Sal De Vida: Revised Definitive Feasibility Study Confirms Low Cost, Long Life and Economically Robust Operation.
- Revised DFS validates a technically superior, highly profitable, long life lithium and potash project
- Post-tax NPV of US$1.416 billion at 8% discount rate (real)
- Post-tax NPV of US$1.043 billion at 10% discount rate (real)
- IRR of 34.6% with post-tax payback period of 2 years and 10 months
- CAPEX estimate of US$376 million
- Average operating costs of US$3,369/tonne before potash credits and US$2,959/tonne net of potash credits
- Average annual revenues of US$354 million and operating cash flow of US$273 million before tax (net operating cashflow of US$182 million after tax)
- JORC-compliant reserve estimate of 1.1mt of recoverable lithium carbonate equivalent
- Supports 25,000 tpa lithium carbonate and 95,000 tpa potash production
The revised DFS now estimates a post-tax net present value ("NPV") of US$1.416 billion at an 8% discount rate (US$1.043 billion at a 10% discount rate). Sal de Vida has the potential to generate average annual revenues of US$354 million and average operating cash flow of US$273 million per annum. Average operating costs have been estimated at US$3,369 per tonne before potash credits and US$2,959 per tonne to produce battery grade lithium carbonate. The revised total capital cost is now estimated at US$376 million.
The Mineral Reserve estimate of 1.1 million tonnes of recoverable lithium carbonate equivalent and 4.2 million tonnes of potassium chloride (potash or KCI) equivalent for the project supports annual production of 25,000 tonnes of battery grade lithium carbonate and 95,000 tonnes of potash over a period of 40 years. Total production is expected to be derived from Proven Reserves (16%) and from Probable Reserves (84%). The DFS has been modelled on an operation with production at these levels, assuming an initial 3-year ramp up for lithium carbonate production to achieve full capacity, with potash production assumed to be deferred by one year for production start with a 2-year ramp up to achieve its planned production capacity.
The capital costs that relate to the potash plant and related infrastructure are approximately US$34 million, with operating cost credit of approximately US$410 per tonne of lithium carbonate produced. The Company has the option to consider deferring the capital commitment on building the potash circuit subject to the market conditions for potash pricing.
Galaxy Managing Director Anthony Tse commented: "We are pleased to announce our revised DFS that highlights the strong economic fundamentals of the Sal De Vida project. The results of the revised DFS highlights the long project life and low operating cost of the project, firmly positioning Sal De Vida as the world's best low cost, high grade lithium project. This result was built on the hard work and dedication of a large number of people, including consultants, advisors and our Galaxy colleagues, and I would like to thank everyone who contributed to the updated study"
Galaxy acquired the Sal de Vida project in July 2012 from the merger with Lithium One Inc. and at that time, only a Preliminary Economic Assessment had been completed. The Company has since funded the completion of the original DFS, which included extensive hydrology work and modelling, drilling, pump tests, resource development, pilot plant testwork, flow sheet development and engineering, logistics, market and financial modelling. The review work of the formal revisions to the DFS was undertaken by Techint Engineering and Construction, a leading engineering firm in Argentina, and Resource Engineers Pty Limited. Montgomery & Associates have prepared an updated Mineral Resource estimate and reviewed the Mineral Reserve estimate in accordance with the 2012 edition of the JORC code.
The Sal de Vida DFS has been revised by updating the assumptions of the original DFS completed by Taging, of Argentina in 2013. The project is planned to produce battery grade lithium carbonate and potash products treating brines from the Salar del Hombre Muerto in the Salta-Catamarca region of Argentina. This DFS considers the production of 25,000tpa of battery grade lithium carbonate and 95,000tpa of potash for a project life of 40 years. The financial model was updated to account for revised CAPEX and OPEX estimations as well as for adjustments of new projected market prices for battery grade lithium carbonate, which is assumed to range from US$11,000 to US$13,911 per tonne and potash, which is assumed flat at US$220 per tonne, throughout the life of the project.
The revised project CAPEX indicates an investment of US$ 376 million and an assumed two and a half years construction period, with a one-year delay on the investment for the potash plant. The review primarily evaluated the impact of the inflation and devaluation of the currency in Argentina since 2013 and resulted in a variation to the order of around two percent above the capital cost estimate from the original DFS. The revised project OPEX includes an update on prices and transportation costs for reagents, reduction of manpower and revision of strategies for moving personnel and product/material onsite and out of the plant. Lower transportation costs represent a significant change from previous DFS. The operating cost for the production of lithium carbonate is now estimated at US$ 3,369 per tonne (FOB Antofagasta, Chile) before potash credits, with an approximate potential credit of US$410per tonne of lithium carbonate produced if a potash by-product is included.
The revised financial model now also includes an annual incentive rebate throughout the life of the project equivalent to 5% of the revenue received from the export sales of lithium carbonate. This is in line with recent policy changes announced earlier this year after the change of government in Argentina. Aside from OPEX revisions, the model also includes a revised set of expenses related to royalties, taxes and other official payments for the business operation.
