With European demand for Lithium set to lift stratospherically courtesy of a string of planned European lithium battery factories, it is a little curious that Europe itself is not able to boast many major Lithium deposits of its own.
Even though Europe accounts for about 30% of world Lithium demand it is only responsible for about 2% of global production.
Perth based ASX listed Plymouth Minerals however look set to improve those statistics with their San Jose Lithium-Tin deposit in western Spain that is being pushed rapidly towards production.
A maiden JORC resource figure published earlier this year after an in-fill drilling program by Plymouth showed San Jose is a world-class Lithium “mica” deposit.
The global resource for the project is 92.3 million tonnes grading 0.6% Lithium Dioxide that is capable of producing 1.3m tonnes of Lithium Carbonate equivalent. Given that Lithium Carbonate is currently selling for up to US$25,000 a tonne, the numbers start to look a little out of control on a calculator.
Even more remarkably, Plymouth has an additional exploration target of at least another 1.3m tonnes of Lithium Carbonate Equivalent.
San Jose also boasts a high-grade core of 16.5 million tonnes grading 0.9% Lithium Dioxide.
Whilst West Australian’s are more familiar with slightly higher grade Lithium deposits that are captured within spodumene mineralisation, mica’s are lesser known but just as profitable according to Plymouth.
The mica mineralisation at San Jose is actually one of the deposit’s best assets because Plymouth have already shown they can use sulphate calcination to process it economically all the way through to Lithium Carbonate ready for sale directly into Europe’s new battery factories.
Plymouth’s major advantage is a logistical and somewhat magical one in so much as there is a gas pipeline running parallel to the project not even a kilometre away. About 1km in the other direction is a fully sealed road that cuts a sway almost to the project’s doorstep.
Spodumene producers generally have to beneficiate their run of mine product from around 1% out of the ground up to about 6% Lithium Oxide to make it economic to be shipped to the Chinese who process it into battery grade chemicals such as Lithium Carbonate.
It is rarely profitable or even logistically viable for Lithium miners to produce their own battery grade chemicals on site given the massive amount of energy required to roast the spodumene before processing it into Lithium Carbonate.
By contrast Plymouth are blessed with a gas pipeline running past their front door which will see them turn their Lithium mica deposit straight into Lithium Carbonate.
There will be no need for a massive beneficiation upgrade and no need for intercontinental transport – this is Plymouth’s point of difference.
In fact Plymouth say that the economics work if they only upgrade or beneficiate their ore to around 1.4% before starting the process of converting it into battery grade chemicals.
San Jose sits within a historic Lithium mining district in Spain. The project underwent an extensive feasibility study between 1987 and 1991, however it failed to get across the line partly because production would have swamped the global market back then and ruined prices – not so today however.
The local Spanish Government knew it had something valuable in San Jose and put it out to public tender in mid-2015. The successful tenderer was Valoriza Mineria, the mining arm of massive Spanish construction and engineering group Sacyr. Valoriza farmed the project out to Plymouth, whose management team, led by Adrian Byass, have a unique mix of experience and knowledge when it comes to building mines for exotic metals.
Plymouth have already earned a 50% stake in the project and will lift to 75% after they complete a feasibility study on it towards the end of 2018.
A scoping study released recently, revealed some impressive economics and prompted Hartleys to publish a 68-cent price target for Plymouth, which compares favourably to recent highs of around 20c a share.
If the current spot price for Lithium Carbonate holds then Hartleys say Plymouth’s stock could in fact be worth as much as $2.09 a share.
The scoping study was based on a long initial mine life of 24 years, producing an average of 12,000 tonnes of Lithium Carbonate per annum. The estimated capex is US$273 million, with average C1 costs of less than US$5,000 per tonne of Lithium Carbonate, ranking it well down the cost curve of global producers.
Based on a highly conservative sales price assumption of US$10,000 per tonne, the project would generate an IRR of 28% and payback its capital of USD$273m in just 2.7 years. Those numbers are expected to improve even further when possible tin and boron credits are factored in.
The project is expected to turn out an operating surplus of around USD$75m a year. That’s only about 20% less than Pilbara Minerals expects to produce from its Pilgangoora Lithium mine in W.A. Pilbara Minerals however have a market cap of some $1.6b.
San Jose shows an NPV of USD$401m based on a Lithium Carbonate price of USD$10,000 a tonne which is around half the current spot price. If Plymouth are able to average just USD$12,000 a tonne then the NPV blows out to USD$634m.
At USD$18,000 a tonne, which is the lower end of the current spot market range, the project NPV is worth a staggering USD$1.33b.
Not bad for a company that still only has 151m shares on issue.
In a project update released to the ASX last week, Plymouth reported it was short-listing firms to handle the feasibility study engineering and expected to have a selection locked in before the end of December.
Shareholders can also look forward to an upgraded resource estimate in December based on a second round of drilling completed in September. The new drilling produced a spectacular 192-metre intercept that averaged more than 1% Lithium Dioxide and confirmed the deposit was still open in all directions including at depth.
The emergence of a world-class Lithium deposit in Europe could not come at a better time with battery factories being planned across the continent and a drastic shortage of in-country resources.
Plymouth also have a major Potash project in West Africa just for good measure.That project looks every bit as impressive as San Jose, albeit it is at an earlier stage, but that’s another story for another day for this $30m market capped ASX junior.
