This article is a sponsored feature from Mining.com.au partner Leo Lithium Holdings Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.
Roaring is a component of a lion’s adaptation and a significant part of their communication.
Emerging lithium producer Leo Lithium (ASX:LLL), which employs the symbolism of the lion, has witnessed a roar in the commodities market reflected in the growth of the company in recent months.
Leo Lithium Managing Director Simon Hay explains the market is starting to recognise its overall value proposition. The catalyst for much of that lies in the progress being made at its flagship Goulamina Lithium Project in southern Mali.
Goulamina has a Mineral Resource of 108Mt at 1.45% Li2O, with an Ore Reserve of 52Mt at 1.51% Li2O – making it one of the largest hard rock lithium deposits in the world.
First production is targeted for H1 2024 and will see the company become a major lithium player and long-term supplier to the electric vehicle (EV) auto market.
Forecast spodumene concentrate production of 506,000tpa is set to increase to peak production of 831,000tpa under stage two (which is expected to come online 18 months after stage one).
As Hay notes, its advancement on the “company-making” asset remains on-schedule and on-budget.
In addition, he says, robust market fundamentals, viable project economic metrics (it has a NPV of US$2.9 billion), securing a world-leading project partner in Ganfeng Lithium Co., and having access to sufficient capital are also contributing to Leo’s pathway of becoming a near-term producer.
Considering Leo has only been listed for several months, having separated from gold producer Firefinch (ASX:FFX) in a June 2022 demerger, its progress has been impressive particularly amid challenging global market conditions.
“The recent history with demergers for both the parent and child, has often seen a wash out period of 2-3 months when trading takes a bit of time to settle down. When you compare where Leo Lithium has traded compared to other demergers, we have tracked reasonably well.
“with the demerger now being in the rear-view mirror, that is another factor why our share price has been generally tracking in a positive direction”
And in this passage of time of Leo being on its own two feet, with the demerger now being in the rear-view mirror, that is another factor why our share price has been generally tracking in a positive direction.”
Viable near-term producer
Hay notes: “We are starting to show the market that we are a very viable near-term producer.”
He adds that getting Goulamina into production would be an inflection point in which Leo would expect to enjoy further value growth.
Getting into production as quickly as possible is what Leo is focussed on.
“In the current lithium market, maintaining a schedule and budget is most important.
The world is short on lithium and spodumene and the sooner we get into production the better. So, an expedited timeline is also something that can lead to a re-rating of the share price.”
“The world is short on lithium and spodumene and the sooner we get into production the better”
Another reason for Leo Lithium’s sustained growth amid a high-inflationary environment in large part can be apportioned to the company being effectively funded to production, as well as options to secure further funds if required – one less worry amid a high inflationary environment where potential capital costs can change quickly.
Hay notes: “In the current environment you see a lot of companies with mining projects going back for more money or exceeding their original budget, and that’s not the case for us at the moment.
We’re certainly mindful that the world is now in a high inflationary environment. We’re going to the market now for a lot of our engineering packages and we need to wait and see what the vendors supply in terms of their cost estimates.
We’re not complacent where we sit on a capital cost basis but I’ll point out that we’re very well-funded, have a solid balance sheet, and we have a loan facility with our partner Ganfeng who are very supportive of the company and the project.
Ganfeng needs this project equally as much as we do.”
Symbiotic relationship with Ganfeng
The MD reiterates that Leo has a very symbiotic relationship with Ganfeng, the world’s leading lithium eco-enterprise. Other than being an offtaker and project partner, Ganfeng has provided US$170 million in funding towards Goulamina – US$130 million in equity and a US$40 million debt facility.
“We can say we’re fully funded at the moment with the current capital cost requirements for the project, but we have a really supportive lender should we need more funds.”
Once Goulamina ramps up to forecast annual spodumene concentrate production of up to 831,000tpa under Stage 2, Leo Lithium will supply about 15% of Ganfeng’s raw material requirements.
