, at least from an investment perspective, is that the operating cost is estimated at $3667 a tonne of Lithium Carbonate. “We can produce at just over $3500 a tonne,” said Sidoo. “If we were selling at $10,000 a tonne we would have a margin of $6500,” said Sidoo. “But producers are actually seeing prices over $14,000 a tonne”. Long term he believes the price will stabilize between $10,000 and $11,000 US
Against the present lithium price there are various commentators who see a potential oversupply of lithium. Not Sidoo. “With what is happening world wide demand will continue to grow,” said Sidoo. “We see more demand with Electric Vehicles growing quickly. We see $10,000 per tonne as a very realistic price. The fact is that it is not easy to bring on new supply. We’re just at the beginning. With growth rates each year, where will the supply come from, basins like Cauchari”.
“Lithium is here to stay,” said Sidoo. “Mercedes Benz just announced a new line of electric vehicles. GM, Ford and Volkswagen have all coming out with Electric vehicles and intend to increase the number of vehicles immediately. It took a decade to really bring lithium to the marketplace. But the price doubled because of rising demand. Now we are seeing the EV infrastructure being build with charging stations for everything from electric bikes to Electric Vehicles. Europe alone now has more the 1 million electric vehicles on the road and countries like the United States is not far behind”
In its August 14th press release, Advantage also announced that it had retained Goldman Sachs “to evaluate strategic partnerships and financing alternatives to fund its portion of the development capital for the Cauchari JV, in conjunction with the completion of the Feasibility Study.”
This is where the larger picture of the Cauchari JV emerges. “What we have seen so far,” said Sidoo, “Is that the chemistry and concentration at Cauchari are very similar to what is seen in the rest of the basin.”
For Sidoo and Advantage there are several scenarios going forward. The first would be to find a joint venture partner interested in signing an off-take agreement taking a 10% interest in the company. We would also envision a scenario where we fund our $400 million CAPEX through a debt facility to not further dilute our shareholders said Sidoo. “Goldman Sachs is reaching out to its clients in various parts of the world and is a syndicate for part of the CATL, Tianqi and Ganfeng IPO’s.
In this scenario the economics of the Cauchari project are critical. But so is the overall resource. “We need to take our inferred resource to measured and indicated,” said Sidoo. “We’re planning a Definitive Feasibility Study for Q2 2019,” said Sidoo. “we will also prove up the hydrology and pump tests in the SE and NW.”
However, as that work progresses, Advantage is actively looking for the off-take partner. The company will be hosting Goldman Sachs for a site visit at the end of September. It continues to drill the property with four rigs running. So there will be a steady flow of news from the site.
At the same time, given how hard it is to find good lithium project, Sidoo is not discounting an 800-pound gorilla coming into the basin and consolidating the entire area. “There are big battery makers that need supply out there,” said Sidoo. Which would make a lot of sense given that Advantage is seeing substantially the same chemistry and concentrations as the other companies in the basin.
For Sidoo and Advantage, expanding the resource, keeping the processing costs low and the margin high, and working toward the Definitive Feasibility Study for Q2 2019 are all ways to increase shareholder value. How that value is crystalized remains an open question, but between Sidoo and Goldman Sachs an answer is likely to emerge soon.
“We’re hoping to have a Memorandum of Understanding and an off take agreement in place by the end of the year or early 2019” said Sidoo. Stay tuned!