Updated lithium price delivers billion dollar boost for Galan

An updated lithium price assessment of Galan Lithium’s flagship Hombre Muerto West lithium brine project in Argentina has delivered a pre-tax net present value of nearly US$2.2b, a whopping 120 per cent increase on the US$1b projected in a previous evaluation. Galan is now predicting an increase in annual EBITDA of over US$100m a year for the 40 year life of mine to an impressive US$287m a year.

Production is still estimated to be in the order of 20,000 tonnes per annum of battery grade lithium carbonate equivalent, or “LCE”, during the life of mine, however with the lithium market running hard and not expected to abate anytime soon, Galan has reforecast its long-term lithium price, resulting in the new financial estimates.

A long-term average price of US$18,594 per tonne of LCE forecast for the period between 2025 and 2040 has now been incorporated into the new economic evaluation for the project. The original preliminary economic study in 2020 was based on a price of  US$11,687 per tonne.

The revised study has provided a welcome boost to the estimated pre-tax internal rate of return that now sits at 37.5 per cent, up from 22.8 per cent projected in 2020.

Notably, capital costs required to bring the project to life remain unchanged in the new study at US$439m, whilst the payback period has been slashed from 4.3 years to a paltry 2.75 years.

Operational costs for the project also remain unchanged at US$3,518 per tonne of LCE to keep HMW in the lowest quartile of the global lithium cost production curve according to Galan.

The impressive numbers for HMW add to a recently released preliminary economic assessment for Galan’s nearby Candelas lithium brine project.

The study for Candelas forecast 14,000 tonnes of battery grade LCE production per annum during a 25 year mine life.

Annual EBITDA clocked in at US$188 million for that project, using a long-term lithium price of US$18,594 per tonne of LCE – the same price as now  envisaged for HMW in the new evaluation.

A payback period of only four years was estimated for a US$408m capital outlay required to bring Candelas into production.

That study forecast a serious pre-tax net present value of US$1.225b for the project, with a pre-tax internal rate of return of 27.9 per cent.

HMW and Candelas now potentially combine for 34,000 tonnes per annum of long-term production of LCE. A pre-tax net present value for both projects now clocks in at a staggering US$3.4b, or an off the charts AUD$4.74b.

Galan Lithium Managing Director, Juan Pablo Vargas de la Vega said: “The Company is in an enviable space whereby it has two study level projects that can potentially deliver combined long term production levels of 34ktpa LCE along with NPV’s that are above US3.4 billion.”

“As we have previously said, Galan remains excited about the potential value add for our shareholders once we enter the lithium market with prices expected to be +US25k/t LCE. Our projects would now be among the lowest cost of any future producers in the lithium industry, due to their high grade and low impurity setting, green credentials and a low carbon footprint. Galan is excited to be a part of the solution to the global decarbonisation story”.

Galan plans to launch a more detailed definitive feasibility study, or “DFS”,  next year to evaluate potential production at HMW. In preparation, a series of activities including a drilling campaign, pilot plant and engineering works are ticking along, the company says.

Notably, management says the DFS will look to develop a more robust hydrogeological model for HMW to potentially boost LCE production beyond the 20,000 tonnes per annum currently projected for the project.

A recent research report commissioned by leading Australian mining industry association, the Minerals Council of Australia, concluded that global demand for lithium is set to soar by 368 per cent from 313,000 tonnes of LCE in 2019 to more than 1.45m by the end of the decade.

With two lithium brine projects boasting robust economic valuations, Galan could be sitting in the front row of a predicted lithium boom fuelled by demand for lithium-ion batteries critical for the electric vehicle industry around the world.

With electric vehicle production on a tear around the globe, lithium is set to be the new oil, and like oil, anyone who has a lot of it will have bragging rights long into the future – something Galan can look forward to.

Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au