The world’s appetite for lithium has been hit with COVID-19 and uncertainty as to the volume of electric vehicles being sold. Which means the spot price of lithium – which is difficult to estimate in any event – has been dropping. Bad news for a lithium development company?
Not at all says Farhad Abasov, Millennial Lithium’s (V.ML) CEO. “First quarter EV sales were up 70-90% year on year,” said Abasov. “They have fallen back because of COVID and it will take time for the car market to come back. But the when the economies open up I believe the EV sales will be the first to recover. Right now, lithium is in oversupply. This has meant that the price of lithium has dropped and the high-cost producers, particularly hard rock producers, are feeling the pain. A number of projects are being delayed or cancelled indefinitely.
“As the economies start reopening the oversupply is expected to drop,” said Abasov. “There is also constraint on the supply side now with lithium price decline as some hard rock lithium producers have high costs of production. All of which bodes well for low-cost brine projects, specifically for Millennial Lithium.”
Millennial’s Pastos Grandes brine project is in the province of Salta in Argentina. The project is well advanced with a feasibility study which suggests a production cost of $3400 a ton. Millennial will use the traditional evaporation method to dry the brine it extracts in ponds and then run the material through a processing plant.
On June 23, 2020 Millennial announced that it had received its Declaracion de Impacto Ambiental (the “DIA”) from the Environmental and Mining Authority in Salta Province. This is a key licence as it is required for a company to proceed to the construction and operation of a project.
“This is the keystone permit,” said Abasov. “It is very much a stamp of approval from the Salta province. Salta elected a new government in October and the province is very much “open for business”. The new government is very supportive of the industry and Millennial in particular.”
The DIA is also a key milestone to securing funds. “Our next step is to fund the project,” said Abasov. “We’re working with Credit Suisse to line up funding. We have several large groups who are interested in the project.”
The funding timeline has been a little delayed by COVID-19. “Optimistically, we should have funding for the first step in Q3 2020 and full financing in place by the end of the year depending on when the COVID restrictions are lifted,” said Abasov. “The milestone will be having a strategic investor come on which is willing to support 30-40% of our CAPEX. Then an offtake agreement.”
Abasov is not worried about securing financing. “We have a strong cash position,” said Abasov. Having cash in the bank lets Millennial be selective about how it finances the Pastos Grandes project. And, as Abasov points out, there is a lot of activity in the lithium sector as large industrial groups look to secure long term lithium supply.
Financing in place, the next step will be the actual construction of the solar evaporation ponds which will then be filled with brine. As those ponds of brine are evaporating Millennial will construct and commission the processing facility. Construction will start with a target of 10-12,000 tonnes per annum coming online 18-24 months after construction begins. “We will be building to the market,” said Abasov. The final capacity of the project could be as much as 24,000 tonnes.
Argentina has been in the news with debt problems. A new President was elected in December. “Yes, the country has macro difficulties,” said Abasov. “The new President is very positive about the mining and energy sectors. The federal government is in discussions with various companies operating in the country. It looks like the federal government is on the right track.”
For a company getting ready to make a significant investment in a full-scale lithium operation, a degree of political stability is critical. Having supportive, competent and supportive government at both the federal and provincial levels reassures investors.
Cash in the bank, discussions with potential strategic partners and off-takers, a feasibility study, low projected costs of production and a plan going forward positions Millennial to take full advantage of what Abasov believes is going to be a firming lithium market.
Millennial has been trading around $1.00 a share for the last few months. It is attracting investor interest from all over the world. “We have lots of European shareholders in addition to the Canadian and US investors,” said Abasov. There is every chance the EV market will begin to improve in Q3 and Q4 of this year as COVID fades in many countries. More EVs means more demand for batteries and that means more demand for a relatively constrained supply of lithium just as Millennial is ramping up production in the next few years.
“Millennial is the most advanced lithium development project in Salta,” said Abasov. Once the market realizes how advanced Millennial actually is there is every reason to believe that the company’s value will be strongly re-rated.