The value offered by the partnership with Ganfeng cannot be understated. Ganfeng is a world-leading lithium company that covers the supply chain through upstream lithium resource development, midstream lithium salt processing, and lithium metal production, all the way to downstream lithium battery manufacturing and battery recycling.
Also, it is a major supplier to electric vehicle (EV) automakers in China, and global producers such as Tesla (NASDAQ:TSLA) and BMW. As the MD adds, Ganfeng has an insatiable appetite for Leo’s lithium products at a time when the demand for EVs is soaring.
“Even with difficult economic conditions globally, the number of EVs and growth in sales continues to be astounding. China, for instance, looks like doubling their electric vehicle sales this year and with Ganfeng being our joint venture partner and buying all the spodumene from stage one, it’s going to be going into a market that is really buoyant.
“If you look at current spodumene and lithium chemical prices, spodumene producer margins are very positive. What gives me confidence is that prices will still be solid in the coming few years as end market demand looks strong. We can see electric vehicle sales globally growing strongly.”
Leo looking forward
With the demerger well and truly in the rear-view mirror, Leo Lithium is all about looking forward and achieving large-scale growth in the near future knowing it has the support of Ganfeng.
It’s certainly starting from a solid base. Goulamina ranks globally in the top 10 undeveloped and developed lithium hard rock deposits, with more than a 100 million tonne resource and a 52 million tonne reserve.
The MD notes that while it’s one thing to hold a world-class asset, it’s another to be developing it on schedule.
“We continue to be on track in terms of budget and schedule”
“We continue to be on track in terms of budget and schedule. We are tracking well across all project metrics so I think that message is getting out there – that Leo Lithium and Goulamina project is a near-term lithium producer in a buoyant market.”
Looking ahead in the coming months, Leo Lithium will announce further drill results, particularly in the southern end of the deposit, with construction workforce to be mobilised and site activity to ramp up in October.
In the southeast corner of the deposit, 3 drillholes have so far intersected significant pegmatite mineralogy. Results returned 1 large intersection was low-grade (42m @ 0.41% Li2O), while 2 intersections of ‘higher grade’ zones were intersected (12m @ 0.92%, 24m @ 1.8% Li2O).
Future looks electric
In the Global EV Outlook 2022 published in May, the International Energy Agency (IEA) reported sales of EVs doubled in 2021 from 2020 to a new record of 6.6 million units. The total number of EVs on the roads globally topped 16.5 million, 3x the amount in 2018.
Meanwhile, chemical market and pricing intelligence Chemanalyst notes that the lithium hydroxide price in Asia-Pacific increased to US$73,190 per tonne in 2Q 2022, from $68,900/t in 1Q 2022. The lithium carbonate price was US$72,155/t in 2Q 2022, down from US$74,750/t the previous quarter.
As Hay explains, with prices and the fundamentals of the lithium market continuing to look robust, Leo Lithium is well-positioned to begin assessing growth options beyond Goulamina.
The MD stresses that advancing Goulamina is the company’s primary focus, however it would be remiss of the company to not look beyond the asset in Mali. That growth could take a number of forms including inorganic and organic growth options to add to its portfolio.
In terms of being a multi-asset producer, Hay notes that is certainly an aspiration of the company.
“But the Goulamina asset itself is a company-making asset. The financial returns from the project should be excellent at current prices and even if prices dipped, we’d still be a very good economic earner for all our stakeholders.
We, as a management and board, intend to grow the business and create a long-term sustainable business and part of that could be M&A activity but we definitely have organic growth options too. So, initially our growth focus will be on stage two and then potentially conversion of spodumene into hydroxide.
We’ll also look at exploration so we have appointed a general manager of exploration and geology this week.”
Hay explains that Leo Lithium will have to assess all growth options because although its share price has risen over the past few months, the company is neither adequately nor appropriately valued, especially when compared to peers with smaller resources, lesser grades, and higher costs.
Hay concludes that, in Leo Lithium, there is plenty of value upside.
Write to Adam Orlando at Mining.com.au
Images: Leo Lithium Ltd & iStock