Sal de Vida is located in the Puna Region, an area that is part of the lithium triangle, in the North West region of Argentina, which borders Chile and Bolivia. It is situated in the eastern part of the Salar del Hombre Muerto, adjacent to FMC Lithium's operations, located in the western part of the salar and which has been in operation there over the past two decades. The project area is approximately 390 km from Salta City, accessible via all season roads with approximately six hours of traveling time. The salar is well serviced by nearby infrastructure, which includes major highways, a national and international rail link which connects Pocitos (approximately 115 km away) to Antofagasta in Chile, a power grid and gas pipeline. Sal de Vida's brine chemistry is highly favourable, with high levels of lithium and potash, and low levels of magnesium and sulphate impurities.
Revised DFS operating costs are estimated to be US$3,369 per tonne before potash credits and US$2,959 per tonne after a potash credit of US$410 per tonne for each tonne of lithium carbonate produced. The most significant constituent of the operating cost are reagents (the large majority of which is made up by costs attributable to lime, soda ash and carbon dioxide), followed by manpower, salt removal and energy. Direct costs and indirect costs made up 96.3% and 3.7% respectively of the pre-potash credit operating cost.
The revised capital costs are now US$375.5 million, representing a US$6.5 million increase from the previous US$369 million when the DFS was originally completed in April 2013. This represents a 0.27x multiple of the NPV at an 8% discount rate (real) and a 0.36x multiple at a 10% discount rate (real), versus 0.65x and 0.97x of the NPV at 8% and 10% discount rate (real) respectively, under the original DFS, providing much more attractive potential financial returns. The payback period on the capital costs have also now been significantly decreased from 4 years and 7 months in the original DFS to 2 years and 10 months under the revised DFS.
The capital costs relating to the potash plant are approximately US$34 million, and the Company has the option to consider deferring the capital commitment on building the potash circuit subject to potash pricing conditions.
Financial Sensitivity Analysis
The results of the revised DFS is considered to be sensitive to changes in revenue and discount rates.
The financial model was further evaluated for different sensitivities to the NPV using a variety of input parameters - including lithium carbonate production rates, lithium carbonate pricing, discount rates, operating expenditure and capital costs. The results show that production capacity expansion is the most sensitive driver to the NPV, after assessing the impact with a +/- 25% sensitivity. Pricing sensitivity has been completed on +/- 25% of the base case pricing assumption. The project valuation is further enhanced using a lower or nominal discount rate of 6% and at a higher rate of 10%, still yields attractive economics. Potential variances in capital costs have a minimal effect on the project valuation.
Battery Grade Production
The DFS assumes a purification technology at Sal de Vida, similar to the process previously adopted at now sold Jiangsu Plant in China, to produce high quality battery grade lithium carbonate, with a purity of 99.5% or higher. The product strategy is to focus on producing high quality material that can be used directly by battery material producers in manufacturing cathode and electrolyte for lithium-ion batteries.
Sal de Vida Resource and Reserve Estimates
Mineral Resource Estimation
Consultants Montgomery & Associates ("M&A") were engaged to estimate the lithium and potassium resources and reserves in brine for various areas within the Salar de Hombre Muerto basin in accordance with the 2012 edition of the JORC code ("JORC 2012"). Although the JORC 2012 standards do not address lithium brines specifically in its guidance documents, M&A followed the NI43 43-101 guidelines for lithium brines set forth by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM 2012) which M&A considers complies with the intent of the JORC 2012 guidelines with respect to providing reliable and accurate information for the lithium brine deposit in the Salar del Hombre Muerto.
Mineral Reserve Estimation
M&A have reviewed the Mineral Reserve estimate and consider that there has been no change to the estimate as a result of the updated Mineral Resource estimate.
Total tonnages for the economic Mineral Reserve values provided in Table 2 account for anticipated leakage and process losses of lithium and potassium. Table 2 gives results of the Proven and Probable Reserves from the Southwest and East well fields when these percent estimated processing losses are factored in, assuming a continuous average brine extraction rate of 30,000 m3/d.
The Sal da Vida Project is based on the Altiplano-Puna which is a high-elevated plateau within the central Andes. The average elevation of the Puna is 3,700 masl (meters above sea level) and covers parts of the Argentinean provinces of Jujuy, Salta, Catamarca, La Rioja y Tucuman. The Altiplano-Puna Volcanic Complex (APVC) is located between the Altiplano and Puna, and is associated with numerous stratovolcanoes and calderas. Recent studies have shown that the APVC is underlain by an extensive magma chamber at 4-8 km depth (de Silva et al., 2006). It is likely that this could be the ultimate source of the anomalously high values of lithium in the area.
