Leo Lithium (ASX:LLL) has a massive lithium project in Mali. Great interview with CEO Simon Hay

 

Leo Lithium (ASX:LLL)

We talked with Leo Lithium (ASX:LLL) CEO Simon Hay about the company’s massive Goulamina Lithium Project in Mali, which is expected to ship its first 6% spodumene concentrate next year.

We also talked about the relatively low capital cost of the project compared to the billions in upside, the early revenue opportunity with Direct Shipping Ore and the supportive relationship Leo has with Ganfeng, its partner in Goulamine.

Full transcription below.

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Transcription

 

Stuart: Hello and welcome to “Stocks Down Under.” My name is Stuart Roberts, and I’m one of the co-founders of our service. And joining me today from Perth on Friday the 21st of April, 2023, is the legendary Mr. Simon Hay of Leo Lithium ASX:LLL. Simon, good afternoon.

Simon: Hi, Stuart. How are you? Good to be with you.

Stuart: Now, I don’t use the term legendary very often, but there’s a whole lot of people who used to be Galaxy resources shareholders who speak very highly of you. It’s fair to say you created a lot of shareholder value for those people.

Simon: Yeah, well, Galaxy was a great ride for a number of shareholders. It wasn’t just me. Of course, we had a really good team at Galaxy. A number of those have come across to Leo, hopefully, to replicate the same thing. But yeah, it was a great ride, a fascinating time in the market, and we’ve got something similar going on now in the market. You know, the whole lithium industry is absolutely fascinating. Continues to be.

Stuart: Right. So, there’s a sense out there in some circles. I don’t share this personally, that yeah, Lithium’s going back to the bad old days of 2019 when you were taking the reins at Galaxy, obviously, things can turn on a dime here given the massive underlying demand for this wonderful commodity. And, you know, that’s what helped you at that time. And so, yeah, to your point, history is about to repeat itself.

Simon: Yeah, for sure. I think the world’s just so different to 2019, the lithium world anyway. You know, from where we’re now to then, OEMs have really changed and retooled their facilities. So, many more models now on the EV models on the market, and new ones are coming all the time. The industry itself has grown from 300,000 tons LCE per annum to, you know, well over 600,000 in that timeframe. Just don’t have the number off the top of my head, but the industry is so much more larger, and the momentum is substantial. The other thing I’d say is, you know, point to the macro factors around what the governments have done in many jurisdictions around entrenching that future volume growth for lithium. So yeah, it continues to be a great commodity with an enormous future in front of it.

Stuart: Right. We’ll talk in a second about your flagship asset, which is the Goulamina Lithium Project in Southern Mali. But let’s talk for a second about what’s just happened in the lithium world. You’ve got Albemarle tilting for Lion Town. Now, what’s interesting there is they’re about the same stage of development as you coming on Onstream next year, resource of about 150 million tons, and grades not dissimilar well above 1%. The only thing that’s different is the jurisdiction, and you’re an open pit and they’re underground, and yet Albemarle has got a checkbook out for something north of five billion. Have I got a deal for them? You are capitalized at about one 10th of that.

Simon: Yeah, that’s right. Look, it is a peer comparison that I use myself regularly. And this was before the Lion Town Albemarle bid surfaced. So, you know, part of the reason for doing that is that value discrepancy between Leo and Lion Town. Now, of course, there’s a couple of drawbacks. We have sovereign risk being a key one being in Mali, but so many other things are comparable that, you know, we do scratch our head at that valuation discrepancy.

Stuart: Right. Now, let’s talk about this perceived sovereign risk issue. Now, Mali is a low-income country in West Africa. Had a coup in 2020, and then another one in 2021, but the only thing that’s gone wrong for miners within the country, and this is a major gold producer in West Africa, is for a while there, the ECOWAS countries in West Africa were at odds with Mali who retaliated by closing their borders. Firefinch, the company that fostered your asset for a long time, had some problems with getting equipment through the borders at that time. How did those coups affect you in terms of your development over the last couple of years?

Simon: So, it’s had no impact at all on Goulamina project at all. Now, we were at a different stage compared to Firefinch. You know, Firefinch, we’re trying to get equipment across the border from Côte d’Ivoire into Mali. That was one of the borders that closed. And that’s provided us with a lot of learnings. Now, as we prepare our logistics chain, both inbound project equipment and outbound product, we’re focused on having a number of different logistics chains available. So, we’re currently looking at two different ports in Côte d’Ivoire. Next, we start looking at Dakar and Senegal, and we’ve also got plans to investigate Guinea as well, as a product outlet source. The Guinean border did not close during the ECOWAS sanctions. So, that’s one that’s particularly attractive to us. With all other parts of the project, we can get people in and out of the country. We can get funds into the country. We haven’t needed to take funds outta the country as yet. Our engagement with all bureaucrats and regulators and the ministers has been pretty straightforward. We get great support from the government. They see the value in the project, not just monetary value, but jobs, a new industry, diversification for their industry.

Stuart: You’re the first hard rock lithium project, not just in Mali, but in the whole of West Africa.

Simon: Yeah, that’s right. We’ll be the first into production. There’s a couple of others that are, trailing us, you know, they’re one or two years behind us. But yeah, we’ll be the first one into production.

Stuart: Right. Now, I’m really impressed as I look over the financials for Goulamina. A mere $255 million in pre-production CapEx, which is now spoken for thanks to your partners in Ganfeng, and the capital that you raised in the IPO. So, 255 gets you several billion dollars in DFS NPV. And that’s at a ridiculously low price, even compared to the weak spot prices for spodumene concentrate. How did you luck in on such a capital-efficient project?

