First Phosphate, the right place, the right time for LFP battery surge

Commodity prices have had a wild ride over the past several years. From the COVID-19 lows to Feb. 21, 2023 the CRB Index is up +155%, and down 16% from last year’s high. By contrast, look at lithium (“Li“).

The battery-quality Lithium (“Li“) carbonate price (US$) in China is up 964% from its 2020 low of $5,525/t to $58,811/t. Li has performed extremely well compared to most commodities, even though down ~32% from $84,400/t in November.

To put today’s $58,811/t figure into perspective, it’s still 3x to 4x higher than any price ever used in a Li project PEA or Feasibility Study until mid-2022, and ~140% above the twin peaks of 2016 & 2017. By contrast, copper is ~20% above the highest base case assumptions used in the economic assessments of copper projects.

Li has been above prior peaks for 17 months, clearly demand is outstripping supply. Why this talk about Li in an article about a new phosphate company — First Phosphate (CSE: PHOS) — which begins trading today, February 22nd.

The Li narrative extends directly to a less understood, but equally important story. Have readers been following the ascendency of Lithium Iron Phosphate (“LFP“) batteries?

LFP batteries are cheaper than those using cobalt & nickel, but deliver lower energy density, (less range). Phosphate rock trades at $300/t vs. Li, cobalt & nickel in the $10’s of thousands/t. This means phosphate prices will never be a constraint on LFP battery demand.

Like Li, the phosphate price has significantly outperformed, up +300% from a low of $75/t in 2020. In terms of critical materials, phosphate & Li are about as critical as it gets!

A few years ago analysts thought LFP batteries would be a niche market for low-end Chinese EVs, but then Tesla adopted LFP for its standard-range offerings globally and other OEMs are following. According to Adamas Intelligence — as of September, 2022 — 31% of new Li-ion batteries were LFP. Penetration is forecast to be 40%-50% of an EV market growing at > 15%/yr.

The “P” in LFP stands for phosphate, but wait, isn’t phosphate mainly used in fertilizers? YES, and that’s where some confusion sets in. Phosphate is vitally important and irreplaceable in the world’s food supply. Giant companies like Nutrient & Mosaic have many decades of R&D & investment dollars sunk into using it in fertilizers.

Looking at the hundreds of millions of tonnes of phosphate rock mined annually and assuming there will be plenty available for LFP batteries is a misread of the situation. Not all phosphate rock (the main feedstock in phosphoric acid) is the same!

Phosphate is a naturally occurring compound found in sedimentary (soft) & igneous (hard) rock formations. However, sedimentary phosphate deposits, 95% of the world’s total, contain deleterious heavy metals & radioactive materials, leading to hazardous waste streams.

By contrast, igneous ores host far less undesirable material, allowing a much higher percentage of contained phosphate to be amenable to purification to the exacting specs required of the purified phosphoric acid (“PPA“).

PPA gets combined with iron sulphate & Li hydroxide to make LFP cathode active materials. Hold on, PPA, LFP cathode active materials, what?

About 90% of mined phosphate-bearing rock is crushed & concentrated to a medium (30%-40%) P2O5 (phosphorus pentoxide) grade. This material is purified into merchant grade phosphoric acid used in fertilizers & other industrial applications. The fertilizer oligarchy consumes ~90% of phosphate production, virtually all of it from sedimentary sources.

The remaining 10% is further refined into PPA used in foods, pharmaceuticals, electronics and more. However, for ultimate use in LFP batteries, further purification is required. Only then can the ultra-pure PPA (the P) be combined with (Li) & iron (Fe).

Phosphoric acid used in fertilizers is a commodity business ideally suited for the Majors enjoying economies of scale & expertise in that area, which means the market for battery-quality PPA is wide open for companies like First Phosphate.

PHOS owns an especially clean, igneous, hard rock deposit that’s in the top 1% (globally) in terms of impurities. Unlike waste from sedimentary sources, its mine will leave behind harmless products that could potentially be used for road construction & building materials.

Management plans to capture a meaningful share of the LFP value chain. Make no mistake, this is a high-tech, multiple-stage business proposition. Therefore, management will be partnering with one or more industry leaders. PHOS wants to control the process from mining all the way to LFP cathode active materials.

A sustainable barrier to entry in this ambitious goal is the Company’s enviable phosphate rock starting point. PHOS has already delineated 49M tonnes at a solid P2O5 grade, and recent higher grade discoveries around the main resource are exciting.

Although igneous phosphate deposits are located in other parts of the world, First Phosphate’s growing endowment in Quebec is especially prized due to its close proximity to Canadian & U.S. EV/battery markets. While most of the world’s LFP battery manufacturing takes place in China, a few LFP plants have been announced in the U.S. with more to follow.

Both Canada & the U.S. are offering financial incentives to support N. American supply chains of critical elements and manufacturing facilities. PHOS is submitting applications for a variety of loans & grants and expects to announce one or more industry partners later this year.

There are > 400 companies listed in N. America, Australia & London with Li prospects. How many fertilizer companies? Less than 50. How many phosphate juniors? About a dozen.

How many phosphate juniors focused solely on LFP batteries & planning to capture a meaningful share of the LFP active cathode materials value chain by partnering with industry leaders? Just one, PHOS.

First Phosphate is poised to lead the pack of phosphate juniors higher as LFP battery demand continues to soar. Readers are encouraged to learn more about this exciting & unique opportunity.

Corp. presentation Latest news — February 22, 2023 / February 16, 2023 / February 7, 2023

Peter Epstein of Epstein Research [ER] has no existing or prior relationship with First Phosphate or any management/board member.