AVZ reveals stunning profit projections for giant lithium project
The wait is over and the market now knows just how much money you can make from the world’s largest undeveloped hard rock lithium deposit and the answer- AUD$600m a year for at least 20 years - is truly spectacular.
Perth based AVZ Minerals tabled a definitive feasibility study for its giant Manono lithium project in the Democratic Republic of Congo this week and it doesn’t much matter what angle you look at it from, there are crazy numbers jumping from almost every page.
Whether it is the AUD$600m annual EBITDA, the ridiculously low stripping ratio of 1 tonne of mineralised ore for every 0.48 tonnes of waste, the exceptional 53% internal rate of return or the gargantuan AUD$3.7b pre-tax net present value, this project is the real deal.
And it almost doesn’t matter that AVZ only owns 60% of the project currently or that it can move to 65% in time, as any fraction of the project’s AUD$6b life of mine net profit – and that’s after tax – is going to be game changing for a company that has a market cap of $150m currently.
What makes Manono remarkable is its sheer size and the fabulous grades. Its resource dwarfs every one of the ASX-listed big name West Australian lithium projects and there is daylight between all of them and AVZ’s project. AVZ estimates its resource at Manono to be a whopping 400 Million tonnes going a very impressive 1.65% Li2O.
Pilbara Minerals’ Pilgangoora operation has a resource of 223 Million Tonnes @ 1.27% Li2O whilst the high-profile Earl Grey deposit near Southern Cross tips the scales at 189 Million Tonnes @ 1.5% Li2O.
Lithium buffs would recall that Westfarmers scooped up a 50% stake in Earl Grey last year for an ‘eye-popping’ A$776 million.
AVZ Managing Director and prime mover, Nigel Ferguson said: “The Manono Project has a substantial ore body capable of extending the Life of Mine well past the current 20 years as modelled. It also has a robust workable transport solution for securing delivery of products to the export ports and a clear plan to work with the community for social development and environmental compliance.”
The Manono plant design assumes a mining rate and throughput of 4.5 million tonnes per annum, resulting in the production of 700,000 tonnes of high-grade spodumene concentrate at 6% Li2O for sale directly to the lithium carbonate and hydroxide manufacturers.
AVZ’s project build plan is remarkable in so much as the company has made a strategic decision to essentially wrap up two mining and processing plants within the same operation.
The first is a standard DMS processing plant that will pump out a standard 6% spodumene product, however, the second is rather unique and represents a significant thought process outside of the box for AVZ management.
It is a primary lithium sulphate plant which is the first stage of downstream processing for lithium and rarely, if ever, do you see the two plants side by side on a mine site.
The company says that the carbonate and hydroxide manufacturers are happy to buy the sulphate as it is a pre-curser to both carbonate and hydroxide anyway and the refined product will be a lot less bulky to ship, thereby reducing one of the single largest costs at the project – transport.
It might also have something to do with the fact that the lithium spodumene product has been modelled with a sale price of US$674/tonne whilst lithium sulphate fetches over US$7,000/tonne.
Both plants will cost roughly the same give or take a few million and bring in roughly the same overall sales revenues give or take ten percent.
Mr Ferguson said; “The Manono Project economics are enhanced by the addition of the high value-added Primary Lithium Sulphate product. The project is also highly sensitive to market pricing of SC6. Roskill has stated its 20-year price forecast sees an increase in unit value as demand increases and as such, the project becomes incrementally more robust and profitable.”
The capex for Manono is estimated at US$545 million and the company is now in advanced discussions with international debt providers and with an expected post-tax payback period of just 2.25 years, the project looks like it can handle plenty of debt.
The Manono project was acquired by AVZ in early 2017. The company paid a paltry A$6 million for 60% of the project with the balance being owned by Congolese State-owned entities and AVZ has an option to move to 65% for a relatively small number.
It should be noted that whilst the Democratic Republic of Congo can make some people nervous, it is no stranger to mega-projects that are operated successfully in partnership with the Government.
Robert Friedland’s Ivanhoe Mines’ Kamoa-Kakula joint venture, of which the DRC Government owns 20%, is ranked as the largest copper discovery in the history of mining and operates very successfully out of the DRC.
Last year, during the Mines and Money conference in London, Friedland commented that the DRC was less risky to operate in than Chile and that the in-country risk in the DRC was “far lower than assumed”.
In the ASX-listed mining world, a definitive feasibility study that shows a $60m annual EBITDA is considered to be pretty good. At $600m a year for at least 20 years, AVZ’s Manono project really is off the scale and will become the global bench mark for others to measure up to.
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