Simon: Well, look Ganfeng JV partner has been really helpful here. First of all, they help with the flow sheet development with their, you know, vast experience in lithium.

Stuart: And for the folks who don’t know, this is the second largest, or the largest lithium chemicals supplier in the world, right?

Simon: Largest in China. Yeah. Market cap, I think, is $20 plus billion listed in Hong Kong. They’ve been in lithium for, I think, 30-odd years. They have about six conversion facilities. You know, you talk about others in Australia, like Jiangxi IGO, they’ve got their first Australian converter coming in, Albemarle [inaudible 00:07:31]. Well, you know, Ganfeng have six, so very experienced chemicals producer. So, getting back to the question, they have helped also with procurement. So, they use their purchasing power and their procurement network in China to keep the cost down for us. Secondly, I think, you know, Mali in West Africa hasn’t experienced a lot of the inflation pressures that Western Australia has. There’s relatively few mining development projects in Mali and in West Africa. There’s an established workforce both on a construction point of view, and also an operating point of view. So, we have some structural benefits in our location. You know, they offset somewhat the sovereign risk disadvantage.

Stuart: Right. And this is a monster you’re sitting on. We’re talking 150 million tons, but the grade of about 1.5%. It’s there’s only about three or four undeveloped deposits that are bigger than that in the world.

Simon: That’s right. And also it’s getting bigger. We released some drilling results last week. We have, you know, further pegmatites that we are discovering as we extend the drilling deeper along the strike, and also through the deposit. You know, we had one really interesting pegmatite discovery where we had a number of pegmatite seams, and we were drilling across the deposit to access them at depth, and we discovered a new pegmatite in the middle of a pitch shell that we’re already intending to mine through. So, that was another great discovery because that converts waste to ore with no additional cost [crosstalk 00:09:20].

Stuart: No one saw that coming. The geo technicians you were working with, this was a surprise to them too?

Simon: That’s right. Yeah. Total surprise. Yeah.

Stuart: So, we’re on track, as per your most recent disclosures, to be producing the first 6% spodumene concentrate by the middle of next year. But you’ve got another trick up your sleeve as well. There’s about 90,000 tons of direct shipping ore, which from this year, you’ll be in a position to pick up and ship off with the help of Ganfeng to users in China.

Simon: That’s right. Our plans at this stage are that we can have a couple of shipments, 30,000-ton shipments going in the fourth quarter. We’ve got stretch plans that we, you know, bring an extra shipment in, and bring it in earlier in the third quarter. So, we’re looking at up to 90,000 tons of DSO second half of this year. We haven’t yet agreed on the pricing with Ganfeng, or who we will sell it to, discussions are underway, but it’s likely that it will go to Ganfeng. They’re very keen for the product. They want the lithium units. And, of course, we’re still working out a price because the pricing mechanism is not covered in the off-take that we have for spodumene with Ganfeng. So, yeah, that’s a real opportunity we’re chasing this year, not just the financials that it brings, the financial benefits, but also brings the benefits of understanding ore body from an operational sense earlier. And it allows us to commission our logistics chain much earlier as well. We’re testing that in the fourth quarter this year, and not the second or third quarters next year with spodumene.

Stuart: Right. Now, the critics would say now is the worst possible time to be commissioning a mine. We’ve seen some pretty big cost overruns on projects in Australia as we all know. Now, as you pointed out, Mali’s a little bit, a little bit different, but that’s probably a little bit of a risk. Talk to us about the options you have. If it turns out that the 255 million is not quite enough, and I’m guessing there’s some contingencies in that 255. So, you’ve given yourself some wiggle room there. Talk to us about what you would do in the event that there was a modest cost overrun in the development of this project.

Simon: Sure. Well, first of all, the DSO is the first opportunity to plug any potential gap. So, as I said, we’ve got 60 to 90,000 tons this year. We have another 90,000 tons available next year. Total, what we would call surplus ore to commissioning needs in 2024 is around about 180,000 tons. So, that’s the DSO opportunity that can bring extra revenue. Secondly, I would point to the Ganfeng debt facility, which is currently undrawn. And we have up $40 million in that facility. When we put that facility in place, we discussed with Ganfeng doubling that facility. So, that potential exists that that could go to $80 million. So, they’re the key ones then. And thirdly, of course, we’ve got commercial debt facilities, which we are talking about with a number of banks. So, DSO, expanded Ganfeng debt facility, a commercial debt facility as well. And then, even as we get closer to spodumene production, we could do a prepayment of spodumene to Ganfeng just to bring some cash forward. So, a number of options at our opportunity to progress.

Stuart: All right. Well, Simon, well done to you and the team for having brought Goulamina this far. It’s been a fairly professional execution to date. Obviously, it’s still the best part of the year until the first 6% spodumene starts to roll. But it sounds like great times ahead for the shareholders of Leo Lithium who admittedly, haven’t done all that well in this IPO because stock came on at 70 cents. It’s been as low as about 40, I think. But as Frank Sinatra is saying, the best is yet to come.

Simon: Yeah, look absolutely. As a single asset company in the development cycle, I think you would agree, Stuart, this is something that you would see quite regularly that, you know, your share price may underperform in the lead up to first production, especially, you know, it’s something that is common in African mining companies. So, we’re, you know, our focus is on delivering what’s in front of us, delivering what [inaudible 00:14:06] promised to do is bring this project on middle of next year. And you know, that rerating will come, of course, as you move into production, but also, you know, we do expect the lithium price to recover as well. You know, all indications are this is a soft period that we will come out of it. So yeah, the good times are certainly around the corner for our shareholders.

Stuart: Right. Well, keep up the good work, and we’ll be following very closely.

Simon: Great. Good to talk to you. Thanks, Stuart.

Stuart: Thank you.