Diamond drill cores were obtained in the field for both drainable and total porosity. Porosity samples were sealed in plastic tubes and shipped to Core Laboratories in Houston, Texas, for analysis. Depth-specific brine samples were collected from the in situ formation, ahead of the core bit. Four additional methods were used to obtain brine samples. Brine samples used to support the reliability of the depth-specific samples included analyses of brine centrifuged from core samples, brine obtained from low flow sampling of the exploration coreholes, brine samples obtained near the end of the pumping tests in the exploration wells, and brine samples obtained during reverse-circulation air drilling. After the samples were sealed on site, they were stored in a cool location, then shipped in sealed containers to the laboratories for analysis.
Borehole and well spacing is in general about 4 kilometres in most areas, and is consistent with guidelines determined by Houston et al., 2011) for evaluation of brine-based lithium resources in salar-type systems. The drilling density was sufficient to demonstrate a high degree of confidence in the understanding of the location and nature of the aquifer, and brine grade both horizontally and vertically. The Sal de Vida area has been drilled and logged with vertical exploration boreholes and wells.
The resource was estimated using the polygon method. To estimate total amount of lithium and potassium in the brine was first sectioned the basin into polygons based on location of exploration drilling. Polygon sizes were variable. Each polygon block contained one diamond drill exploration hole that was analyzed for both depth specific brine chemistry and drainable porosity. Boundaries between polygon blocks are generally equidistant from diamond drill holes. For some polygon blocks, outer boundaries are the same as basin boundaries, as discussed above.
Within each polygon shown on the surface, the subsurface lithologic column was separated into hydrogeologic units. Each unit was assigned a specific thickness based on core descriptions, and was given a value for drainable porosity and average lithium and potassium content based on laboratory analyses of samples collected during exploration drilling. Correlation between depth and lithium and potassium concentration in the brine was observed and lent increased confidence in the method. The computed resource for each polygon was the sum of the products of saturated hydrogeologic unit thickness, polygon area, drainable porosity, and lithium and potassium content.
As brines are fluids and mobile in the subsurface, the Mineral Reserve values have been determined using the groundwater numerical flow model for the Sal De Vida Project covering the areas included in the Mineral Resource estimate.
A cutoff grade of 500 mg/L of lithium was used. Hydrogeologic units within each polygon with lithium content less than cutoff grade were not included in the lithium and potassium resource calculations. The resource computed for each polygon is independent of adjacent polygons, but adjacent borehole geology was used to confirm stratigraphic continuity of the units surrounding each borehole.
Mining methodology ultimately would be via well pumping in areas identified as favourable for brine extraction.
An on-site pilot plant demonstrated the ability to extract the lithium and potassium from the brine.
About Galaxy (ASX: GXY)
Galaxy Resources Limited ("Galaxy") is a global lithium company with lithium production facilities, hard rock mines and brine assets in Australia, Canada and Argentina. It owns the currently producing Mt Cattlin spodumene and tantalum project near Ravensthorpe in Western Australia and the James Bay lithium pegmatite project in Quebec, Canada.
Galaxy is advancing plans to develop the Sal de Vida lithium and potash brine project in Argentina situated in the lithium triangle (where Chile, Argentina and Bolivia meet), which is currently the source of 60% of global lithium production. Sal de Vida has excellent potential as a low cost brine-based lithium carbonate production facility.
Lithium compounds are used in the manufacture of ceramics, glass, and consumer electronics and are an essential cathode material for long life lithium-ion batteries used in hybrid and electric vehicles, as well as mass energy storage systems. Galaxy is bullish about the global lithium demand outlook and is aiming to become a major producer of lithium products.
Competent Persons Statements
Sal de Vida Project
The information in this document that relates to Mineral Resources and Reserves is based on an fairly represents information and supporting documentation compiled by Mr Michael Rosko. Mr Rosko, is a member of a recognised Overseas Professional Organisation. Mr Rosko is a full time employee of E.L. Montgomery and Associates and has sufficient relevant experience of the style of mineralisation and type of deposit under consideration and of the activity that he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Rosko consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.
Caution Regarding Forward-Looking Information
This document contains forward-looking statements concerning Galaxy.
Forward-looking statements are not statements of historical fact and actual events and results may differ materially from those described in the forward looking statements as a result of a variety of risks, uncertainties and other factors. Forward-looking statements are inherently subject to business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking information provided by the Company, or on behalf of, the Company. Such factors include, among other things, risks relating to additional funding requirements, metal prices, exploration, development and operating risks, competition, production risks, regulatory restrictions, including environmental regulation and liability and potential title disputes.
Forward looking statements in this document are based on Galaxy's beliefs, opinions and estimates of Galaxy as of the dates the forward looking statements are made, and no obligation is assumed to update forward looking statements if these beliefs, opinions and estimates should change or to reflect other future developments.
Not For Release in US
This announcement has been prepared for publication in Australia and may not be released in the U.S. This announcement does not constitute an offer of securities for sale in any jurisdiction, including the United States, and any securities described in this announcement may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer and that will contain detailed information about the company and management, as well as financial statements.
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Source: Galaxy Resources Limited
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|Date:||Aug 22, 2016|
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