I won't post the whole thing because it's lengthy and covers the background, which holders will be familiar with. Here's the good bits:
What’s the background of Tawana Resources? I can’t find any history of it on the website. What has it done in the past?
It actually originally had assets in South Africa. Then it had iron ore assets in West Africa. Subsequent to that and basically mid-2016 it parked those assets, the ones in Liberia. It’s still got them but they’re iron ore and iron ore obviously fell out of favour for juniors. But it started focusing on lithium in mid-2016.
But that’s why it’s listed on the Johannesburg Stock Exchange as well as the ASX?
Correct. It’s for historic reasons.
Is that worth keeping?
We’d suggest probably not, but then the South Africans have suggested, well there is no lithium players on their market and given where things are headed in the future maybe the funds over there in South Africa would like some exposure to lithium on their stock exchange.
You’re an old gold man, how did you get involved with Tawana?
Well, before gold I was actually involved with pegmatites, and pegmatites are the source of lithium and I co-authored the book on WA Pegmatites. So, when gold was in the doldrums in ’15, various investors were pushing me to look at lithium and I said, well I know one very good lithium deposit that everyone’s forgotten about and that was Bald Hill.
How did you know about…?
I’d been there in the 80s, before they even mined for tantalum. I’d seen rich lithium at surface. Those pegmatites have never been drilled, in fact. They’re still there waiting to be drilled. But I knew that from the 80s, I’d done a lot of work in the 80s on pegmatites thanks to tantalum.
Do you think there’s a lot more lithium at Bald Hill than has been found?
Oh, god yes. We’ve only really been drilling a year, we know there’s many years of drilling ahead of us but it was about speed to production. So we said, rather than finish drilling the project, we’ll drill out the initial reserve and then we’ll get on and build it and then we’ll keep growing the project over the coming years ahead.
Then the tantalum one is the one we announced today. We’ve signed an offtake for the tantalum with a European buyer, one of the main names in the industry. A very good price, confidential – they want to keep that confidential but Bald Hill is a premium product, it’ll be the best tantalum concentrate from WA.
What is the price of tantalum at the moment?
The market’s gone up a little bit, it’s sitting in around that $60 to $70 range per pound US. So it’s worth about $190,000 dollars a tonne. Unlike the lithium which was a bit of a semi-bulk, the tantalum’s a higher value…
And what’s it used for?
Lots of stuff like capacitors in your mobile phones. Without tantalum your mobile phone would probably be 20% bigger than it is. It’s used in high strength seals in aeronautics, medical – it’s a very wide use. The prices have come off really when it is low, so at the moment the prices have come off a low base, it’s been in the doldrums for a number of years and it’s come off a very, very low base in real terms. But it would never race away like it did historically, tantalum, because of the supply from Africa. But we expect it to be pretty steady. We get a premium for the market…
I note that you’ve agreed to sell 600,000 pounds of tantalum until 2020. Is that firm? I note that the deal is still non-binding, what does that mean?
It’s firm. We don’t have to supply it. If we don’t produce it we don’t have to supply it. But they want it, they want the certainty of supply. Same as the lithium industry, basically the guys are not too worried about pricing so much, it’s more about certainty of supply. That’s why they come to WA to lock down – most of their supply comes from Africa and it’s quite unreliable. They want to get away from this month by month or quarter by quarter supply uncertainty, they want long term certainty.
Tantalum’s hard to extract isn’t it? Are you selling concentrate? Do you have to process it on site before you sell it?
Yes. The tantalum plant is there on site already, it’s been there for a number of years. We’ll treat the ore tantalum more – some of it we get from the lithium ore, we get for a very low cost, some of it we’re in the process through the tantalum plant. It won’t cost us much. It’s really a by-product for us in terms of value, but it’s actually a nice little sweetener to the project in dropping the costs, I guess.
When you add together the two offtake agreements that you’ve now got, what sort of cash flow are you looking at over the next five years?
It comes down to the ramp up of the lithium production. If we bring the fines circuit on, stage 2 on by the end of this year, we’ll see net cash flows jump quite dramatically. 2018, not a lot of net cash flow, but next year we were looking at, on a project scale, well over $100 million, and then once we upsize the production on the lithium side we can get that right up to, we expect, over $200 million I’d say in 2020 with increased production.
Is that net cash per annum?
On site, yes, pre-tax obviously.
And is that the whole project?
That’s the total project, yeah.
So you’ve got half of that?
Yes, correct.
And that will come through in time.
We share the capital costs as well as we go along. But the project’s actually quite a low capital, so it’s a very high pay back. At the start I think it had 150 per cent IRR project, so the capital costs are not the issue, it’s timing of ramping up of production basically.
Did the study come up with an NPV?
It did, only for the three and a half years. The NPV was about $250 million I think it was, but that’s for the first three and a half years without the second stage through fines circuit. So, based on the study we only get about 65 per cent recovery but we’ll increase that to about 83 per cent recovery with the second stage that comes on at the end of this year.
Your market cap at $250 million market cap, I mean there’s a bit of blue sky built into that isn’t there?
Correct. We’ve increased the resources since the study and we haven’t released the new reserve yet, so that’s going to come out soon.
Okay, when are you going to release that?
This quarter. Quite a big reserve upgrade and then when we bring out the fine study information, the NPV will jump quite dramatically.
Oh, I see, okay.
Some of the market players are already doing back of the envelopes on some of that I guess.
And you reckon there’s probably more upgrades after this one?
Yes, definitely. Like all the WA lithium mines, they will increase their production. It’s fairly simple once you’re in to actually increase. Because with lithium the actual unit costs are quite low, a lot of it’s fixed costs. So, if we can increase that production our cost per tonne concentrate drops off quite a bit.
Your company’s pretty straightforward in some ways. You’re about to start production, you’re drilling for more. You’ve sold your first lot of production of both lithium and tantalum, pre-sold it, so it’s all reasonably straightforward.
It should be quite an exciting year for us this year.
The shares have already gone up a bit, you’re saying that there’s still more room for rising because of the upgraded resources?
Yes, as we come out with the news flow this quarter and as we start to bring on production and de-risk it for the few people sitting on the fence probably waiting for the de-risking stage, I think there should be a fairly healthy growth for us when you compare us against the other near term producers and producers on a comparison basis.
Towards the end he also reiterated his view that the SQM deal won't have much of an impact on any of the near-term producers.
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