Wow. One of the only lithium juniors on the planet with positive news to report! A project that’s successfully moving forward, a Company with $9.5M of cash in the bank at 3/31/19. Imagine, a press release NOT proclaiming the issuance of stock options or a private placement with a full warrant. Yes, that’s exactly what Standard Lithium (TSX-v: SLL) / (OTCQX: STLHF) has accomplished with today’s press release.
In it, management announced that it has broken ground in Arkansas for its lithium extraction Demo Plant that selectively extracts lithium from brine that’s a by-product (tail brine) of very extensive, high-volume, existing bromine operations run by German specialty chemicals giant, LANXESS.
The Demo Plant will employ the Company’s proprietary technology to selectively extract lithium from the LANXESS South Plant’s tail brine. The Demo Plant is designed to continuously process a brine flow of 50 gallons per minute, enough to produce at a run-rate of 100 to 150 tonnes of lithium carbonate per year.
Over time, the Demo Plant will be scaled up to several thousand tonnes per year and additional commercial-scale plants will be built at 2 nearby LANXESS processing facilities. This environmentally friendly process would eliminate the need for solar evaporation ponds, reduce processing time from months to hours, and greatly increase the recovery of lithium. Lithium recoveries are expected to be up to double that of solar evaporation ponds.
Dr. Andy Robinson, Standard Lithium’s President & COO, commented,
“Standard Lithium is continuing to execute its disciplined development strategy. We are separating ourselves from our peers by partnering with a global chemical company with real operational experience, deploying demonstration-scale proof-of-concept technology at an operating brine-processing plant, and removing financing and off-take risks through our JV strategy. Ground-breaking at the site is a key step in realising our rapid development timelines, and we look forward to providing more updates as this phase of the project moves towards commissioning.”
This press release comes soon after the results of the Preliminary Economic Assessment (“PEA“) were released on June 19th. The PEA looked at 100% of the LANXESS project, but in all likelihood Standard Lithium will retain between 30%-40% of the Project when it’s all said and done. However, in exchange for giving up a sizable stake to LANXESS (assuming that LANXESS & Standard Lithium finalize a MOU from last year), LANXESS would be responsible for 100% of all costs through commercial-scale production.
Those costs are considerable. They include existing and future Demo Plant work, infrastructure enhancements in Arkansas, project cap-ex and a Bankable Feasibility Study (“BFS“). Cap-ex is estimated in the PEA at US$437M. Although we will have to wait and see how the project progresses, the amount of equity capital that Standard Lithium might need to raise over the next 2-3 years could be < US$20M.
Lithium prices have weighed on the sector for the past year. I asked Simon Moores of Benchmark Mineral Intelligence about his firm’s view on lithium,
“The interest in unlocking new lithium sources within the U.S. has grown significantly in the last 12 months as the U.S. plays catch up with China. Yet, the capital markets aren’t playing ball. They see too much near-term risk in lithium, and the post-2025 EV story is too far out for most investors, despite the demand picture getting much stronger in this time frame. Therefore, the lithium industry will have to continue funding itself, which means there will not be enough lithium for EVs in the mid-2020s.“
What’s not stated in the PEA, reading between the lines, a lithium resource size of > 3 M tonnes could support production of greater than 20,900 tonnes/yr. Readers should consider this an upside scenario, not a sure thing. However, 25-30,000 tonnes/yr. if achieved, would probably not come before 2025 or 2026.
Obviously, there’s upside to other lithium project PEAs, but those projects don’t have a company like LANXESS behind them and aren’t soon to be funded all the way through commercialization. If Simon Moores is correct, any source of high-grade lithium products that comes to market in the early-to-mid 2020’s will command a premium price.
LANXESS, like Albemarle Corp., has world-class specialty chemicals expertise. The LANXESS project could produce niche-market lithium products that extract premium prices; higher than prevailing lithium carbonate & hydroxide prices. Readers should consider this as another upside scenario, not a certainty.
To sum up, Standard Lithium (TSX-v: SLL) / (OTCQX: STLHF) is looking at under US$20M of additional equity capital, with a current Enterprise Value of about US$53M for US$300-US$360M of estimated after-tax NPV(8%), with potential upside to their share of that NPV from higher prices and/or higher annual production rates.
Standard Lithium CEO Robert Mintak stated,
“No new lithium mine has been built in the U.S. in over 5 decades; breaking ground at our El Dorado site represents a major achievement towards changing that. We anticipate our project and progress will be keenly watched as lithium has taken on significant political interest with the December, 2017, U.S., ‘Presidential Executive Order on a Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals’ and pending legislation aimed to boost domestic supplies of critical minerals.”
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